China Equity Strategy_ US Investors Showing Significant Interest in China Stocks, Though Many of them Do Not Own Much Yet

Summary of China Equity Strategy Conference Call Industry Overview - Industry: Chinese Stock Market - Key Focus: US investors' interest in Chinese stocks and the impact of US tariffs on the Chinese economy Core Insights and Arguments 1. Investor Interest: US investors are showing significant interest in Chinese stocks, with the highest level of inquiries in the last three years. However, only 20% of US investors have overweight or neutral positions in Chinese stocks, indicating potential upside [1][4] 2. Impact of US Tariffs: A 10% rise in US tariffs is estimated to reduce China's GDP growth by 0.6% [3] 3. Market Rally Sustainability: Questions were raised about the sustainability of the recent rally in the Hong Kong and Chinese stock markets, particularly driven by the tech sector [2][3] 4. Government Policies: Anticipation of new government policies aimed at stimulating the Chinese economy, especially in response to US tariff increases [5][6] 5. Sector Recommendations: Positive outlook on sectors such as technology, internet, transportation (tourism-related), and certain consumer sub-sectors. Traditional sectors may benefit from state-owned enterprise (SOE) reforms [6][4] Additional Important Points 1. Geopolitical Concerns: US investors remain cautious due to geopolitical risks associated with investing in China [4] 2. Domestic Consumption: Expected deceleration in domestic consumption growth in the second half of 2025 due to high base effects from the previous year [5] 3. Investor Segmentation: Chinese investors and certain value-oriented funds have a higher exposure to Chinese stocks compared to global investors, who are generally underweight [4] 4. Upcoming Events: Potential announcements regarding trade policies and supply-side reforms in industries such as steel and solar energy [5] 5. Valuation Metrics: Current valuations of the Hang Seng Index (HSI) and CSI300 are around historical means, suggesting potential for investment [6] Key Questions from Investors 1. What is the expected impact of US tariffs on the PRC economy? 2. How will the PRC government respond to US tariff increases? 3. Is the recent stock market rally sustainable? 4. What are the expected government policies to stimulate domestic consumption? 5. What is the outlook for the PRC property market and interest rates? [3]