Investor Presentation_ China Equity Strategy_ Green Fields Beyond the Woods

Summary of Key Points from the Investor Presentation Industry Overview - The focus is on the Chinese equities market, with a cautious optimism regarding structural improvements and potential investment opportunities in the Asia Pacific region [6][8][17]. Core Insights and Arguments 1. Structural Improvements: There are multiple structural improvements in Chinese equities, leading to a cautiously optimistic outlook [6]. 2. Earnings Performance: MSCI China has recently experienced its first quarterly earnings beat after 13 consecutive quarters of misses, indicating a potential recovery in return on equity (ROE) [17]. 3. ROE Recovery: The ROE for MSCI China is expected to reach 12% by 2026, with a convergence towards MSCI Emerging Markets (EM) by 2027 [17][26]. 4. Valuation Shift: A structural shift in valuation is anticipated, with forward price-to-earnings (P/E) ratios expected to rise from the 8-10x range to at least 10-12x, improving the investability of Chinese equities [17]. 5. Geopolitical Factors: Improvements in geopolitical uncertainty, particularly regarding the Ukraine/Russia situation and US tariff policies, are contributing to a more favorable investment environment [17]. 6. Technological Advancements: Chinese firms are making significant technological breakthroughs, particularly in AI, which are expected to drive margin and ROE growth despite macroeconomic challenges [17][31]. 7. Market Sentiment: There is a resurgence of "animal spirits" in the market, with a focus on technology and economic growth as key priorities [29]. Important but Overlooked Content 1. Sector Performance: The earnings estimates for various sectors within MSCI China show significant growth potential, particularly in consumer discretionary and technology sectors, with expected EPS growth rates of 27% and 6% respectively for 2025 [37]. 2. Consensus EPS Revisions: Consensus earnings estimates have been on a downward revision path due to uncertain macro momentum, indicating a cautious approach among investors [33]. 3. High-Quality Group Representation: There is an increasing representation of high-quality, tech-focused companies in the offshore China equity universe, with a notable shift in index weightings from macro-correlated groups to high-quality shareholder return groups [22]. 4. Capex Plans: Companies like Alibaba are announcing significant capital expenditure plans focused on AI, with a projected investment of over RMB 380 billion over the next three years [29]. Conclusion The presentation highlights a cautiously optimistic outlook for Chinese equities, driven by structural improvements, technological advancements, and a potential recovery in earnings performance. Investors are encouraged to consider these factors when making investment decisions in the Asia Pacific region.