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 reports focus on the performance of hedge funds and mutual funds, analyzing $8 trillion of equity positions at the start of Q3 2025 [3][4] - Hedge funds have returned 8% YTD, while large-cap mutual funds have also returned 8% YTD, with 39% of large-cap mutual funds outperforming their benchmarks [3][5] Core Insights - Hedge funds and mutual funds have both navigated beta and alpha headwinds to generate solid YTD returns [5] - Mutual funds have cut cash allocations to near-record lows, while hedge fund net leverage remains near its 5-year average [3][11] - Health Care and Industrials are the most overweight sectors for both fund types, while Financials have seen increased exposure from both groups [3][17][19] - Mutual funds have reduced their exposure to the "Magnificent 7" stocks, increasing their underweights from 723 basis points in Q1 to 819 basis points [3][22] - Hedge funds have increased their exposure to the Magnificent 7, with the weight in their long portfolio rising from 11.8% in Q1 to 12.8% [3][22] Notable Stock Movements - COF has seen the largest increase in popularity among fund managers based on net changes in shares owned [3] - Seven "shared favorites" this quarter include APP, CRH, MA, SCHW, SPOT, V, and VRT, which have returned 20% YTD compared to 9% for the S&P 500 [3][22] Sector Positioning - Both hedge funds and mutual funds are underweight in Technology, with mutual funds carrying the largest underweight in Info Tech on record [17][18] - Financials dominate the list of stocks with the largest increase in hedge fund popularity, with FI, NU, and SSB joining COF and BRO among the most popular mutual fund increases [19] Performance Metrics - The Hedge Fund VIP basket has returned 13% YTD, while a basket of Concentrated Shorts has returned 8% YTD after a surge of more than 60% in recent months [5] - Mutual funds have seen a decline in cash balances to 1.4% of assets, nearly a record low [11][14] Economic Indicators - The median S&P 500 stock has a short interest of 2.3% of float, ranking in the 96th percentile relative to the last 5 years [11] - The S&P 500 is forecasted to have an EPS of $246 for 2024, with a year-over-year growth of 10% [29] Conclusion - The analysis indicates a cautious but optimistic outlook for hedge funds and mutual funds, with strategic positioning in sectors like Health Care and Industrials while navigating challenges in the Technology sector [3][17][19]

Summary of 2Q25 Pre-announcements for MSCI China and A-shares Industry Overview - The report focuses on the performance of the **A-share** and **MSCI China** markets for the second quarter of 2025 (2Q25) - A total of **1,528 A-share companies** (~30% by number of companies, ~25% by market cap) released pre-announcements, indicating a significant improvement from previous quarters [2][5][14] Key Findings A-share Market - The net negative alert ratio for A-shares in 2Q25 was **-4.8%**, similar to **-4.6%** in 2Q24 and significantly better than **-18.8%** in 4Q24 [8][17] - By market cap, the net positive alert ratio reached **+4.7%**, up from **+2.8%** in 2Q24 and **-0.7%** in 4Q24 [8][17] - Large-cap companies showed resilience with a net negative alert of **-1.4%**, while small-cap companies improved to **-7.4%** from **-31.1%** in 4Q24 [8][17] - Financial Services, Materials, and Technology Hardware sectors recorded the highest net positive alerts, while Consumer Services, Real Estate, and Software sectors had the largest net negative alerts [8][17] MSCI China Market - The MSCI China universe reported a net positive alert ratio of **+6.8%**, improving from **+1.4%** in 2Q24 and **+2.2%** in 4Q24 [9][30] - **69 stocks** announced positive alerts compared to **31 companies** with negative alerts [33] - Financials and Materials sectors had the highest net positive alerts, while Real Estate and Utilities sectors had the most net negative alerts [33][34] Earnings Estimates Revisions - As of July 18, 2025, **240 MSCI China constituents** (~47% by number of companies) had earnings estimates revised by more than **1%** [2][36] - A net **11%** of MSCI China constituents saw 2025 consensus earnings estimates revised downward [13][37] - By index weight, a net **0%** of MSCI China saw 2025 consensus earnings estimates raised during the assessment period [37] Stock Recommendations - Based on the analysis, **nine stocks** were identified as favorable investments, while **six stocks** were deemed to face challenges going into the 2Q25 results season [12][59] - The positively screened stocks include companies from sectors such as Materials, Pharmaceuticals, and Automotive, with specific tickers and price targets provided [59] Additional Insights - The report highlights the uneven recovery across different market capitalizations, with large-cap companies performing better than mid and small-cap companies [17] - The overall sentiment indicates a cautious optimism for the upcoming earnings season, with a focus on sectors that have shown resilience and potential for growth [47][51] This summary encapsulates the key points from the 2Q25 pre-announcements for MSCI China and A-shares, providing insights into market performance, sector dynamics, and stock recommendations.

