高盛：全球路演反馈-中国强势回归 China Musings Global marketing feedback China is back 20250226

26March2025|7:11AMHKT

ChinaMusings

Globalmarketingfeedback:Chinaisback

WehaveheldextensivemeetingswithinvestorsinAsia,theUS,andEuropeinthepastmonthtodiscussviewsandideasonChineseequities.Wesummarizeclients’feedbackandFAQs,andourlatestmarketthoughtsasfollows:

1.Chinaisbackontheradar,atleastintermsofinvestorinterest;

2.WeexpectmorefundamentalupsideforChinesestocksafter~20%gainsytd,butreiterateourtacticalviewthatthebullrunmayslowoneventrisksandprofit-takingpressures;

3.EquityinvestorsseemrelaxedaboutUStariffconcerns,citingvariousmacro,policy,andmicroreasons;

4.MostinvestorsagreethattheChineseAIstoryisagamechanger,althoughquestions/debatesaboutpotentialAIbenefitshavesurfaced;

5.Investorswelcometheeasingregulatorypressuresontheprivatesector,andfocusonthedurabilityoftheeasingcycle;

6.“Greenshoots”areemerginginselectpocketsoftheeconomy.Policydeliverystillholdsthekeyforfurthergains;

7.GlobalfundsaremotivatedtoreturntoChina,butUSpolicyrisksremainanoverhang;

8.Mostfrequentlyaskedquestion:StickwithH,orshifttoA?

9.Marketleadershipandconcentration:CanTechextendtheoutperformance,orConsumertotakeover?

10.WhataredifferenttypesofinvestorsdoingintheChinesestockmarket?

KingerLau,CFA

+852-2978-1224|kinger.lau@GoldmanSachs(Asia)L.L.C.

TimothyMoe,CFA

+65-6889-1199|timothy.moe@GoldmanSachs(Singapore)Pte

SiFu,Ph.D.

+852-2978-0200|si.fu@GoldmanSachs(Asia)L.L.C.

KevinWang,CFA

+852-2978-2446|kevin.wang@GoldmanSachs(Asia)L.L.C.

Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

/research/hedge.html

.

GoldmanSachs

ChinaMusings

1.Chinaisbackontheradar,atleastintermsofinvestorinterest

nWehaveheldmeetingswithawidespectrumofinvestors(seeSection10)in

mainlandChina,HongKong,Singapore,theUS,andEuropeposttheLunarNew

Yearholidays.Broadly,investors’interestandengagementlevelsinChinese

equitiesarearguablyatthehighestsincethemarketreacheditshistoricalpeakinearly2021.

nChinaisbackoninvestors’radarscreenforafewreasons:First,thestrongytdgainsfromChineseequitieshavecaughtmanyinvestorsbysurprise,withMSCIChinaandHangSengTechhavingrallied16%and23%sofarin2025,significantlyoutpacingitsDMandEMcounterpartswhichhavereturned1%and6%ytd.The3m

outperformanceofChinavsDMandEM(ex-China)equitiesisat18%,98thand94thpercentilerespectivelyinthepast10-yearrange.

nSecond,theemergenceofDeepSeekhasalteredthenarrativeofChinatechnologyandtheoutlookforChinesestocks,usheringinrenewedgrowthoptimismthatis

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drivenbybottom-up,innovation-empoweredinvestmentthesis(seeSection4).

nThird,domesticregulatorypressuresappeartohaveeased,asexemplifiedby

PresidentXi’srecentmeetingwithbusinessleadersintheprivatesector.Regulatoryuncertaintyhasbeenregardedbyinvestorsasakeyimpedimentofinvestingin

China(seeSection5).

nLastly,globalequitymandatesareactivelylookingforalternativesoutsideoftheUSstockmarket(seeSection7),withChinabeingseenasoneofthepotentialflowrecipientsgivenitsappealsregardingliquidity,valuations,anddiversification

benefits.

Exhibit1:ThelatestAI-poweredrallyisoneofthemostsignificantinhistory

MSCIChinaPrice(LOC,Rebased)

180

PostGFC

170ReopeningRecovery

(0=10/31/2022)(0=10/27/2018)

160

150SepPolitburo

Stimulus

(0=9/11/2024)Covid

140Package

(0=3/19/2020)

130

120

(0=1/13/2025)

110Current

100

-30D0+30D+60D+90D+120D+150D

Exhibit2:China’srecentoutperformanceoverDMandEMex-ChinaequitiestrailsonlytheReopeningrally

MSCIChina3mRollingRelativeReturns

40%

30%

20%

10%

0%

-10%

-20%

-30%

vs.MSCIWorldandMSCIEMex-China(%)

VicePremierLiuHe

reiteratedthesupportto

18%(+1.7s.d.)

theplatformand

18%(+1.4s.d.)

