Summary of Key Points from the Conference Call Industry Overview - The report covers the Chinese market, specifically focusing on the performance of various sectors and macroeconomic indicators. [1][12] Core Insights and Arguments - **Market Performance**: MXCN and CSI300 indices gained 2.5% and 2.4% respectively, with notable outperformance in Brokers (+10.3%), Semiconductors (+9.1%), and Insurance (+8.1%) sectors. [1] - **Interest Subsidy Programs**: The Ministry of Finance launched two temporary interest subsidy programs aimed at household consumer loans and targeted service businesses. [1] - **Credit and Economic Activity**: July credit and activity data showed a significant decline, with net new loan growth turning negative for the first time in 20 years. [1] - **Inflation Trends**: CPI inflation decreased to 0.0% year-on-year, while PPI deflation remained deep at -3.6% year-on-year in July. [1] - **Foreign Investment**: Southbound capital saw inflows of US$4.9 billion this week, with a record-high daily inflow of US$4.6 billion on Friday. [1] - **Property Market Divergence**: Data from 70 cities indicated a continuing divergence in property prices between top-tier and lower-tier cities. [1] Earnings and Valuations - **Earnings Growth Forecast**: The I/B/E/S consensus for 2025/26 EPS growth is projected at 4%/14% for MXCN and 15%/12% for CSI300. [9] - **Sector Performance**: Real Estate and Growth sectors outperformed with growth rates of 4.3% and 3.9% respectively, while Utilities and Beta sectors lagged with declines of -2.4% and -3.9%. [2][3] Policy and Regulatory Environment - **Government Support for Private Sector**: President Xi emphasized the importance of healthy, high-quality development for the private sector in a recent article published in the Qiushi Journal. [5] - **Tech Sector Caution**: Chinese authorities have warned tech firms regarding the purchase of Nvidia H20 chips, indicating regulatory scrutiny in the tech sector. [1] Additional Insights - **Current Account Surplus**: The 25Q2 Balance of Payments data indicated a solid current account surplus, leading to an upward revision of the BBOP forecast. [1] - **Visa Initiatives**: China plans to introduce a new visa type for eligible foreign young science and technology professionals, aiming to attract talent. [1] - **Production Suspension**: CATL has suspended production at a major lithium mine pending license renewal, highlighting regulatory impacts on resource sectors. [1] Conclusion - The Chinese market is experiencing a mixed performance with significant sectoral divergences and macroeconomic challenges. The government's proactive measures in interest subsidies and talent attraction are aimed at stabilizing the economy amidst declining credit growth and inflationary pressures.

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: Greater China Technology Hardware, specifically in the Asia Pacific region [1][3] - **Current Industry View**: In-Line [3] Core Insights - **Positive Outlook on AI Infrastructure Spending**: Strong results and optimistic comments from Microsoft and Meta regarding capital expenditures (capex) are expected to boost confidence in AI infrastructure investments for 2026 [1][2] - **Investor Confidence**: The positive remarks from Microsoft, Meta, and Google are anticipated to enhance investor confidence in AI demand as the market approaches 2026 [2] - **Investment Recommendations**: Investors are advised to focus on infrastructure-related stocks, which are expected to be more resilient compared to consumer technology stocks [2] Preferred Companies - **Top Picks Among AP ODMs**: - Wiwynn: Noted for its ASIC AI server exposure and potential to capture market share in GPU AI servers in the medium to long term [2] - Other preferences include Wistron, Quanta, and Hon Hai [2] - **Additional Companies of Interest**: Delta, AVC, King Slide, Bizlink, Accton, and Chroma are also