China Equity Strategy_ A-Share Sentiment Improved after CNY Holiday

Summary of Key Points from the Conference Call Industry Overview - Industry: A-Shares in China - Market Sentiment: Improved sentiment in A-shares post Chinese New Year (CNY) holiday, driven by a strong Chinese AI theme and increased trading volume despite ongoing geopolitical risks [1][4] Core Insights - Investor Sentiment: - Weighted Morgan Stanley A-share Sentiment Indicator (MSASI) increased by 7 percentage points to 70% [2][7] - Simple MSASI rose by 8 percentage points to 60% [2][7] - Average daily turnover (ADT) for various segments (ChiNext, A-shares, equity futures, Northbound) increased by 10%, 5%, 5%, and 15% respectively compared to the previous cycle [2] - AI Sector Developments: - Significant advancements in AI technology, particularly with the release of cost-efficient large language models (LLMs) by DeepSeek, raising concerns about high valuations in the Asian AI supply chain tech stocks [4] - Traditional non-AI tech companies are trading at significant discounts, potentially attracting renewed investor interest [4] - Geopolitical Risks: - The US has implemented a 10% incremental tariff on China while delaying tariffs on Canada and Mexico, which could negatively impact earnings growth and global liquidity [5] - Anticipation of retaliatory tariffs from Beijing and potential domestic stimulus measures that may not be sufficient to reflate the economy [5] Additional Important Points - Market Dynamics: - Continued southbound net inflows for 46 consecutive weeks, with net inflows of US$0.1 billion from January 23 to February 5, 2025 [3] - The consensus earnings estimate revision breadth remains negative, but the downward momentum has slowed since late November 2024 [2] - Cautionary Outlook: - Preference for defensiveness, dividend yields, and stocks with greater earnings certainty is advised until more clarity on policy and global geopolitics emerges [1][15] - Recommendations to avoid Chinese stocks with significant tariff risks [16] - Consumer Trends: - CNY holiday consumption trends were stable year-on-year, with travel passenger growth and spending per passenger stabilizing [14] Conclusion - The A-share market is showing signs of recovery with improved sentiment and trading volumes, particularly in the context of AI advancements. However, geopolitical risks and tariff implications remain significant concerns that could affect future earnings and market stability. Caution is advised for investors, with a focus on defensiveness and stocks with stable cash returns.