PolicyPivotin

privateeconomyatthe

Seppolitburo

CPPCCmeeting

meeting

launchof

DeepseekR1

China

Reopening

vs.DM

vs.EMxCN

Mar-20

Dec-20

Sep-21

Jun-22

Mar-23

Dec-23

Sep-24

Note:Z-scorecalculatedoverthepast5-yearhorizon

Source:MSCI,FactSet,GoldmanSachsGlobalInvestmentResearchSource:MSCI,FactSet,GoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

2.Morefundamentalupside,butpossibletacticalprofit-takingrisks

nThestrongrecentgainshaveinevitablypromptedinvestorquestionsaboutthe

sustainabilityoftheuptrend,consideringthattheprevioustwoChinaequity

rallies—Reopeninginlate2022andthepolicypivotlastSeptember—wereequallypowerfulbutshort-lived.

nMostinvestorsshareourviewthatthelatestrecoveryshouldhavemorestayingpowerfundamentallythanitsprecedentsasconsensusEPSattheindexlevelandforTechhasbeenraisedby1%and2%inthepast6weeksrespectively,withourproprietarytoolAEGISpointingtomorepositiverevisionsinthequartersahead.

nInour2025OutlooklaunchedinNovember2024,wesetour12mtargetforMSCIChinaat75,expecting15%ofpotentialupsideatthetimeofpublishing.5weeksago,weraisedthetargetto85(19%higherfromcurrentlevels)toincorporatetheupsideoptionalityfromAI,predicatedona12xfairPEmultiple(now@11.5x)and9%EPSgrowthfor2025(consensus@8%).OurCSI300targetremainsat4,700,

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representing20%12mpricereturns.

nHowever,weexpectthebullmarkettoslowandprofit-takingpressurestobuildastheUS-Chinapolicyandgeopoliticalcalendarturnsactiveonceagaininthe

comingweeks,featuringtheUSinvestigationreportonChina’sadherencetotheUS-ChinaPhaseOnetradedeal,andtheWhiteHouse’sdecisionsonreciprocaltariffs,bothscheduledtotakeplaceinearlyApril.

26March2025

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GoldmanSachs

ChinaMusings

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Exhibit3:Bothfundamentalandtechnicalindicatorspointtofurtherroomfortherecoverytoextend

Reopening

Politburomeeting

Current

(Oct2022-Jan2023)

(Sep2024-Oct2024)

(Jan2025-Now)

Start

PeakChange

Start

LatestChange

Start

LatestChange

TradingDays

65d

19d

51d

MSCIChinaLocalPrice

48.1

75.7

57%

55.2

76.9

39%

61.1

77.8

27%

MSCIChina14DRSI

24

84

60pt

37

94

57pt

25

56

31pt

12MForwardP/E(Aggregate)

8.1x

11.9x

46%

8.4x

11.6x

37%

9.3x

11.6x

25%

12MForwardP/E(Median)(2)

12.1x

14.3x

19%

11.5x

14.6x

28%

13.2x

13.7x

4%

FY1/FY2EPSrevision(CNY)

-

-

(3%)

-

-

0%

-

-

1%

GlobalActiveFundsAllocation

6.4%

9.1%

2.8ppt

5.2%

6.2%

1.0ppt

6.3%

-

-

GlobalHedgeFundsAllocation

7.2%

13.3%

6.1ppt

6.8%

9.8%

3.0ppt

6.5%

9.1%

2.6ppt

DomesticMFEquityAllocation

87.9%

84.6%

(3)ppt

85.8%

87.1%

1ppt

86.4%

88.6%

2ppt

US10YTreasuryYields(3)

4.1%

3.5%

(58)bp

3.7%

4.0%

38bp

4.8%

4.3%

(45)bp

China10YGovtBondYields(3)

2.6%

2.9%

29bp

2.1%

2.2%

6bp

1.6%

1.8%

20bp

ChinaCAI

2.3

7.2

5ppt

5.5

6.6

1ppt

6.4

5.6

-1ppt

ChinaFCI(4)