highlighted as favorable investments [2] Financial Data and Projections - **Microsoft and Meta's Performance**: Specific financial results and projections from Microsoft and Meta are referenced, indicating a positive trend in AI investments [1] - **Market Positioning**: The report suggests a strategic positioning in infrastructure names to mitigate risks associated with consumer tech volatility [2] Supply Chain Insights - **Microsoft's Supply Chain Beneficiaries**: A detailed list of companies benefiting from Microsoft's AI and general server hardware supply chain is provided, including Unimicron, Ibiden, and Delta among others [6][8] - **Meta's Supply Chain Beneficiaries**: Similar insights are shared regarding Meta's supply chain, highlighting key players such as Unimicron, Delta, and Quanta [10][11] Additional Considerations - **Investment Banking Relationships**: Morgan Stanley has disclosed potential conflicts of interest due to its investment banking relationships with several companies mentioned in the report [4][18] - **Analyst Certifications**: Analysts involved in the report have certified their views on the companies discussed, ensuring the integrity of the research [16] This summary encapsulates the essential insights and recommendations from the conference call, focusing on the technology hardware sector in Greater China and the implications of AI infrastructure spending.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China A-shares market** and its performance in July 2025, highlighting solid price gains across various sectors [1][2]. Core Insights and Arguments - **Sector Performance**: - **Healthcare**: Led with a **13.5%** increase in July and **23.1%** year-to-date (YTD) performance, driven by recovering demand and strong drug pipelines [2][8]. - **IT**: Increased by **6.7%** in July and **14.7%** YTD, benefiting from Nvidia's resumption of sales to China [2][8]. - **Materials**: Gained **6.4%** in July and **18.0%** YTD, supported by government initiatives against overcapacity [2][9]. - **Energy**: Saw a **4.7%** increase in July but a decline of **1.8%** YTD [2]. - **Real Estate**: Increased by **4.5%** in July but declined **2.3%** YTD [2]. - **Financials**: Only **2.1%** increase in July and **10.5%** YTD, with some companies experiencing significant declines [2][10]. - **Market Drivers**: - The **CSI300** index rose **3.5%** in July, with improving liquidity and solid GDP growth of **5.2%** year-on-year (y-y) in Q2 2025 [5][39]. - **Net inflows** into A-shares totaled **US$193 million**, primarily in Financials, IT, and Materials, while Industrials and Consumer Discretionary saw outflows [5][14]. - **Macroeconomic Indicators**: - **GDP Growth**: China's GDP growth was **5.2%** y-y, with nominal GDP growth at **3.9%** y-y, indicating a decline in the GDP deflator to **-1.2%** [5][39]. - **Industrial Production**: Increased by **6.8%** y-y, with notable growth in high-tech sectors [5][42]. - **Retail Sales**: Grew by **4.8%** y-y, below expectations, indicating weak consumer sentiment [5][39]. - **Trade**: Exports rose **5.8%** y-y, with a rebound in exports to the US [5][41]. Additional Important Insights - **Margin Financing**: The margin buying as a percentage of A-share turnover rose to **10.5%** at the end of July from **9.6%** at the end of June, indicating increased investor confidence [5][24]. - **Fund Issuance**: Equity mutual fund issuance remained stable at **Rmb18 billion** in July, compared to **Rmb21 billion** in June [5][27]. - **Shareholding Structure**: By the end of 2024, retail investors held **42%**, controlling shareholders **43%**, domestic financial institutions **12%**, and foreign investors **3%** of A-shares' total market cap [5][28]. This summary encapsulates the key points from the conference call, providing a comprehensive overview of the current state of the China A-shares market and its underlying economic factors.

