Summary of MSCI China 2Q25 Earnings Review Industry Overview - The report focuses on the **MSCI China** and **A-shares** performance during the second quarter of 2025 (2Q25) - It highlights the earnings results of various sectors within the Chinese equity market Key Findings MSCI China Performance - **Earnings Results**: MSCI China reported earnings in line with consensus forecasts, with a weighted surprise of **+2.7%** and a miss by number of companies of **-2.7%** [2][26] - **Comparison to 1Q25**: The results showed a similar trend to 1Q25, which had a miss of **-3.8%** by number of companies and a weighted surprise of **+3.1%** [2][26] A-Shares Performance - **Earnings Results**: A-shares missed consensus forecasts by number of companies by **-13.8%**, but were in line by weighted surprise at **+0.2%** [3][26] - **Comparison to 1Q25**: This represents a softening compared to 1Q25, which had a miss of **-4.8%** by number of companies and a weighted surprise of **+3.3%** [3][26] Revenue Performance - **MSCI China and A-shares**: Both indices missed consensus revenue estimates by number of companies but posted in-line results by weighted surprise [4][44] - **Cost Control**: The better revenue trends were attributed to improved cost-control measures and self-help strategies [4] Sector Performance - **Strong Performers**: - **Communication Services** and **Financials** led with solid earnings beats [5][26] - **Pharma & Biotech** and **Materials** saw strong returns with earnings upgrades, with gains above **20%** [6] - **Weak Performers**: - **Onshore Real Estate** and **Utilities** posted net earnings misses by both weighted surprise and number of companies [5] Market Returns - **Overall Returns**: MSCI China delivered a **13%** return from end-June to September 9, while MSCI China A onshore gained **15%** [6][18] - **Sector Returns**: Notable sectors with returns above **20%** included Consumer Staples Retailing, Pharma & Biotech, and Semiconductors [15][18] Earnings Revisions - **Upward Revisions**: Sectors such as **Pharma & Biotech**, **Materials**, and **Tech** saw upward revisions to 2025 consensus EPS estimates [6][16] - **Downward Revisions**: The **Semiconductors** sector experienced downward earnings revisions [6][16] Notable Contributors - **Key Contributors to Earnings Beats**: - **Communication Services**: Mango Excellent Media and Giant Network [28] - **Consumer Discretionary**: PDD, XPENG, and TCOM [28] - **Financials**: BOC and CCB [28] - **Key Drags on Earnings**: - **Consumer Staples**: China Feihe, China Mengniu, and Yanghe Brewery [28] - **Energy**: ShaanXi Coal and Yankuang Energy [28] Revenue Surprises - **Aggregate Revenue Miss**: Reported revenue missed consensus by number of companies by **-12.5%**, an improvement from **-16.6%** in 1Q25 [45] - **Sector-Level Revenue Beats**: Only **Communication Services** and **Real Estate** posted beats by number of companies [45] Conclusion - The earnings season for 2Q25 showed mixed results across sectors, with some outperforming expectations while others fell short. The overall market demonstrated resilience with positive returns, but challenges remain in specific sectors, particularly in revenue generation.

Summary of 2Q25 Earnings Interim Review for MSCI China and A-shares Industry Overview - The review focuses on the performance of MSCI China and A-shares during the 2Q25 earnings season, highlighting earnings and revenue results across various sectors. Key Points on MSCI China 1. **Earnings Performance**: - MSCI China reported earnings largely in line with consensus forecasts, showing a slight miss of -2.4% compared to -3.8% in 1Q25, but a significant beat in weighted surprise at +9.6% compared to +3.1% in 1Q25 [2][13] - 217 constituents out of 557 in MSCI China had reported results as of August 26, 2025 [12] 2. **Sector Highlights**: - **Strong Performers**: Communication Services, Consumer Discretionary, and Financials posted solid results [5] - **Weak Performers**: Energy, Materials, Real Estate, and Utilities missed on both number of companies and weighted earnings [5] 3. **Revenue Performance**: - Reported revenues missed consensus estimates by -7.9% in terms of the number of companies, but were in line by weighted surprise at +1.3% [22][23] - Better cost control and self-help strategies contributed to the earnings performance despite revenue misses [4] Key Points on A-shares 1. **Earnings Performance**: - A-shares reported earnings fell short of consensus forecasts by -11.6%, a decline from -4.8% in 1Q25, but were in line by weighted surprise at +0.0% [30][31] - 233 companies in MSCI China A Onshore had reported results, with 146 companies providing reasonable quality data for consensus estimates [29] 2. **Sector Highlights**: - **Strong Performers**: Communication Services and Consumer Discretionary showed some positive results, with Communication Services beating both number of companies and weighted surprise [31] - **Weak Performers**: Materials and Real Estate sectors missed on both measures [32] 3. **Revenue Performance**: - A-shares reported revenue missed consensus by -22.4% in terms of the number of companies, consistent with 1Q25, but were in line by weighted surprise at -4.7% [39][40] - No sector posted a revenue beat, with significant misses in Energy, Information Technology, Materials, and Real Estate [41] Additional Observations - The earnings season is still in its early stages, and trends may evolve as more companies report [2][30] - The analysis indicates a mixed outlook for the Chinese equity market, with some sectors showing resilience while others struggle to meet expectations [5][31] This summary encapsulates the key findings from the 2Q25 earnings interim review, providing insights into the performance of MSCI China and A-shares across various sectors.

