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 Key Points from the Conference Call Industry Overview - The focus is on the **Asia Pacific (APAC) and Emerging Markets (EM)** regarding **AI adoption** and its implications for investment opportunities in the region [1][2][3][4]. Core Insights - **AI Adoption Growth**: The share of companies identified as AI adopters in APAC and EM has increased from **30% to 34%**, while enablers/enabler-adopters rose from **11% to 18%** [2]. - **Materiality of AI**: Companies with 'moderate' or greater AI materiality increased from **24% to 31%** [2]. - **Leadership Shift**: Historical patterns indicate a rotation from semiconductor/hardware companies to infrastructure and AI adopters, with pricing power being crucial for sustained performance [3][11]. - **Performance Expectations**: AI adopters are expected to outperform traditional peers, emphasizing the need for strong pricing power to retain efficiencies and monetize through premium services [4][19]. Updated AI Adoption Leaders - A revised list of **20 stocks** identified as best positioned for monetization in AI has been created, with **Tencent** and **Xiaomi** highlighted as top picks [4][32]. - The updated list includes companies from various sectors, with a significant representation from **Media & Entertainment** and **Consumer Discretionary** [32]. Performance Metrics - The updated Asia/EM AI Adoption Leaders have shown a **44% price return year-to-date**, compared to **18% for MSCI AC Asia Pacific** [37]. - The valuation metrics indicate a **12-month price-to-sales ratio of 3.8x** and a **price-to-earnings ratio of 27.9x**, reflecting a **75% premium** to MSCI AC Asia Pacific due to superior profitability [38]. Key Companies and Their AI Strategies - **Tencent Holdings Ltd.**: Recognized as a top AI adopter with high ROI and visibility in consumer AI monetization [44]. - **Alibaba Group Holding**: Positioned to benefit from increasing AI inference demand, particularly in e-commerce [45]. - **Xiaomi Corp**: Leveraging AI for ecosystem transformation across various devices [46]. - **Mercadolibre Inc.**: Utilizing AI to enhance e-commerce efficiency in Latin America [46]. - **Fast Retailing**: Employing generative AI for operational insights [47]. - **Recruit Holdings**: Integrating AI into HR tech to improve hiring processes [48]. - **WuXi AppTec Co Ltd**: Focused on AI-powered drug discovery [49]. - **Grab Holdings Ltd**: Leading in AI adoption for consumer products and internal workflows [52]. Market Dynamics - The analysis indicates a **performance rotation** from upstream AI leaders to downstream adopters, with a focus on the sustainability of AI infrastructure spending into **2026 and beyond** [12][19]. - The importance of **pricing power** is reiterated, with high pricing power adopters showing significant outperformance compared to those with low pricing power [19][29]. Conclusion - The conference call emphasizes the growing importance of AI in the APAC and EM markets, highlighting a shift in leadership towards companies that can effectively monetize AI technologies while maintaining strong pricing power. The updated list of AI adoption leaders presents a diverse range of investment opportunities across various sectors, indicating a robust outlook for AI-driven growth in the region [1][4][32].

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese equities market** and the flow of funds in **China/HK** equities, highlighting trends in both passive and active fund management strategies [1][10]. Core Insights and Arguments - **Equity Inflows**: Chinese equities experienced inflows of **US$2.7 billion** in July 2025, primarily driven by **US$3.9 billion** from passive funds, while active funds faced outflows of **US$1.2 billion** [1][10]. - **Southbound Flows**: Southbound stock connect inflows reached **US$17 billion** in July, totaling **US$110 billion** year-to-date (YTD), surpassing the full-year level of **US$103 billion** in 2024 [1][10]. - **Fund Underweights**: Global and Asia ex-Japan (AxJ) funds slightly reduced their underweights in China by **1.4 percentage points** and **0.3 percentage points**, respectively, while emerging market (EM) funds increased their underweight to **3.2 percentage points** [1][10]. - **Sector Performance**: Active fund managers increased their positions in **Media & Entertainment**, **Pharmaceuticals**, and **Insurance**, while reducing exposure in **Consumer Services** and **Consumer Durables & Apparel** [10]. - **Company-Specific Changes**: Notable increases in holdings were observed for **Tencent**, **Netease**, **Jiangsu Hengrui**, and **Wuxi AppTec**, while **Meituan** and **Xiaomi** saw reductions in their positions [10]. Additional Important Insights - **Domestic Fund Outflows**: Chinese domestic passive funds targeting A-shares recorded outflows of **US$6 billion** in July, up from **US$3 billion** in June [10]. - **Short Interest**: As of July 31, short positions in China/HK equities were predominantly added in **Consumer Staples**, **Financials**, and **Communication Services** [11]. - **Passive Fund Trends**: Cumulative foreign passive inflows reached **US$11 billion** YTD, exceeding the **US$7 billion** level in 2024, while cumulative foreign active outflows totaled **US$11 billion**, a decrease from **US$24 billion** in 2024 [10]. - **Fund Flow Dynamics**: The report indicates a significant correlation between foreign passive fund flows to the **CSI 300** and northbound net flows historically, suggesting a stable trend in foreign investment [12]. This summary encapsulates the key points from the conference call, providing a comprehensive overview of the current state of the Chinese equities market and fund flow dynamics.