Investment Rating - The report indicates a modest net change in the fiscal balance due to the reconciliation package, with an estimated $275 billion addition to the deficit next year, suggesting a cautious investment outlook [3][4]. Core Insights - The reconciliation bill, titled the "One Big Beautiful Bill Act," is expected to create a fiscal expansion of roughly $4 trillion relative to current law, but the net impact on corporate earnings is estimated to be about 5% for S&P 500 in 2026, diminishing in subsequent years [3][4]. - The corporate provisions in the bill will primarily shift the timing of tax payments rather than permanently lower tax rates, impacting cash flows more than GAAP net income [4][9]. - The potential changes to business expensing will significantly affect capex-intensive companies and those with high interest expenses, particularly in the small-cap sector [9][32]. Summary by Sections Fiscal Policy Impact - The reconciliation package is expected to have a modest direct impact on S&P 500 earnings and cash flows, with a collective effect of approximately 5% on earnings in 2026 [4][5]. - The bill's provisions, including capex and R&D expensing, interest deductibility, and foreign income treatment, will contribute to GDP growth, further lifting S&P 500 earnings by about 1% [4][31]. Market Reactions - Few sectors have shown a strong correlation with fiscal policy expectations, although renewable energy stocks have reacted to legislative developments [2][20]. - The report highlights that stocks with elevated interest expenses and low effective tax rates may face scrutiny as Congress negotiates the legislative package [30][43]. Sector-Specific Insights - The legislation's impact on interest deductibility will have a larger effect on small-cap stocks compared to large-cap stocks, with 34% of Russell 2000 companies having interest expenses exceeding 30% of EBIT [9][14]. - Consumer-facing stocks may benefit from the fiscal package, with expected boosts to consumer spending adding about 0.3 percentage points to GDP growth in 2026 [31][32]. Valuation Considerations - The reconciliation bill could influence equity valuations if it leads to upward pressure on interest rates, with historical data indicating stocks typically react poorly to rapid increases in yields [34][42]. - A potential increase in the 10-year Treasury yield toward 5% could catalyze additional equity volatility, impacting investor sentiment [34][38].

Investment Rating - The report maintains an Overweight rating on China equity, with a raised 12-month index target for MSCI China and CSI300 to 78 and 4,400, implying potential returns of 7% and 15% respectively [1][31]. Core Insights - Despite trade frictions with the US, China financial assets have shown resilience, with the Rmb appreciating against the USD by 1.7% in the past month and Chinese government bonds reaching all-time highs [1][2]. - The report highlights a targeted monetary easing package from the PBoC, NFRA, and CSRC, which includes 23 measures aimed at supporting the real economy and financial markets [6][8]. - The effective US tariff rate on Chinese imports is expected to decrease from around 160% to approximately 60%, which has led to an upward revision of the 2025 EPS growth estimate for MSCI China from 4% to 6% [1][10][13]. Summary by Sections Market Performance - China equity (MSCI China) has recovered 12% year-to-date and almost fully recovered from a 13% drawdown post-Liberation Day [1][3]. - Southbound flows to HK-listed equities have reached US$80 billion year-to-date, three times larger than the same period last year [19][20]. Monetary Policy - The recent monetary easing measures are seen as a positive surprise, aimed at improving liquidity and reducing funding costs, with a focus on demand-side support [6][8]. - Specific measures include a 50 basis point RRR cut providing approximately Rmb1 trillion in liquidity and targeted assistance for SMEs [8][10]. Economic Indicators - Hard data remains robust, with property sales in primary markets rising 26% year-over-year during the Labor Day holidays, particularly in tier-1 and tier-2 cities [10][11]. - However, soft data indicates signs of moderation, with declining trends in PMIs and cargo shipments [10][11]. Earnings Forecast - The report nudges up the 2025 EPS growth estimate for MSCI China to 6%, reflecting expectations of a lower effective US tariff rate and a stronger Rmb [10][13]. - The revised EPS integer forecast for 2026 remains 8% below the prevailing sell-side consensus [10]. Sector Focus - The report emphasizes a focus on sector and thematic alpha, particularly in domestic stimulus beneficiaries, select AI proxies, and local government spending beneficiaries [1][37]. - Banks and Real Estate have been upgraded to Overweight to enhance domestic exposure and sensitivity to policy easing [37][40].