Summary of Key Points from the Conference Call Industry Overview - The focus is on the US equity market, particularly the transition from a late cycle to an early cycle backdrop, indicating a rolling recovery is beginning [4][15]. Core Insights - **Economic Transition**: The July jobs report supports the bullish case for stocks, confirming a shift to an early cycle environment with rebounding earnings and cash flow expected over the next 6-12 months [4][15]. - **Rate Cuts Anticipation**: The expectation of significant rate cuts is based on the belief that tariff-induced inflation will subside later in the year, with core CPI expected to peak in August [4][12][15]. - **Inflation Data Impact**: A hot CPI print could lead to quality leadership in stocks, while a lighter print may favor small caps and lower quality stocks, suggesting investors should remain nimble around CPI reports [4][12][15]. - **Labor Market Dynamics**: A measured rise in the unemployment rate and weak payroll prints could pull forward market expectations for rate cuts, which would be constructive for equities [9][12]. Sector Analysis - **Preferred Sectors**: The company remains bullish on Industrials and Financials while underweighting Consumer Discretionary Goods due to tariff pressures and weaker pricing power [4][15][13]. - **Earnings Revisions**: There is a notable improvement in earnings revisions breadth, which has moved from -25% in April to +16%, indicating a positive shift in corporate confidence [27][15]. Earnings Season Insights - **Earnings Performance**: The 2Q earnings season has shown a surprise ratio of +8% for EPS and +3% for sales, with expectations of 10% y/y EPS growth for 2025 and 13% for 2026 [27][28]. - **Market Reactions**: Price reactions to earnings have been muted, with an absolute change of -0.1% and relative to the S&P 500 flat at 0.0% [57]. Additional Considerations - **Tariff Pressures**: The sectors most exposed to tariff costs, particularly consumer goods, are expected to face margin compression due to a lack of pricing power, which is a key reason for the underweight stance on Consumer Goods [13][15]. - **Future Outlook**: The overall outlook remains positive for the next 6-12 months, driven by factors such as positive operating leverage, AI adoption, and a weaker dollar, despite near-term inflation risks [15][4]. Conclusion - The company maintains a bullish outlook on US equities, emphasizing the importance of upcoming economic data, particularly CPI, in shaping market dynamics and sector performance [4][15].

Investment Rating - The report maintains an Equal-weight (EW) stance on MSCI China within the global EM/APXJ framework [9]. Core Insights - The report anticipates higher near-term market volatility due to the US imposing additional tariffs on China, raising the total tariff rate to up to 65% [2][4]. - The A-share market is viewed as better positioned for hedging and diversification compared to the offshore market, as A-share investors are less sensitive to tariff changes [3]. - The direct impact on earnings from the tariffs is expected to be smaller than the overall drag on macroeconomic growth, with the MSCI China universe generating only 13% of its total revenue from markets outside China, and less than 3% from the US [7]. Summary by Sections Market Volatility - The report highlights that the recent tariff hikes could lead to elevated market volatility as the market adjusts to the potential economic impacts [2][4]. A-Share Market Positioning - The A-share market is recommended for investors seeking stability, as it has shown lower correlation with global markets and less volatility compared to offshore markets [3]. Earnings Impact - The report suggests that the overall drag on equity market earnings will be less severe than the impact on macro growth, primarily due to the limited revenue exposure of listed Chinese companies to the US market [7]. Companies with High US Revenue Exposure - A list of 30 companies with the highest revenue exposure to the US market is provided, indicating potential negative impacts on these companies in the near term [8]. Key Indicators to Monitor - The report advises monitoring the USDCNY exchange rate, signs of US-China negotiations, and any significant policy easing measures to stabilize domestic growth [9].

