Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Asia Pacific and Emerging Markets (EM) sectors, analyzing over 2,000 stocks and their geographic revenue exposure in 2025 [1][10]. Core Insights - **Revenue Generation**: APxJ and EM companies generate 28-29% of their revenues from foreign markets, while this figure is significantly higher at 44% for Japan. Chinese companies have increased their foreign revenue share to 16% in 2025, up from under 12% previously [2][18]. - **Sector Performance**: The IT sector is a major driver of global exposure, with Software, Semiconductors, and Tech Hardware generating 70-79% of their revenues abroad, predominantly from developed markets [2][5]. - **Geopolitical Analysis**: A new stock-level geopolitical distance score has been introduced, assessing how foreign revenues are sourced from markets with differing UN voting patterns compared to the company's domicile [3][24]. Revenue and Cost Structure Updates - The report updates revenue and cost screens for various regions, highlighting companies with significant revenue exposure to the US, developed Europe, and China [4][10]. - The share of revenues sourced from China has decreased from 42% in 2022 to 35% in 2025, while revenues from Asia-Pacific-ex-China markets have increased, reflecting a recovery since 2022 [16][23]. Emerging Trends - **Foreign Sales Growth**: Chinese companies are experiencing a consistent growth trend in foreign sales, particularly in Europe, with the share of revenues from the Americas also showing a slight increase [17][20]. - **Investment Themes**: The Global Exposure Guide is aligned with Morgan Stanley's key theme for 2025, "Investing for a Multipolar World," emphasizing the importance of geographic exposure amid shifting end-markets and supply chain diversification [10][11]. Additional Insights - The report provides a comprehensive database compiled from 170+ analysts' forward-looking revenue estimates, enhancing the quality of geographic exposure data compared to competitors [5][10]. - The geopolitical distance scores range from 0 (domestic revenues) to 3.5 (significant divergence in UN voting patterns), allowing for stock-level rankings and market aggregates [25][26]. Conclusion - The analysis indicates a shifting landscape in revenue generation and geopolitical alignment for companies in the Asia Pacific and EM regions, highlighting both opportunities and risks for investors in 2025 [1][10].

Investment Rating - The report indicates a positive outlook for the S&P 500, forecasting a return of +5% over the next 12 months, reaching a target of 6500 [3][44]. Core Insights - The S&P 500 earnings per share (EPS) growth is expected to decelerate to 4% year-over-year in 2Q 2025, down from 12% in 1Q 2025, primarily due to margin contraction [2][7]. - The effective US tariff rate has increased by approximately 10 percentage points to 13%, with expectations of a further rise to 17% [2][14]. - Analysts predict that the S&P 500 will collectively exceed the low EPS growth expectations set for 2Q 2025 [2][7]. Summary by Sections Earnings Season Insights - The 2Q earnings season will commence on July 15, with 73% of S&P 500 companies reporting between July 11 and August 1 [2][4]. - Analysts forecast a modest sales growth of 4% in 2Q, down from 5% in 1Q, with a significant portion of the deceleration attributed to margin pressures [7][9]. Tariff Impact - The report highlights that if companies absorb the tariff costs, it could negatively impact their margins, with consumers expected to bear 70% of the direct costs [2][15]. - Early earnings results have shown mixed signals regarding margin outlooks, with some companies managing to offset tariff impacts through various strategies [20][21]. Sector Performance - Earnings are expected to decline the most in the Energy sector (-28% year-over-year), while Communication Services and Information Technology are projected to see growth of +28% and +18%, respectively [9][10]. - Capex revisions have been positive for AI-exposed sectors, while most other sectors have seen reductions in estimates [32][36]. Future Projections - The report anticipates S&P 500 EPS growth of +7% in 2025, aligning with bottom-up consensus estimates, while projecting a margin expansion of 29 basis points to 12.2% [38][39]. - The consensus expects solid sales growth through 2025, with nominal GDP growth forecasted at 4.5% year-over-year in 2025 [26][28].

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 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.