102.6

102.9

0.3pt

102.6

102.6

0.0pt

102.3

102.3

0.0pt

Note(1):Abbreviation:pt-point;ppt-percentagepoint;MF-mutualfunds;CAI-GSCurrentActivityIndicator;FCI-GSFinancialConditionIndex

Note(2):MedianstockfP/EbasedoncurrentMSCIChinaIndexconstituents

Note(3):Nominalyields

Note(4):Highermeanstighterfinancialconditions

Note(5):Averagecalculationsdon'tincludecurrentepisode

Source:FactSet,MSCI,EPFR,GoldmanSachsPrimeServices,Wind,USDepartmentoftheTreasury,GoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

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Expected

Exhibit4:AveryactiveUS-Chinapolicyandgeopoliticalcalendarincomingweeksandmonths

Date

Events

4Feb2025

USimposed10pptariffonimportsfromChina

21Feb2025

PresidentTrumpsignedthe"AmericaFirstInvestmentPolicy"

4Mar2025

USimposedanadditional10pptariffonimportsfromChina

4-11Mar2025

2025national"TwoSessions"

6Mar2025

PressconferencewithNDRC,MOF,MOFCOM,PBOC,CSRConeconomicissuesduringthe"TwoSessions"

Severaldaysfollowing11Mar2025

AStateCouncilmeetingonconcretepolicyimplementationmeasures,toechothe"TwoSessions"

Mar-Apr2025

FY/4Q2024financialresultsseason

12Mar2025

USmayimposetariffonsteelandaluminum

14Mar2025

USbudgetresolutiondeadline2025

23-24Mar2025

ChinaDevelopmentForum

1Apr2025

UStradeprobeonChina’sadherencetothePhaseOnetradedealfinishes

2Apr2025

Trumpplanstoimpose25pp“reciprocal”tariffsonCanadaandMexicostartingonApril2.

2Apr2025

USmayimposetariffonautos

4Apr2025

Trump's75-dayextensionoftheTikTokbanends

16Apr2025

Q12025GDPrelease

LateApr2025

Politburomeetingoneconomicpolicies

5-6May2025

GlobalSolutionsSummit2025

9May2025

MoscowVictoryDay

15-17Jun2025

G7Summit2025

6-7Jul2025

17thBRICSSummit

15Jul2025

Q22025GDPrelease

End-Jul2025

Politburomeetingoneconomicpolicies

9Sep2025

80thSessionofUNGeneralAssembly

Source:DatacompiledbyGoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

3.EquityinvestorsseemrelaxedaboutUStariffrisks

nManyinvestorsaresurprisedbytherobuststockmarketperformance

notwithstandingthetwoUStariffannouncementsinFebruaryandMarch,whichhavecumulativelyincreasedtheeffectivetariffonChineseexportsby20pp.Inourview,theresiliencycouldbeexplainedby:

1.China’smeasuredresponsesanddisproportionateretaliatoryactionstotheUStariffimpositions;

2.Whilethe20ppriseinUStariffsmaynotbethefinaldestination,theincreaseinmagnitudesofarisin-linewithoureconomists’basecaseandalsobuy-sideexpectations;

3.SomeinvestorsbelievethatChinaappearsbetterplacedtodealwiththe

externaldemandheadwindsnowcomparedtotheTradeWar1.0sevenyearagothankstoitsreduceddirectexportstotheUSandimprovedproduct

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competitiveness;

4.ChinawastheprimarytargetofUStariffspreviouslybutmostUStradingpartnerscouldseehighertariffsinTrump’ssecondterm.OurUSeconomistsrecentlyaddedaglobalautotariffand“reciprocal”tarifftotheirbaselineforecast;

5.TheRmbexchangerateshavebeenbroadlystabledespitethetariffheadlines,

partlyhelpedbythebroadDollarweaknesssincemid-January(~5%),andpartlyduetothePBoC’sintervention;

6.Thepossibilityforthetwopartiestonegotiateacomprehensiveagreementinthemonthsaheadwhichmightpotentiallyleadtotariffrollbacks.

nA20%increaseineffectiveUStariffrate,anditsspillovereffectstoothermacrofactors,isalreadyembeddedinourbase-caseearnings,valuations,andindex

returnsforecasts,butthehighlevelofuncertaintyregardingthepath,profile,andmagnitudeofthetariffdevelopmentsleadsustobelievethatthisriskfactormayhavebeensomewhatoverlookedbyinvestors,atleastrelativetomarketpricing.OurproprietaryUS-ChinaRelationsBarometeriscurrentlyabovemid-range,

meaningfullybelowthestretchlevelsin2021and2023.

