00:00So we just heard that the outlook for the A-share market in China is looking pretty positive.
00:05You expect another positive year. What are going to be the catalysts?
00:08Well, after a strong 2025, it's really difficult not to be optimistic.
00:14So we have the earning growth, we have the valuation game.
00:17And also we're really looking for some of the policy tailwinds,
00:22given it is the first year of the 15th five-year plan.
00:26That's right. Well, they want to boost consumption, obviously, as the main driver.
00:30Is that something you see they have the policy tools to do?
00:34Hi. How?
00:36A couple of things. Obviously, there's a vibrant part of the economy,
00:41the high-end manufacturing, the AI-related, many of those renewable energies.
00:46But what you and I were talking about is the broader base sort of growth,
00:51which consumption will be a key.
00:54We have been suggesting for the government, hopefully the two sessions will give us something,
00:59whether they will put a GDP, nominal GDP growth target,
01:04which implies the price and the growth,
01:07or a target for consumption as a percentage of GDP.
01:10Those targets will be very helpful to set the goal.
01:14Yeah, that's something I've heard quite a bit about.
01:16I mean, Stephen Roach talked to me about that,
01:18saying they should maybe set it at 50% of GDP or something like that.
01:23Do you think the actual target, like GDP, they always say they set a target at the National People's Congress.
01:28Do you think setting a hard and fast target would spur the kind of numbers that they want?
01:34I would think so.
01:35I think once you can quantify, you can improve.
01:38So I think percentage of consumption of the GDP is one sort of a measure, a lot of people are talking about.
01:46But, you know, we discussed, as I alluded to earlier, have a nominal GDP growth, not the real GDP growth.
01:53Yeah.
01:53So that means you put together along with the price movement.
01:57That would be also an encouraging way to look at it.
02:00Let's go back to the markets and see kind of your projections.
02:03You were looking at the MSCI China hitting 100.
02:07It's about 87 before the market opened today, implying about a 15% upside.
02:11Also, the CSI 300 is about, as David was just mentioning, it's about 22% off its 2007 all-time high.
02:18Are we going to start testing that because of the gains that you're looking at?
02:22Well, many markets have tested and broke last year.
02:25So definitely no reason for China not to.
02:29So 15%, that's a reasonable one.
02:32We estimate roughly about 10% EPS growth with a bit of a valuation re-weighting.
02:37But the scenario can be even more positive.
02:40Okay.
02:41What are going to be the catalysts?
02:42Because AI enthusiasm has been a big driver of IPOs in Hong Kong, but also in the A-share market.
02:49Is it a bubble, though?
02:50What are the risks of a bubble?
02:52Sure.
02:52I think a couple of things.
02:53If you talk about the momentum for China, you're here at the conference.
02:59You just see a few of the vibes, right?
03:01So we have record attendees, many of them from Europe and the U.S.
03:06They are the big investors.
03:07So besides all the points we have discussed, the diversification needs from global investors
03:14plus the policy expectation given it's the first year of 15's five-year plan
03:20will be the two new catalysts for China's equities market.
03:24How important will anti-involution be in 2026 to stop the race to the bottom in key industries?
03:30They've gained market share in EVs, in battery, in solar.
03:34There's a bit of a race to the bottom as well in the AI plays.
03:39There's no profitability forecasted right now.
03:42So how important will the campaigns of anti-involution to stop those races to the bottom,
03:46to stop the price wars, to improve corporate profitability?
03:49Sure.
03:50I think the narrative has been very clear since last year.
03:55I think this year investors expect to see some results.
03:59And also, the other side of the coin is, when you have oversupply, also implies weaker demand.
04:06So having that stimulus for consumption and boost up the demand will be another side of the equation.
04:11So implement and get those supply side story for anti-involutions,
04:16but at the same time really boost the demand and then get the consumption growing.
04:21What does that mean for the inflation outlook?
04:23Can we end more than three years of factory gate deflation this year,
04:27or is that going to be pretty much pushed to next year?
04:29There's a lag effect to pricing power.
04:32Yeah, I agree.
04:32I think some of the data seems already seen.
04:37So we're at the tipping point.
04:38So the price is getting a positive momentum.
04:42We hope to see some of those consistency months after months,
04:47and plus some of the policy tailwind.
04:49Because a lot of them is the consumer and the investor's behavior.
04:53Once the expectation changes, it's sort of self-fulfilling to get the price on the upward trend.
05:00Do you think it's self-fulfilling?
05:01Because again, I think households are still pretty reluctant to spend on big ticket items
05:05when their household paper wealth has been diminished so much by the property meltdown.
05:10Are there going to be maybe out of MPC or other policy tools that can be employed
05:16to pretty much put a floor on the property market?
05:19Well, sort of a sentiment, it's a funny thing, right?
05:25So it accumulates and it comes to a turning point, and then it goes the other way.
05:29So I think besides the point you mentioned about the property market,
05:34what is really driving the potential positive sentiment is really the equity market performance.
05:40So if you look at the U.S., so one of the key performing asset price is the equities market.
05:46So that sort of leads to and infuse the consumption and also the confidence.
05:51I think China is on the right path.
05:53China just needs to have a few more quarter and potentially years of that consistent positive performance
06:02for our equity market.
06:03How big a theme will be the stocks that are really focused on the going abroad theme?
06:08How important will that be?
06:09Because it seems as though we're seeing where America is trying to attract investment into the United States,
06:17it's sort of created an opening for China to invest elsewhere in the world,
06:21building factories and creating jobs around the world.
06:25How much of a strong theme will those going abroad stocks be?
06:30It is very important.
06:31I think that's one of our key research themes.
06:34It also, in many ways, it would even out some of the tension between U.S. and China in particular.
06:41Just imagine if BYD is allowed to open factories in the U.S.
06:47So that would balance out sort of the trade deficit, creates jobs for U.S.,
06:52and also bring some of the capacities away from China into a major market for the company.
06:59So in many ways, it's a win-win.
07:01That's a big ask for BYD in the United States.
07:03Even just Europe and China have finally found an agreement on minimum pricing for EVs in the EU.
07:10But the U.S. seems like it's going to be a far-off goal for many Chinese companies.
07:14Wouldn't you agree?
07:14It's up to Washington.
07:17I think in many ways, the Chinese corpus is willing.
07:21Chinese government is flexible.
07:25It makes economic sense.
07:27But if the narrative shifts, so maybe it's from the April summit, right, between Xi and Trump.
07:34And those are the things, you know, because Trump always asks countries to invest into the U.S.
07:39Why not China?
07:40Why not China?
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