Investment Rating - The report maintains a positive outlook on the market with a base case index target for MXCN at 67 by the end of 2025, with a preference for sectors such as Energy, IT, and Utilities [36][38]. Core Insights - The report indicates a recovery in the MXCN index, driven by sectors like IT and Healthcare, with expectations of a market reversal by late January 2025 [9][11]. - The report highlights a cautious approach towards Consumer Discretionary and Staples, recommending a rotation into quality laggards and large caps over small and mid-caps [36][38]. - The anticipated GDP growth for China in 2025 is projected at 4.1%, slightly below the consensus of 4.2% [10]. Market & Sector Performance - MXCN sectors performance shows Consumer Discretionary up by 3.2% week-on-week, while Information Technology leads with an 8.3% increase [6]. - The MSCI China index has shown a year-to-date increase of 9.0%, with a notable recovery in sectors impacted by US tariffs [7][12]. Catalyst Calendar - The report outlines key upcoming macroeconomic indicators and sector-specific data releases, including PMIs and housing transactions, which could influence market movements [14]. Consensus Macro Forecasts - The consensus forecasts for China's GDP growth in 2025 are 5.1% for Q1, declining to 3.9% by Q4, indicating a gradual slowdown [16]. Index Targets - The MSCI-China index target for 2025 is set at 71, with a bull case of 80 and a bear case of 70, reflecting a potential upside of 13% from current levels [18]. - The CSI-300 index target for 2025 is projected at 3,787, with a bull case of 4,150, indicating a 10% upside potential [19]. Investment Recommendations - The report recommends overweight positions in Energy, IT, and Utilities, while advising underweight positions in Consumer Discretionary, Materials, and Staples [39]. - A barbell strategy is suggested, focusing on high-yielders and selected thematic plays in Internet and AI sectors [36][38]. Trading Statistics - Recent trading statistics indicate a net outflow of US$796 million from China equities, primarily driven by passive fund outflows, although there has been a positive development with resumed offshore ETF inflows [79][80].

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the performance of the **China/HK equity market** and various sectors within it, including **Consumer Discretionary**, **Communication Services**, **Financials**, **Information Technology**, **Industrials**, **Consumer Staples**, **Health Care**, **Real Estate**, **Materials**, **Utilities**, and **Energy** [5][6][10]. Market Performance - The **MXCN index** fell by **1.7%** week-over-week, with a defensive shift observed in the market [7]. - **Utilities** (+2.1%) and **Energy** (+0.9%) sectors outperformed, while **Real Estate** (-7.5%), **Consumer Staples** (-2.6%), and **Communication Services** (-2.3%) lagged [10]. - The **MSCI China** index has a year-to-date performance of **17.7%**, while the **HSI** has **18.0%** [6]. Sector Insights - **Consumer Discretionary** sector showed a year-to-date increase of **27.4%**, but experienced a weekly decline of **1.9%** [5]. - **Information Technology** sector has a year-to-date performance of **30.8%**, but also faced a weekly decline of **1.3%** [5]. - **Financials** sector saw a year-to-date increase of **7.5%**, with banks performing slightly better than insurance [5]. Earnings and Guidance - **Tencent** reported 4Q24 earnings that beat expectations, but its capital expenditure guidance was underwhelming [8]. - **CR Beer** and **Anta** indicated an uptick in sales momentum for the first two months of 2025 [8]. Economic Indicators - The **DXY** index rose by **0.4%** week-over-week to **104**, indicating a stronger dollar [9]. - The **China QMI** reading softened, indicating a borderline contraction in January and a return to borderline expansion in February, influenced by Lunar New Year seasonality and early impacts from higher US tariffs [7]. Investment Recommendations - The **2025 MXCN index target** is set at **67**, with a base case implying a **12% downside** from current levels [18]. - The **CSI-300 index target** for 2025 is set at **3,915**, with a potential upside of **7%** [19]. - Recommendations include rotating into quality laggards and focusing on large-cap stocks over small and mid-caps [36]. Flows and Positioning - Recent fund flows indicate a net outflow of **US$230 million** from active funds, while passive funds saw a net inflow of **US$853 million**, primarily into offshore listed China equities [76]. - The **87 US/HK listed China equity ETFs** tracked by JPM recorded a net outflow of **US$463 million** over a recent period, reversing previous inflows [81]. Macro Forecasts - Consensus macro forecasts for **China** predict GDP growth of **4.9%** in Q1 2025, slightly down from previous estimates [14]. - CPI forecasts for **China** indicate a modest inflation rate of **0.3%** in Q1 2025 [16]. Additional Insights - The call highlighted the importance of monitoring US trade policy, especially with upcoming reciprocal tariffs starting on April 2 [9]. - The **property cycle** in China is also a focus, with trends in residential property sales being monitored closely [39][40]. This summary encapsulates the key points discussed in the conference call, providing insights into market performance, sector dynamics, economic indicators, and investment recommendations.

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.