26March2025

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GoldmanSachs

ChinaMusings

Exhibit5:OurUS-ChinaRelationsBarometer(GSSRUSCN)atmoderatelyabovemid-cyclelevels

100

90

80

70

60

50

40

30

20

10

0

GSUS-ChinaRelationsBarometer<GSSRUSCN>

Geopolitics(100)

CapitalMkt(90)

GSSRUSCN(75)

Trade(69)

HardTech(23)

Higherimplies"worserelations"

SoftTech(3)

20182019202020212022202320242025

Source:GoldmanSachsGlobalInvestmentResearch

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Exhibit6:BoththeequityandFXmarketsaremorestablethistimearoundthanin2018-19

140

130

120

110

100

90

80

70

60

50

40

MXCNindexUSDCNY

US

TradeWar1.0

D/CNYandMXCNPerformancefromTradeWar1.0tillNow

Second10%

tariffonall

Chinesegoods

“Scrutinybenchmark”forUSdollar

withdrawalswascut

Trumpannounces

(List4:+10%tariff)

\

StatebanktosupportYuan

Announce

25%tariff

on$50bn

products

Announcementdate

(List1:+25%tariff&

List2:+25%tariff&

List3:+10%tariff)

Fedstartedto

hikeinterest

ratesby25bpperquarter

TradeWar2.0

CNY

countercyclicalfactorwas

phasedout

China's

Reopening

FXDepositRRRHike

China's

PolicyPivot

Launchof

DeepSeek

Encouragingoverseas

lendingandloweringcrossborderfinancingquota

MXCNUSD/CNYspot(RHS)

Announce10%

tariffonall

Chinesegoods

R1

6.2

6.8

6.6

6.4

6.0

7.0

7.2

7.4

Jan-18Jul-18Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-24Jul-24Jan-25

Source:MSCI,FactSet,HaverAnalytics,GoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

4.AIchangesthegame,butquestionsremain

nWeencounteredbroadagreementfrominvestorsthattheDeepSeekmomentisperhapsagamechangerintermsofitsimpactsoninvestors’perceptionand

narrativetowardsChineseequities.

nAtthemacrolevel,oureconomistsestimatethatAIwillstartraisingpotential

growthinChinaby2026andprovidea0.2-0.3ppuplifttoannualGDPgrowthby2030.

nIntheequitymarket,weestimatethatwidespreadAIadoptioncouldboostChineseEPSby2.5%peryearoverthenextdecadevialowercosts,higherefficiency,andnewrevenueopportunities,raisethefair/equilibriumvaluationsforChinaequityby15-20%,andpotentiallyusherinoverUS$200bnofportfolioinflows.

nEquityinvestorshaveswiftlyembracedthepotentialAIupsideoptionality:

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averagefP/Eofthetop-10ChineseTechcompanieshasre-ratedto23x(-1.3s.d),andmorethanUS$6tnofmarketcapitalizationhasbeenaddedtoourAI-TechuniversesincetheDeepSeekR1modelwaslaunchedonJan20,2025.Withthe9%

correctioninNasdaqfromitsrecentpeak,thevaluationdiscountsofChineseTechcompaniesvis-a-vistheirUSpeers,proxiedbyHSTECH,haveshrunkfrom44%atthestartoftheyearto26%atpresent.

nInvestorquestionsanddebatesregardingtheextentofearningsandprofitability

boostfromAI-relatedinvestment,use-casecreationandmonetization,andits

long-termimplicationson(dis)inflationandthelabormarkethavebeguntoheatupastheoptimismgetsbetterdiscountedinvaluations.Whiletheanswersmaynotbeknownanytimesoon,webelieveearningsupgradesandprofitgrowthwillbe

necessarytoprolongtheAI-powereduptrend.

Exhibit7:ValuationgapsbetweenUSandChinaTechhavenarrowed

Jun-22

Dec-22

Jun-23

Dec-23

Jun-24

Dec-24

NDXfPE

40

35

30

25

20

15

10

Nasdaq100vsHSTECHNTMPE(x)

HSTECHfPE

24.4x

18.0x

Exhibit8:Thevaluationgapsmaybejustifiablebythedifferentialsinprofitabilitybetweenthetwogroups

30%

25%

20%

15%

10%

5%

0%

Aug-20

Feb-21

Aug-21

Feb-22

Aug-22

Feb-23

Aug-23

Feb-24

Aug-24

Feb-25

Nasdaq100vsHSTECH12mfROE

NDXROE

HSTECHROE

25%(+0.7s.d.)

