Investment Rating - The report indicates a positive sentiment towards Chinese equities, suggesting a better chance of inflow upside than downside due to measured macro and earnings drag from tariffs compared to peers [2][3]. Core Insights - The report highlights that new developments in trade talks and domestic policy easing by the PBOC and CSRC have led to a rapid shift in market dynamics, with a record-high attendance at the MS China BEST conference indicating rising investor interest in China [3][4]. - Despite potential headwinds on corporate earnings starting from Q2, the overall setup for Chinese equities remains relatively stable compared to other major economies, with a smaller magnitude of negative change expected [4][7]. - The report emphasizes that the listed Chinese equity universe is less exposed to the tariff dispute due to limited foreign revenue exposure, which is less than 15% [7][19]. Summary by Sections Market Dynamics and Investor Sentiment - Investors expressed a strong willingness to diversify their asset allocation towards China, driven by a weakening US dollar and ongoing tariff uncertainties [8][9]. - The report notes that China presents the largest underweight gap within existing global EM equities, with over 80% of investors indicating a likelihood to increase their Chinese equity exposure in the near term [9][19]. Economic Forecasts - The report revises down the 2025 annual real GDP growth forecast for China from 4.5% to 4.2%, a 6.7% cut, which is less severe than the 60% cut for the US and 9.1% for Asia [4][7]. - Earnings growth forecasts for MSCI China have been revised down from 7% to 5%, while the broader MSCI EM index forecast has been cut from 11% to 3% [4]. Sectoral Insights - The report identifies AI, technology, and new economy sectors as emerging equity market champions, with increasing investor interest amid tariff uncertainties [19][20]. - The report highlights the resilience of Chinese internet companies in enhancing shareholder returns and adapting to new business models, which are less susceptible to ongoing macro challenges [20][21]. Trade Talks and Tariff Outlook - The report anticipates prolonged US-China trade talks, with expectations of elevated tariff rates persisting in the near term, despite potential de-escalation [21][24]. - A balanced investment approach is recommended, focusing on high-quality, large-cap internet names and selective high-tech players, while also considering dividend yield plays to mitigate market volatility [25][26].