Highlights of The Week
AI Profit-taking and Rotation: This week saw a notable rotation within the AI/TMT sector, with Software and Media facing profit-taking while Humanoid and Semi surged. Key catalysts for Humanoids include: 1) Unitree CEO Wang Xingxing’s attendance in private sector symposium with Xi, and his prediction that humanoid robots will reach a "new scale" by late 2025; 2) Baba’s entry into Humanoid Robotics {NSN SRXKJABNAIO0 <GO>}. 3) SMIC is advancing 2nd phase of its Beijing wafer fab with investment RMB 50B+, 2) Huahong Semi surged 23% after announcing plans to boost gross margin to ~20% in 2025. Ping me if you need a list of names for the theme.
AI/TMT crowding remains at historical highs, with sector volume making up ~46% of overall China-A volume. However, from historical experience, the congestion itself does not necessarily mean a turning point in performance. Instead it means higher risk exposure to liquidity, in which case incremental money would become the key to watch. Investors still believe the rally from AI/DeepSeek has not finished, and there could be a 2nd phase of rally which may be narrower in scope but higher in intensity.
A-shs Continued to Lag H: WTD SHCOMP -0.02%, STAR50 +1.18% vs HSI +1.43% and HSTECH +2.64%.
Note that HK has been outperforming its A-shs counterparts throughout the post-CNY rally, with A/H premium hovering around recent lows. As I highlighted before, this divergence is mostly due to HK’s 1) higher exposure to AI application theme (see chart below), 2) lower valuation and higher price elasticity.
Also from liquidity perspective, H-shs seem to have a better flow structure than A-shares
- H-shares: strong inflows from both SB and Foreign; Southbound bought HK$22.4bn on Tuesday, the biggest daily purchase since early 2021 and the 4th largest on record, pushing the total net purchase post-CNY to HK$66bn. This could also source some onshore liquidity from A-shs.
Foreign flow side, with largest buying into Chinese assets (offshore + onshore) post last Sep, our HK desk saw decent amount of LO buying in HK esp. Internet and Consumer Disc, while inflows on our Shanghai pad were still HF-driven and we haven’t really seen meaningful size of LO buying into A-shs.
- A-shares: ETF selling overweighs margin buying. Onshore investors continued to add ~RMB 3.1bn to A-shs thru margin channel this week, but the size was much smaller compared to the selloff thru equity ETFs, which saw outflows ~RMB 22.5b this week and ~RMB 73bn post-CNY.
Chinese Asset Revaluation? Domestic “De-regulation” & Geopolitical "De-Exceptionalization"
“China Re-valuation” has been mentioned many times recently, behind which I see below two drivers that are critical for reversing years of valuation suppression for Chinese assets:
1/ Domestic “De-regulation” & Private Sector Revival. Recommending a good note from my colleague Peter Sheren who believes Chinese internet stocks have two discounts: the China discount and the regulator discount, and the adoption of DeepSeek and Xi Symposium has all but removed the regulator discount. That said, valuation recovery alone is insufficient, and investors still need validation from earnings growth (e.g. AI commercialization)
2/ Geopolitical "De-Exceptionalization". Trump’s broad tariff threats could reduce China’s “unique risk premium” in global supply chains, which I see as another important driver for reducing the gap between China vs. EM ex-China
Private Sector Symposium: Policy Signal and Market Reaction
The recent high-profile private sector symposium - the first since Nov 2018 - sparked strong market reactions. Companies invited to the meeting saw significant gains this week.
- Meeting Summary: President Xi pledged to further address some challenges to the private sector, including high financing costs/limited financing access, corporate arrears, and occasional misconduct in fee/fine collection, inspection and forced shutdown.
GIR views it as a clear signal from the top leadership to stabilize expectations of private enterprises and entrepreneurs, though demand-side stimulus and more market-friendly policy reforms remain the key to confidence rebuilding.
- Difference vs. 2018: the 18’ symposium features in an ease in financing access for POEs. While the meeting was hosted in Nov'18, market continued to pull back till early 2019 when the Dec'18 credit numbers significantly beat market expectation
- Priority from Seating Arrangement: high-tech innovation is placed at the center, with Huawei’s Ren Zhengfei, New Hope’s Liu Yonghao, and Robotics’ Wang Xingxing seating in front of Xi. Unitree’s placement was particularly unexpected, highlighting Beijing’s focus on robotics and automation.
- Market Reaction: Companies sitting in the first row saw avg WTD gains ~12%, with higher gains observed among those that did not expect to be invited. Interestingly, most of these stocks/themes were already in strong uptrends YTD (avg. YTD return ~29%), suggesting that momentum itself may have been a factor in the company selection.
Companies sitting in the first row:
Ticker /proxy indix |
WTD Rtn. |
YTD Rtn. |
|
Qi An Xin |
688561 |
33.81% |
71% |
Tellhow Sci-Tech |
600590 |
25.18% |
27% |
Xiaomi |
1810.HK |
18.73% |
43% |
New Hope |
000876 |
17.83% |
16% |
Will Semi |
603501 |
16.10% |
51% |
Chint Electrics |
601877 |
15.18% |
7% |
Tecent |
0700.HK |
12.62% |
19% |
China Feihe |
6186.HK |
11.95% |
3% |
Unitree |
8841699.WI |
8.44% |
30% |
Baba |
9988.HK |
6.34% |
51% |
BYD |
002594 |
5.04% |
27% |
CATL |
300750 |
4.65% |
3% |
DeepSeek |
8841905.WI |
4.06% |
70% |
Huawei |
8841007.WI |
1.89% |
12% |
Nongfu Spring |
9633.HK |
-1.42% |
3% |
Source: Wind
Upcoming – The Two Sessions
GIR ON TWO SESSIONS: the meetings will commence on Mar 4, with Premier Li announcing key economic targets on Mar 5. Market expectations have largely solidified following December's CEWC, and focus is now on implementation details. Key GIR expectations:
GDP: "around 5%" (unchanged)
CPI: "around 2%" (down from 3%)
Fiscal Deficit: 4.0% of GDP (up from 3.0%)
Total govnt bond net issuance:
- total: RMB13tn (up from RMB9tn)
- CGSB: RMB2.5tn (up from RMB1tn)
- LGSB: RMB4.7tn (up from RMB3.9tn)
Focus areas: Consumption stimulus, inflation normalization, property sector stabilization, and AI advancement. Also note that this will be the final year of 14th Five Year Plan.
Source: GIR
Flows This Week
Overall we remained better to Buy. The most inflows were seen in large-cap and index-heavyweight names that are usually favored by foreign investor (e.g. Midea, BYD, Moutai); we also caught buying from clients who do A-H pairs to trade the narrowing premium.
LOs: 1.1x to Buy; Buying EV, Machinery vs. Selling Insurance, Auto Parts, two ways in Appliance
HFs: 1.2x to Buy; Buying Liquor, Semi, Auto Parts. vs. Selling Battery, Property and Chemicals
Source: Goldman Sachs, Wind
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