13%(+1.8s.d.)

Source:HSI,FactSet,IBES,GoldmanSachsGlobalInvestmentResearchSource:HSI,FactSet,IBES,GoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

5.Regulationriskshavemoderated,corporateresponsesinfocus

nInvestorsareencouragedbythemeetingbetweenPresidentXiandprivate-sectorbusinessleadersonFebruary17,whichhasconveyedaclearmessagethatthe

regulatorypressurestowardstheprivateeconomyhaveeased.

nOurPOERegulationProxy,ameasureoftheregulatorytighteningintensityinselectindustriesthataredominatedbyprivateentrepreneurs,alsoindicatesthatthe

regulatorybackdropisatthemostaccommodativelevelssince2017.

nThisshouldbodewellforlistedPOEstoregainthereturnleadershipvis-a-vistheirSOEpeersafterundergoingadeepde-ratingcycleinthepast4yearsdueto

elevatedregulationuncertainty.

nLookingahead,themeetingshouldbeconducivetocorporateconfidencebutits

impactswilltaketimetomanifestinharddata:capexspentamonglistedprivate

companiesfell7%yoyin1H24,thelowestsince2009,althoughthebudgetfornewcapexhasrisenintheongoingresultsseason,ledbyInternetcompaniesonAI

useWILSONLAI@MAIL.CITFUND.COM.TW

relatedinvestments.

nOtherhighfrequencyindicators,suchasEPMI,corporateloans,andcompanyhiringstatswerementionedbyinvestorsasproxiestogaugetherecoverypathof

animalspiritsinthecorporateworld.

Exhibit9:Ournewssearch-basedProxyindicatesthatpolicy

towardsPOEshasfurthereasedlately,coincidedwithPresidentXi’srecentmeetingwithbusinessleadersintheprivatesector

(z-score)POERegulationProxy

Exhibit10:POEshavetrailedSOEsinthepast4yearsduetoelevatedregulationuncertainty

2.5

2.0

1.5

1.0

0.5

0.0

-0.5-1.0-1.5-2.0

-2.5

Tighteningpolicy

2018

stance

COVID

Disruption

2021

Episode

Episode

"31Articles"to

supportPOEs

PresidentXi's

symposiumwithprivatesectorleadersinNov2018

/

PresidentXi's

symposiumwithtopbusiness

↓Easingpolicy

stance

Jul-19Jul-20Jul-21Jul-22Jul-23leadeJrsul-24

Jul-18

Jul-15Jul-16Jul-17

Note:POERegulationProxyreflectsthetext-miningresultsofnewsamongPOE-heavy

sectors.DatapointsduringMar-Jun2020havebeenremovedduetoCOVIDdisruptions.ThelatestbarshowsthepreliminaryreadingofMar2025

MSCIChinaPOEvsSOEperformanceandrelativevaluations

600

500

400

300

200

100

0

Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

Feb-19

Feb-20

Feb-21

Feb-22

Feb-23

Feb-24

Feb-25

POEvsSOERelativeReturnsPOEvsSOEValuationGap(RHS)

Jan2021487

253

(+0.0s.d.)

7.5x

(-0.9s.d.)

Note:Z-Scorecalculatedoverthepast10-yearhorizon

25

20

15

10

5

0

Source:Factiva,MSCI,GoldmanSachsGlobalInvestmentResearchSource:MSCI,FactSet,GoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

6.“Greenshoots”areemerging;Policydeliveryisnecessarytofuelfurthergains

nAsidefromthestructuralgrowthopportunitiesintheTecheconomy,investorsareveryfocusedonafew“greenshoots”inthetraditionaleconomy,whichhas

beengrapplingwithvariousstructuralandcyclicalheadwindsinthepastfewyears.

nFirst,inthehousingmarket,transactionvolumes(primaryandsecondary)inhigher-tiercitiesappeartohavebottomedoutonfallingmortgagerates,risingrentalyields,andeasinghousingpolicyrestrictions,allhelpingtopushinventorymonths(tosales)backdowntohistoricallynormalizedlevels.