Summary of the One Big Beautiful Tech Tax Bill (OBBBA) Conference Call Industry Overview - The conference call focuses on the impact of the One Big Beautiful Bill Act (OBBBA) on the technology sector, particularly large tech companies including Amazon, Apple, Google, Meta, and Microsoft [1][12][14]. Key Points and Arguments 1. **Free Cash Flow (FCF) Enhancement**: The OBBBA is expected to significantly boost near-term FCF for major tech companies by restoring 100% bonus depreciation and allowing immediate R&D expensing. This could result in billions of additional FCF for these companies in the upcoming year, enhancing their flexibility for mergers and acquisitions (M&A), innovation, and shareholder returns [1][12][14]. 2. **Framework for Analysis**: A framework was created to analyze the OBBBA's impact on FCF, allowing for sensitivity testing around cash flow outcomes. The analysis was conducted in collaboration with various teams within the organization [3][6]. 3. **Quarterly Tax Payment Adjustments**: Companies are expected to adjust their estimated quarterly tax payments to reflect the OBBBA's impact, potentially leading to higher FCF guidance and upside surprises [4][5]. 4. **Caution on Cash Flow Multiples**: Investors are advised to be cautious when assigning multiples to the incremental cash flow, as it primarily reflects a timing benefit rather than a structural change in cash flow generation [5][6]. 5. **Impact Variability**: The ultimate impact of the OBBBA will vary based on each company's tax planning strategy and accounting practices, which are not fully visible in GAAP financials [6][12]. 6. **R&D and Capital Expenditure Benefits**: The OBBBA allows retroactive expensing of capitalized R&D, leading to significant reductions in cash taxes and revisions in FCF. Companies like Google, Microsoft, and Apple may benefit from accelerating their R&D deductions, while Amazon and Meta will see more evenly spread benefits over the next 2-3 years [9][14][22]. 7. **Company-Specific Impacts**: - **Amazon**: Expected to see a ~30% (~$15 billion) lift to FCF in 2026 due to high capex levels and R&D intensity. This benefit is anticipated to recur annually, providing flexibility for further investments [23][24]. - **Apple**: Anticipated to gain ~$10 billion in added cash in FY2026, with potential reinvestments in data center infrastructure and other strategic areas, while maintaining its capital allocation strategy [28][31]. - **Google**: Projected to have a $25 billion (31%) uplift in 2025 FCF, driven by its large deferred tax assets. Long-term benefits are expected to be around $4-$6 billion [30][32]. - **Meta**: Expected to see a ~$8-$10 billion tailwind in FCF through 2028, with benefits spread evenly over the next couple of years [33][34]. - **Microsoft**: Estimated to gain ~$10 billion in FCF in the next year, with excess cash potentially used for opportunistic M&A [35][36]. Additional Important Content - **Tax Rate Changes**: The OBBBA modifies the Tax Cuts and Jobs Act (TCJA) provisions, increasing the effective tax rate on foreign-derived income from 13% to 14% starting in 2026, which may lead to more tax savings for qualifying companies [16][17]. - **Long-Term Strategic Flexibility**: The incremental cash flow benefits from the OBBBA are expected to provide companies with more flexibility to invest in AI infrastructure and other strategic initiatives, rather than altering their core investment strategies [22][35]. Conclusion The OBBBA is poised to deliver significant near- and medium-term benefits to major tech companies, enhancing their FCF and providing strategic flexibility for future investments and shareholder returns. The impact will vary by company based on their specific tax strategies and capital expenditures.

