China Outlook_ Rising animal spirits

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Chinese equity market, particularly the performance of H shares and the impact of recent developments in AI technology on market sentiment [1][2]. Core Insights and Arguments 1. Market Performance: China's H shares have outperformed, with the HSI index gaining approximately 16% year-to-date (YTD) and the HSTECH index rallying over 30%. Notably, Alibaba's stock surged more than 60% YTD due to its AI model outperforming competitors [2][3]. 2. Currency Stabilization: The CNY has stabilized around 7.25 against the USD, recovering from a multi-year low of 7.33 in January. This stabilization is attributed to broader USD weakness and discussions around a potential "Mar-a-Lago Accord" [2][3]. 3. US Treasury Comments: US Treasury Secretary Scott Bessent highlighted the complexities of valuing the yuan, citing capital controls and foreign investor withdrawal concerns. He noted that the yuan appears undervalued based on purchasing-power parity [3][4]. 4. Mar-a-Lago Accord: The concept of a "Mar-a-Lago Accord" is gaining traction, aimed at addressing economic imbalances caused by a persistently overvalued dollar. This idea is rooted in historical precedents like the Plaza Accord of 1985 [4][6]. 5. Government Support for Private Sector: President Xi's recent symposium with key tech companies signaled government support for the private sector, emphasizing the need for high-quality development and the removal of market access barriers [11][12]. 6. Monetary Policy: The People's Bank of China (PBoC) has kept the Loan Prime Rate (LPR) unchanged for five consecutive months, reflecting a balance of growth, price stability, and exchange rate objectives [14][15]. 7. Upcoming NPC Meeting: The National People's Congress (NPC) scheduled for March 5 will focus on key economic targets, including growth and inflation targets, and fiscal budget considerations [16][17]. 8. Growth and Inflation Targets: Authorities may set a 5% growth target for 2025, despite challenges in achieving this due to structural headwinds. The inflation target is expected to be lowered to around 2% [17][18][21]. Additional Important Insights - Fiscal Package Expectations: The NPC is anticipated to raise the official budget deficit to 4% for 2025 and increase local government special bonds quota to CNY 4-4.5 trillion [21]. - Impact of Tariffs and Property Market: Future stimulus measures will likely be influenced by developments in tariffs, the property market, and equity market conditions [22]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state and outlook of the Chinese equity market and macroeconomic environment.