China Weekly Kickstart_ MXCN flat and A-shares gained 2% amid US selloffs; Loans and credit data missed expectations and CPI inflation fell in February

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the Chinese equity market and its performance, particularly focusing on the MXCN and CSI300 indices, as well as macroeconomic indicators affecting these markets [1][2][3]. Core Insights and Arguments - Market Performance: MXCN was flat at -0.3%, while CSI300 gained 1.6% amid US market selloffs, indicating resilience in the Chinese market despite external pressures [1]. - Economic Forecasts: US economists have lowered the 2025/26 GDP growth forecasts, raising the recession probability from 15% to 20% due to higher baseline tariffs. In contrast, China's high-tech manufacturing sector is expected to contribute an average of 1.0 percentage point to annual GDP growth from 2025 to 2029 [1]. - Inflation Trends: China's CPI inflation fell to -0.7% year-on-year in February, influenced by the earlier Lunar New Year holiday [1]. - Investment Inflows: Southbound inflows reached US$7.9 billion this week, with a total of US$48 billion year-to-date, indicating strong interest from foreign investors [3][40]. - Sector Performance: Energy and dividend-yielding sectors outperformed, while Real Estate and New China sectors lagged behind [8]. The earnings growth forecast for MXCN and CSI300 is 8% and 15% for 2025, respectively [9]. Additional Important Insights - Policy Changes: The CSRC has released new rules regarding bankruptcy and restructuring for listed companies, which may impact market dynamics [4]. - AI and Tech Sector: The AI sector has been a significant driver of market performance, with EPS upgrades for offshore-listed tech companies [25]. The optimism surrounding AI is expected to continue influencing earnings revisions positively [27]. - Valuation Metrics: The forward P/E ratios for MXCN and CSI300 are 11.6x and 13.0x, respectively, suggesting potential undervaluation compared to historical averages [2][58]. - Global Fund Allocations: Global fund allocations to Chinese equities are at historical lows, with only 6.6% of mutual funds allocated to China, indicating potential for future growth as allocations normalize [35][38]. - Retail Sentiment: Retail risk appetite has improved but remains below exuberant levels, suggesting cautious optimism among investors [51]. Conclusion The conference call highlights a complex interplay of domestic growth prospects, external economic pressures, and sector-specific performance within the Chinese equity market. The focus on AI and tech sectors, along with significant foreign inflows, suggests a potential for recovery and growth in the coming quarters, despite the challenges posed by global economic conditions.