UBS(US:UBS)2025-09-29 03:06Summary of Key Points from the Conference Call Industry Overview - Industry: A-share market in China - Context: The Federal Reserve (Fed) has resumed its rate cut cycle, impacting the A-share market dynamics Core Insights and Arguments 1. Fed Rate Cut Announcement: The Fed announced a 25 basis point (bp) rate cut on September 17, lowering the target to 4.00-4.25%, marking the resumption of the rate cut cycle after a nine-month pause since December 19, 2024 [1][7][8] 2. Historical Performance Analysis: The analysis focuses on A-share sector and style performances during three rate cut cycles since 2007, highlighting that liquidity-sensitive sectors (telecoms, electronics, computers) significantly outperformed the market, while cyclical sectors underperformed [2][8] 3. Market Style Performance: 'Growth' style stocks outperformed during these cycles, with 'small-cap' stocks also showing better performance compared to 'large-cap' stocks [2][4][8] 4. Short-term Impact: Following Fed rate cut announcements, 'growth' and 'small-cap' stocks continued to outperform the market within 30-60 trading days [2][4][8] Monetary Policy and Market Dynamics 1. China's Monetary Policy: With the Fed's rate cut, there is potential for further loosening of China's monetary policy, with expectations of a 20bp rate cut by the People's Bank of China (PBoC) in the next two to three quarters [3][4] 2. Emerging Market Outlook: UBS upgraded emerging market equities to Overweight, predicting that a weaker US dollar could lead to a 9 percentage point (ppt) outperformance of EM stocks over developed markets [3][4] 3. Foreign Investment in A-shares: As of September 22, overseas investors held Rmb3.4 trillion in A-shares, representing 7.0% of the total A-share free-float market cap, indicating room for growth in foreign inflows [3][17][19] Earnings and Market Sentiment 1. Earnings Growth: A-share earnings grew by 2.3% during the first half of 2025, with expectations for a full-year growth of 6% [4] 2. Market Sentiment: The ongoing A-share rally is driven by leveraged funds, with no signs of overheating retail sentiment, suggesting ample room for household savings to enter the market [4] Sector Preferences 1. Preferred Sectors: The report favors liquidity-sensitive and high-beta sectors such as electronics, semiconductors, computers, telecoms, media, and non-bank financials. Additionally, sectors aligned with the 'anti-involution' theme, such as solar, chemicals, and lithium stocks, are highlighted [4] Risks and Considerations 1. Market Risks: Potential risks include a hard landing in the property market, capital outflows due to currency depreciation, and slow structural reforms. Inadequate government policies could lead to market shocks [24][25] This summary encapsulates the key points discussed in the conference call, providing insights into the A-share market's performance, monetary policy implications, sector preferences, and associated risks.