nSecond,excavatorsales,oftenseenasayardstickfordemandininfrastructureandconstructionsectors,havesurgedinthefirst2monthsoftheyear,anddemandforconstructionmaterialshasstrengthenedthankstocontinuingdemand-sidepolicystimulus,government-ledsupplyrationalizationandconsolidation,andbetterfiscalpositionsforlocalgovernmentamidtheongoingdebtresolutioninitiative.

useWILSONLAI@MAIL.CITFUND.COM.TW

nOureconomistsalsoflagtheupsideriskstotheir1Qandfull-yearGDPgrowthforecastgiventhesmaller-than-expectedgrowthdragsfromUStariffsandtrade

uncertainty,recoveringbusinessconfidence,andstrongcreditgrowthmomentum.

nHowever,investorsarefarfromconvincedthatthepropertydownturnandthe

deflationarycycleisover,andthatotherstructuralimbalanceshavebeenadequatelyaddressed.Assuch,followingtheconfirmationofapro-growthpolicybiasfromtheTwoSessionsmeeting,prudentexecutionanddeliveryofpolicypromises

centeringonthehousingmarketandconsumptionisneededtofurtherstabilizegrowthexpectationsandsupportmoreequitymarketgains,inourview.

Exhibit11:Inventorymonths(tosales)haveimprovedinhigher-tiercities

(months)Inventorymonthsbycitytier

40

35

Tier3:30

30

25

Tier1:21

Tier2:16

20

15

10

Mar-19

Sep-19

Mar-20

Sep-20

Mar-21

Sep-21

Mar-22

Sep-22

Mar-23

Sep-23

Mar-24

Sep-24

Mar-25

5

Exhibit12:Oureconomicsteamexpectsgovernmentbondnetissuancetoaccelerateincomingmonths,giventhelargequotaplannedforthisyear

Annualgovtbondnetissuancebybondtype(RMBtn)

14

12

GSe

CentralgovtspecialbondLocalgovtspecialbond

CentralgovtgeneralbondLocalgovtgeneralbond

10

8

6

4

2

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

25Jan-

Feb

2025E

0

Source:CREIS,GoldmanSachsGlobalInvestmentResearchLocalgovernmentrefinancingbondissuancefordebtresolutionisnotincluded.

Source:Wind,CEIC,GoldmanSachsGlobalInvestmentResearch

26March2025

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GoldmanSachs

ChinaMusings

7.GlobalfundsaremotivatedtoreturntoChina,butUSpolicyrisksremainanoverhang

nHedgefundsandSouthboundinvestorshavebeenactiveinthelatestmarketrally,asshownbytheformer’srisingnetandgrossexposurestoChinesestocksperGSPrimeBrokeragedataandtherecord-breakinginflowstoHKforthelatter.Inthe

mutualfundworld,positioningandflowsdataalsosuggestthatEMand

Asia-focusedinvestorshaveraisedtheirChinaallocationsinthepastfewmonths,althoughtheparticipationfromtheglobalmandatesremainsmuted.

nOurconversationswithassetmanagerswithaglobalequitymandatehavehowevershownstronginterestsfromthemtoaddtoChina,with5,800+outofthe

16,300+inourdatabasecurrentlyhavenoChinesestocksintheirportfolios.

Commonlycitedreasonsinclude:a)theelevatedpolicy/tradeuncertaintyintheUSwheretheirequityexposuresareclosetoall-timehighs;b)China’sproven

useWILSONLAI@MAIL.CITFUND.COM.TW

diversificationbenefitstoglobalinvestors,especiallyinUScorrectiveepisodesinrecentyears;c)lowerperceivedregulatoryriskpremiuminChina;and,d)China’sattractivevaluationsinaglobalcontext.

nBut,afewoverhangsremain,mostnotablytherisksrevolvingaroundpolicy

restrictionsofportfolioflowstoChineseassets,ashighlightedintheAmericaFirstPolicyendorsedbyPresidentTrumpjustamonthago.Thisisparticularly

relevanttoinvestorswhosourcecapitalfromassetownersthathavecloseaffinitywiththeUSgovernment(e.g.USStatepensionfunds).

nForreference,weestimatethatpension,endowment,andsovereignwealthfundsgloballycurrentlyhavearoundUS$40-50bndirectexposurestoChineseequity

basedonbottom-upholdingdata,andUSfederal-andlocal-administeredpensionfundscouldhaveapproximatelyUS$50bnofindirectinvestmentsinChinese

publicequitiesviaassetmanagersusingglobalmutualfunds’allocationtoChinaequityasagauge.