Summary of Key Points from the Conference Call Industry Overview - The discussion primarily revolves around the impact of tariff escalation and de-globalization on global economic growth and inflation, particularly focusing on the US and European markets [1][2][8]. Core Insights and Arguments 1. **Tariff Impact on Global Growth**: - The implementation of 60% tariffs on 75% of Chinese imports to the US and 10% tariffs on the rest of the world (RoW) could lead to a global GDP decline of approximately -0.5% [1][10]. - Inflationary pressures are expected to vary, predominantly affecting the US [1][10]. 2. **Market Pricing of Tariffs**: - Bond and equity markets have begun to price in the likelihood of tariff escalation since January, with US 10-year real yields decreasing by 30-50 basis points and 2-year inflation expectations increasing by 70 basis points [2][14]. - Tariff-sensitive stocks in the US have underperformed the broader market by 17%, while in Europe, the underperformance is 9% [2][15]. 3. **Sector-Specific Impacts**: - In the US, analysts have downgraded sales and earnings growth expectations, particularly in sectors sensitive to tariffs such as Consumer Durables, Autos, and Retail [2][20]. - In contrast, European analysts have shown resilience, with no significant downgrades in tariff-sensitive sectors like Autos, Luxury, or Pharma [2][20]. 4. **Expectations for US and EU Markets**: - The US equity market is expected to decline slightly (around -3%), with hard assets like Gold Miners and Energy expected to outperform [3][40]. - In Europe, while the market appears resilient, tariff-sensitive stocks may still face a further decline of about -10% as earnings expectations are revised lower [4][46]. 5. **Investment Strategies**: - Suggested strategies include selling puts on Gold Miners while buying puts on Financials to manage risk exposure [3][41]. - For Europe, a hedging strategy involving SXEP/SX6P puts is recommended to protect against cyclical underperformance [7][46]. Additional Important Insights - **Price Elasticity of Demand**: The price elasticity of demand in sectors like Pharma and Luxury is considered low, which may mitigate the impact of tariffs on these industries [2][20]. - **Future Growth Projections**: There is an expectation of growth acceleration in Europe due to fiscal stimulus, which could support valuations despite the current tariff-related uncertainties [4][46]. - **Analyst Forecast Adjustments**: In the US, there is a notable trend of declining sales and earnings growth estimates, while in Europe, estimates remain stable or are increasing, indicating a divergence in market sentiment [20][25]. This summary encapsulates the critical points discussed in the conference call, highlighting the implications of tariff escalations on various sectors and the overall market outlook in both the US and Europe.

Summary of Earnings Call for Asia EM Equity Strategy Industry Overview - The earnings results for Emerging Markets (EM) and Asia Pacific excluding Japan (APxJ) in 4Q CY24 were generally in line with expectations, with EM showing a slight increase of +0.8% and APxJ at +1.5% [2][10] - Japan reported a strong earnings season with a notable increase of +13.7%, driven by a high net beat ratio of +23 percentage points [2][6] - China also showed positive momentum with earnings growth of +7.7% [3][6] Sector Performance - The Communication Services sector led the earnings surprises with a +15.2% increase, particularly driven by Telecom Services which saw a remarkable +36.0% [4][31] - Real Estate also performed well with an earnings surprise of +11.9% [31] - Conversely, the Materials sector faced significant challenges, reporting a decline of -15.2%, with Paper & Forest Products showing a major miss at -68.4% [4][31] - Utilities also underperformed with a -6.9% surprise [31] Regional Insights - EEMEA (Eastern Europe, Middle East, and Africa) reported a solid aggregate beat of +6.8%, with notable contributions from the United Arab Emirates (+12.6%), Saudi Arabia (+9.1%), and South Africa (+8.6%) [3][6] - In contrast, Latin America faced major misses, with an overall decline of -16.8%, primarily due to Brazil (-20.7%), Chile (-20.3%), and Mexico (-10.8%) [3][6] Key Stock-Level Surprises - A list of companies expected to see upward revisions in their earnings estimates includes: - Sea Ltd (Communication Services) with a market cap of $76.85 billion and a price target upside of 31% [5] - XPeng Inc. (Consumer Discretionary) with a market cap of $19.21 billion and an expected upside of 18% [5] - Tenaga Nasional (Utilities) showing a significant upside potential of 53% [5] Earnings Surprise Ratios - Japan's earnings surprise ratio was the highest at 13.7%, with 54% of companies reporting above expectations [6][25] - In contrast, Brazil had the lowest surprise ratio at -20.7%, with 28% of companies missing consensus [6][25] Additional Insights - The breadth of earnings surprises was weaker across EM and APxJ, with EM showing a -7 percentage point breadth and APxJ at -4 percentage points [2][6] - The overall revenue performance across the region slightly beat expectations, with EM at +1.8%, APxJ at +1.4%, and Japan at +1.9% [2][6] This summary encapsulates the key findings from the earnings call, highlighting the performance of various sectors and regions, as well as specific stock-level surprises that may present investment opportunities.