UBS-Cha Equity tegy

Summary of China Equity Strategy Conference Call Industry Overview - The report focuses on the China equity market and the positioning of foreign institutional investors as of 1Q24. Key Points 1. Investor Positioning - Foreign funds are less underweight in China equities, improving from -2.6% in 4Q23 to -2.3% in 1Q24, but still below the -2.1% level seen in 3Q22 [2][3][7] - Approximately 25% of active funds have no Chinese holdings, with 193 funds holding US$260 billion in assets under management (AUM) not invested in China [3] 2. Sector Performance - Significant outflows from sectors such as data centers, biotech, water utilities, wind power equipment, and automobiles in 1Q24 [2][11] - Inflows were noted in education, leisure, sportswear, express delivery, and internet sectors [5][11] 3. Market Inflows - Northbound inflows into the A-share market resumed at US$9.4 billion in 1Q24, contrasting with US$8.3 billion of outflows in 4Q23 [4][5] - Southbound trading showed US$17 billion in net inflows during 1Q24, with daily averages of HKD 4.2 billion, indicating strong support for the Hong Kong market [4][5] 4. Investor Preferences - Active foreign institutional investors increased holdings in education, leisure, sportswear, express delivery, and internet sectors while reducing positions in data centers, biotech, and automobiles [5][11] - The sectors with the highest foreign active positions include restaurants, education, consumer finance, and leisure [5] 5. Short Selling Trends - Short selling turnover in Hong Kong declined to 15% of total turnover, down from a peak of 20% in late March [4][37] 6. Valuation Risks - Risks facing China's equities include potential hard landings in the property market, capital outflows due to currency depreciation, and slow structural reforms [38] Additional Insights - The report indicates that 193 funds have previously cleared their China positions but have since re-entered the market, suggesting a cautious but potentially optimistic outlook for future investments [3] - The need for US$4.3 billion in purchases by certain funds to neutralize their underweight positions highlights the potential for increased investment in the Chinese equity market [3] This summary encapsulates the key findings and insights from the conference call regarding the current state and outlook of the China equity market, particularly focusing on foreign institutional investor behavior and sector performance.