nInanextremescenariowhereUSpersonsarebannedfrominvestinginChinese

publicequities,weestimatemorethanUS$800bnofpotentialliquidationselling

wouldoccur,mostlyconcentratedintheADRandH-sharemarkets.However,onepotentialalleviatingfactorlieswiththefactthatChineseinvestorsalsoown

aroundUS$400bnofUSequities,andhencethenetsupplyofChinesestocksinacompletecapitalmarketdecouplingscenariowouldbelesssubstantialthanthe

headlinenumbersmaysuggest.

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GoldmanSachs

ChinaMusings

Exhibit13:ChineseequitieshaveperformedreasonablywellinUScorrectiveperiodsinrecentyears

useWILSONLAI@MAIL.CITFUND.COM.TW

ChinaperformanceduringperiodsofSPXcorrections

StartDate

EndDate

SPX

Return

MXCN

Return

ChinaA

MXCN

relative

returnsvs.

SPX

ChinaA

relative

returnsvs.

SPX

MXCN

downside

sensitivity

ChinaA

downside

sensitivity

18-Feb-97

11-Apr-97

-10%

3%

43%

12%

53%

-0.3

-4.5

7-Oct-97

27-Oct-97

-11%

-28%

12%

-17%

23%

2.6

-1.1

17-Jul-98

8-Oct-98

-19%

-15%

-7%

4%

13%

0.8

0.3

16-Jul-99

15-Oct-99

-12%

-19%

2%

-7%

14%

1.6

-0.1

24-Mar-00

14-Apr-00

-11%

-1%

6%

11%

17%

0.0

-0.5

4-Sep-00

4-Apr-01

-27%

-45%

4%

-17%

31%

1.6

-0.1

21-May-01

21-Sep-01

-26%

-41%

-18%

-14%

8%

1.5

0.7

4-Jan-02

9-Oct-02

-34%

-24%

-5%

10%

29%

0.7

0.1

28-Nov-02

11-Mar-03

-15%

-8%

4%

6%

18%

0.6

-0.2

9-Oct-07

10-Mar-08

-19%

-28%

-22%

-9%

-3%

1.5

1.2

19-May-08

20-Nov-08

-47%

-57%

-51%

-10%

-3%

1.2

1.1

6-Jan-09

9-Mar-09

-28%

-21%

13%

7%

41%

0.8

-0.5

23-Apr-10

5-Jul-10

-16%

-9%

-21%

7%

-5%

0.6

1.3

29-Apr-11

25-Nov-11

-15%

-27%

-20%

-12%

-4%

1.8

1.3

2-Apr-12

1-Jun-12

-10%

-13%

7%

-3%

17%

1.3

-0.7

21-May-15

25-Aug-15

-12%

-31%

-37%

-19%

-25%

2.5

3.0

3-Nov-15

11-Feb-16

-13%

-24%

-14%

-11%

-1%

1.8

1.1

26-Jan-18

8-Feb-18

-10%

-13%

-8%

-3%

2%

1.3

0.8

20-Sep-18

25-Dec-18

-20%

-13%

-9%

7%

11%

0.7

0.4

19-Feb-20

23-Mar-20

-34%

-20%

-13%

14%

21%

0.6

0.4

2-Sep-20

23-Sep-20

-10%

-7%

-4%

2%

6%

0.8

0.4

3-Jan-22

8-Mar-22

-12%

-16%

-14%

-3%

-1%

1.3

1.1

29-Mar-22

16-Jun-22

-21%

-4%

3%

16%

24%

0.2

-0.1

16-Aug-22

12-Oct-22

-17%

-19%

-9%

-2%

7%

1.1

0.6

16-Jul-24

5-Aug-24

-8%

-7%

-4%1%

4%

0.8

0.5

19-Feb-25

13-Mar-25

-10%

1%

-1%11%

9%

-0.1

0.1

Average-18%-19%-6%-1%12%1.00.3

Median-15%-18%-6%0%10%1.20.4

Note:Recentcorrectionperiods(sinceCovid)whenbothMXCNandChinaAoutperformedSPXarehighlightedinred;bearmarketperiods(SPXReturn<-20%)arehighlightedingrey.

Source:MSCI,FactSet,Bloomb