Equity Research

We have held extensive meetings with investors in Asia, the US, and Europe in the past month to discuss views and ideas on Chinese equities. We summarize clients' feedback and FAQs, and our latest market thoughts as follows:

1. China is back on the radar, at least in terms of investor interest;
2. We expect more fundamental upside for Chinese stocks after ~20% gains ytd, but reiterate our tactical view that the bull run may slow on event risks and profit-taking pressures;
3. Equity investors seem relaxed about US tariff concerns, citing various macro, policy, and micro reasons;
4. Most investors agree that the Chinese AI story is a game changer, although questions/debates about potential AI benefits have surfaced;
5. Investors welcome the easing regulatory pressures on the private sector, and focus on the durability of the easing cycle;
6. "Green shoots" are emerging in select pockets of the economy. Policy delivery still holds the key for further gains;
7. Global funds are motivated to return to China, but US policy risks remain an overhang;
8. Most frequently asked question: Stick with H, or shift to A?
9. Market leadership and concentration: Can Tech extend the outperformance, or Consumer to take over?
10. What are different types of investors doing in the Chinese stock market?

In this note we highlight options positioning for companies with potential exposure to changes in trade/tariff policy. Our economics team now expects the US effective tariff rate to rise by roughly 10pp to 13% leading them to lower their 2025 US GDP growth forecast from 2.4% to 1.7%. They see the potential for the tariff rate to rise by about 15pp in an upside risk scenario. Our US strategists' have also lowered their S&P 500 year-end target from 6500 to 6200 to reflect a lower GDP growth forecast, a higher assumed tariff rate and a greater equity risk premium driven by a higher level of uncertainty.

Two new catalyst-based idiosyncratic trades:
Trade #1: Buy JEF straddles ahead of earnings (26-Mar)
Trade #2: Buy GM straddles ahead of earnings (29-Apr)