Group 1: Market Environment - The recent geopolitical tensions between Israel and Iran have not negatively impacted the A-share market, which saw a rise of 11.73 points, with 3,559 stocks gaining an average of 0.7% [5] - Goldman Sachs has issued three reports indicating a positive outlook for A-shares, highlighting an improved overall environment and the growing strength of private enterprises [7][8] Group 2: Private Enterprises - Since the peak in early 2021, private listed companies in China have lost a total market value of $4 trillion, with a 56% gap compared to state-owned enterprises [10] - Private enterprises contribute significantly to the economy, accounting for 60% of GDP, 80% of urban employment, and two-thirds of national tax revenue [10] - The majority of these companies are concentrated in technology and consumer sectors, which are crucial for economic growth [10][11] Group 3: AI and Growth Potential - The application of AI is expected to increase annual earnings per share by 2.5% over the next decade, with private enterprises holding a 72% share in the AI sector, growing 15% faster than others [13] - The past decade has seen private enterprises outperform state-owned ones in profit and revenue growth by 42% and 86%, respectively [11] Group 4: Industry Concentration - The top ten companies in the A-share market account for only 17% of the total market capitalization, which is significantly lower than the concentration seen in the U.S. [14][16] - Higher industry concentration typically leads to stronger profitability for companies, as evidenced by the TMT (Technology, Media, and Telecommunications) sector [20][21] Group 5: Key Companies - Goldman Sachs identifies ten leading companies in China, including Tencent, Alibaba, Xiaomi, BYD, Meituan, NetEase, Midea, Hengrui, Trip.com, and Anta, which represent significant investment trends [22][23] - These companies collectively have a market capitalization of $1.6 trillion, accounting for 42% of the MSCI China index, with a projected compound annual growth rate of 13% over the next two years [23] - The average price-to-earnings ratio for these ten companies is 16 times, which is considerably lower than the nearly 28 times for their U.S. counterparts, indicating a favorable valuation [24]

Investment Rating - The report indicates a favorable outlook for Chinese private-owned enterprises (POEs), suggesting selectivity is required for investment success in this sector [1][3]. Core Insights - Chinese POEs are in the process of regaining market strength after losing nearly US$4 trillion in market capitalization since late 2020, with a significant underperformance compared to state-owned enterprises (SOEs) [1][4]. - The importance of the private sector has been acknowledged by policymakers, with recent legislative support aimed at promoting private enterprises [3][19]. - Regulatory risks have eased, contributing to a more favorable investment environment for listed POEs [3][20]. - The ongoing advancements in AI and technology are expected to enhance growth prospects for POEs, which constitute 72% of the defined AI-Tech universe [3][40]. - POEs are increasingly leading China's "Going Global" strategy, allowing for organic growth and higher profit margins [3][41]. - Profitability metrics for POEs have shown improvement, with profits and return on equity (ROE) rising by 22% and 1.2 percentage points, respectively, since the lows of 2022 [3][47]. - There are early signs of renewed investment appetite within the POE sector, indicating a return of "animal spirits" [3][56]. - POEs are currently trading at valuation discounts compared to historical ranges and SOEs, with cash returns reaching record highs [3][62]. Summary by Sections Section 1: Market Performance - Listed Chinese POEs have lost almost US$4 trillion in market capitalization since their peak in 2020, reflecting a 32% decline [4][6]. - POEs represent 60% of the total market capitalization of the listed universe in China [6][19]. Section 2: Regulatory Environment - The regulatory cycle for POEs has shifted towards a more accommodating stance, reducing the perceived policy risk premium [3][20]. - Recent legislative actions, including the first-ever POE law, aim to support the private economy and enhance investor confidence [3][19]. Section 3: Technological Advancements - AI and technology breakthroughs are reshaping the growth narrative for POEs, with significant representation in the AI-Tech sector [3][40]. - Widespread AI adoption is projected to boost corporate earnings in China by 2.5% annually over the next decade [3][36]. Section 4: Global Expansion - POEs are increasingly diversifying their revenue sources, with non-domestic sales expected to reach nearly 20% of total sales by 2024 [3][46]. - The profitability of POEs in overseas markets is generally higher than in the domestic market, driven by better pricing and reduced competition [3][45]. Section 5: Profitability Recovery - POEs have shown signs of profitability recovery, with expectations for further improvement in ROE and net margins [3][55]. - The consensus forecast indicates a potential uplift in ROE to around 13%-14% in the coming years [3][55]. Section 6: Investment Opportunities - The report emphasizes the need for selectivity in investing within the POE universe, highlighting specific investment themes such as the Chinese Prominent 10 and GS China Select AI Portfolio [1][74]. - The thematic bias towards high-quality SOEs remains, particularly those with strong shareholder returns [1][74].

