China Equity Strategy: A-share Sentiment Increased With Higher Turnover

Research evidence excerpt

China Equity Strategy: A-share Sentiment Increased With Higher Turnover

IdeaM

Overview (cont'd)

On our recent global marketing around Asia, Oceania, Europe and North America, we

perceive rising interest in Chinese equities amid appreciation for China's innovation

and concerns over soft macro data. Key questions focus on the best China trades, capital

control measures, signposts for Hong Kong's catch-up, and consumption and property

stock outlook.

Despite China market's lackluster performance YTD compared to other markets like Korea

and Taiwan, MSCI China valuation is not yet close to trough level in both absolute and

relative terms. As a result, we would not call the broad market a buy-the-dip

opportunity. We believe investors should stay focused on areas with stronger earnings

visibility and structural growth drivers, particularly AI-related beneficiaries, industrial

technology, domestic technology localization, and select energy and manufacturing

leaders. Until earnings estimate revisions stabilize, a thematic and bottom-up approach is

likely to be more effective than a broad market allocation.

We believe A-share outperformance could persist on a long-term basis, as long as this

structural composition divergence prevails between the A-share market and the Hong

Kong market. We believe the incrementally bigger representation of the tech-/innovation-

heavy sectors in the A-share market will continue, with clear policy, funding, resources and

capital market action support. As a result, we see the best opportunities at the index level

as offered by the A-share market.

On the other hand, given that Hong Kong is overly skewed toward the Internet sector, we

would need to count on a strong rebound of the Internet players for Hong Kong to catch

up.