China Equity Strategy_ Be careful_ US-China risks back in focus. Mon Feb 24 2025

Summary of Key Points from the Conference Call Industry and Company Involved - Industry: US-China investment relations, particularly focusing on technology and military sectors - Companies Mentioned: Tencent, CATL, Xiaomi, China Mobile, China Telecom, China Railway Construction, and others Core Insights and Arguments 1. US-China Investment Risks: The new National Security Presidential Memorandum (NSPM) may lead to a reversal in MXCN after a 17.6% year-to-date rally, as it emphasizes US security and prosperity in investments [2] 2. Market Outlook: Anticipation of a mild pullback in MXCN is noted, with a recommendation to trim overbought internet stocks and invest in lagging sectors such as property and healthcare [2] 3. Sector Restrictions: The NSPM outlines sectors facing restrictions, including key technologies, food supplies, and natural resources, which may impact US investments in China [3] 4. Investor Behavior: Civilian Chinese companies involved in military-civil fusion (MCF) are encouraged to raise capital through US investors, which may be affected by the NSPM [4] 5. Audit and Compliance: The Holding Foreign Companies Accountable Act (HFCAA) mandates that foreign companies allow US audit inspections, with non-compliance leading to potential delisting from US exchanges [14][17] 6. Performance Metrics: Historical share performance of Chinese companies post-inclusion in the Department of Defense's Chinese Military Companies (CMC) list shows varied returns, indicating market sensitivity to regulatory changes [12][13] Additional Important Content 1. Executive Orders: Several executive orders have been issued to deter US investments in PRC's military-industrial sectors, highlighting the ongoing regulatory scrutiny [15] 2. PCAOB Inspections: The PCAOB has gained access to inspect Chinese audit firms, marking a significant step towards increased transparency in financial reporting [18] 3. Investment Recommendations: Specific stocks such as Akeso, Anta Sports, and Mindray are recommended for investment, while caution is advised for overvalued internet stocks [29] 4. Market Dynamics: Defensive and value sectors are expected to outperform growth sectors in the near term, reflecting a shift in investor sentiment due to regulatory concerns [2] This summary encapsulates the critical insights and implications for investors regarding the evolving landscape of US-China investment relations and the associated risks and opportunities.