Investment Rating - The report maintains a "Buy" rating for several companies in the tech hardware and semiconductors sector, including ASE, Hon Hai Precision, MediaTek, and TSMC, among others [8]. Core Insights - The outlook for AI adoption remains strong, with significant momentum in enterprise AI, leading to supply constraints for major customers [2][3]. - TSMC aims to double its CoWoS capacity year-over-year in 2025, despite facing gross profit margin dilution due to overseas expansion [3]. - Samsung reports robust memory demand, particularly from PC and smartphone sectors, supporting DDR pricing [4]. - The report highlights a value bias within the APAC tech sector, indicating a preference for certain stocks over others [5]. Summary by Sections AI and Technology Hardware - AI-related developments are driving enterprise adoption, with Microsoft noting strong demand from large customers [2]. - The ramp-up of Blackwell rack assembly is on track, with Quanta expecting to meet server test cycle targets by the end of Q2 2025 [2]. Semiconductor Industry - TSMC's gross margin is negatively impacted by NTD appreciation against USD, with a 40-basis point decline for every 1% appreciation [3]. - MediaTek maintains its Q2 gross margin guidance at 47% despite foreign exchange pressures [3]. - ASE targets $1.6 billion in revenue from advanced packaging and testing in 2025, up from $600 million in 2024 [30]. Market Dynamics - Samsung anticipates strong demand for memory products, which is expected to support pricing in the DDR segment [4]. - The report notes a potential decline in revenue for certain ICs, indicating a cooling off from earlier pull-ins [3]. Company-Specific Insights - ASE is focused on expanding its advanced packaging and testing business, targeting significant revenue growth [30]. - MediaTek is aggressively pursuing the N2 process migration, with expectations of reaching $1 billion in cloud ASIC revenue by 2026 [39]. - Quanta's server business is expected to grow, with AI servers making up a significant portion of sales [24]. Preferred Companies - The report lists preferred companies in the APAC tech sector, highlighting those with strong growth potential and favorable valuations [8].

13 May 2025 | 1:50AM HKT Taiwan Strategy Dividend ETF Rebalancing Update We highlighted in late April that dividend ETFs have become significant in the Taiwan market, reaching a total AUM of US$62bn or 4.0%/5.7% of Taiwan ex-TSMC full/free float market cap currently. The upcoming rebalancing for dividend ETFs during May-June is important for investors to monitor, as it will drive flows and volatility for stocks to be included or excluded, or having their weights adjusted. This provides investors with opport ...

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].

Investment Rating - The report maintains a positive outlook for the China equity market, with a base case index target for MXCN at HK$80 for 2025, implying a 30% upside from current levels [17][26]. Core Insights - The report indicates a broad-based recovery in the MXCN/CSI300 indices, driven by national team buying and expectations of new policy easing, with a modest increase of 1.6% week-on-week [8]. - The report highlights a potential easing of US-China trade tensions, with improved macro data from China leading to a more favorable QMI reading [9]. - The investment strategy suggests a focus on high-yield sectors such as Energy, IT, and Utilities, while advising caution in Consumer Discretionary and Materials [10][36]. Market & Sector Performance - The report provides detailed sector performance metrics, showing Consumer Discretionary up 1.5% week-on-week but down 20.2% month-to-date, while Real Estate outperformed with a 3.0% increase [6]. - The MSCI China index showed a 1.5% increase over the week but a decline of 14.6% month-to-date [6]. Catalyst Calendar - The report outlines key upcoming macroeconomic events in China, including LPR announcements and housing transaction data, which could influence market movements [13]. Consensus Macro Forecasts - The report presents GDP growth forecasts for China, projecting 5.0% for Q1 2025, slightly revised from previous estimates [15]. QMI & Index Targets - The report sets specific index targets for MSCI-China and CSI-300, with the latter projected at 3,772 RMB for 2025, indicating a 10% upside potential [18]. Investment Recommendations - The report recommends a barbell strategy focusing on high-yielders and selected thematic plays in Internet and AI sectors, while advising a rotation into quality laggards [36][38]. - Specific sector recommendations include Overweight (OW) for Energy, IT, and Utilities, while downgrading Consumer Discretionary and Materials to Underweight (UW) [38].