22 August 2025 | 1:40PM EDT US Weekly Kickstart Hedge funds and mutual funds both navigating beta and alpha headwinds David J. Kostin +1(212)902-6781 | david.kostin@gs.com Goldman Sachs & Co. LLC Ben Snider +1(212)357-1744 | ben.snider@gs.com Goldman Sachs & Co. LLC Ryan Hammond +1(212)902-5625 | ryan.hammond@gs.com Goldman Sachs & Co. LLC Jenny Ma +1(212)357-5775 | jenny.ma@gs.com Goldman Sachs & Co. LLC Daniel Chavez +1(212)357-7657 | daniel.chavez@gs.com Goldman Sachs & Co. LLC Kartik Jayachandran +1(212 ...

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 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.