Deutsche Bank Research Asia China Economics China tracker Domestic demand in focus Given the 90-day tariff truce between the US and China, market attention is expected to turn towards domestic factors, though export performance remains closely monitored. Therefore, we have incorporated a new collection of high- frequency indicators to track property market trends and government expenditure. Three key takeaways: Date 26 May 2025 Deutsche Bank AG/Hong Kong IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICAT ...

Investment Rating - The report indicates a slight underweight positioning in equities for the first time since August 2023, suggesting a cautious outlook on the equity market [1][3]. Core Insights - Equity positioning has declined and is now slightly below neutral, with a Z-score of -0.06, placing it in the 38th percentile since 2010 [11][22]. - Implied volatility has increased but remains at average levels, with the volatility premium relative to realized volatility also being average [11]. - There has been a significant inflow into European equity funds, reaching levels not seen since 2015, indicating strong investor interest in this region [1][14]. Summary by Sections Investor Positioning - Aggregate equity positioning has fallen further, with discretionary investor positioning at the 49th percentile and systematic strategies at the 38th percentile [11][24]. - Total net call volume has increased modestly, driven by index net call volume, while single stock options have seen a decline [11][12]. - Investor sentiment remains low, with the bull-bear spread at the 1st percentile, indicating a predominantly bearish outlook among investors [11][12]. Fund Flows - Equity funds attracted inflows of $22.9 billion, with notable inflows into European equities ($4.1 billion) and Japan ($3.0 billion) [14]. - Bond inflows slowed to $12.0 billion, with government bonds experiencing outflows of $1.2 billion [14]. - Money market funds saw robust inflows of $53.1 billion, primarily from the US [14]. Sector Positioning - Positioning across sectors has declined, with Mega-cap Growth and Technology remaining above average but below recent peaks [11][13]. - Consumer Staples and Utilities are slightly above average, while Energy and Materials are well below average [13][42]. - Financials and Consumer Cyclicals are just above average, while Healthcare and Industrial Cyclicals are notably below average [13][42]. Volatility and Systematic Strategies - Volatility control funds have reduced their equity exposure, with current holdings at the 32nd percentile [11][68]. - CTAs have continued to cut their aggregate equity longs, particularly in the US, while maintaining elevated positions in Europe [11][12].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The expected growth target for China in 2025 is likely to remain at 5%, unchanged from 2024, with a fiscal deficit target set at 4% of GDP, reflecting a 1 percentage point increase from 2024 [3][6] - The government is expected to announce an inflation target of 2% for 2025, a significant reduction from the previous target of 3% [5][6] - Special government bonds (CGBs) and local government special bonds (LGSBs) quotas are anticipated to increase, with special CGBs expected to rise to CNY2 trillion from CNY1 trillion [6][7] - The property sector may receive additional support measures due to slow construction activity, with potential funding sources being monitored [7] - The government is likely to promote private sector development, with new laws being expedited to address challenges faced by private enterprises [7] - There is a strong focus on supporting the technology and AI sectors, with expectations for concrete policy announcements to promote AI development [7] Summary by Sections Economic Growth and Fiscal Policy - The national growth target for 2025 is likely to be set at 5%, with provincial targets averaging 5.3% [3][9] - The fiscal deficit is expected to be set at 4% of GDP, with increased government bond issuance [3][10] Inflation and Bond Issuance - The inflation target may be adjusted to 2%, aligning with provincial targets [5][6] - Special CGBs are expected to increase to CNY2 trillion, with LGSBs projected to rise to CNY4.5 trillion [6][7] Property Sector Support - The report highlights the need for further measures to support the property sector, including potential funding for unfinished projects [7] Private Sector and Technology Development - The government is expected to expedite laws promoting private sector growth and support for technology and AI sectors [7]

Group 1: Investment Outlook - 2025 is expected to be the year investors recognize China's dominance over other regions, with a projected bull market for Hong Kong/China stocks starting in 2024[1] - China's manufacturing exports are twice that of the US, contributing 30% of global manufacturing value added, with growth rates exceeding those of most developed markets[5] - The anticipated financial liberalization and policy shifts towards consumption may lead to unexpected upward profitability during the cycle[1] Group 2: Technological Advancements - China has emerged as a global leader in various sectors, including textiles, electronics, and recently, electric vehicles, with a significant focus on high-value industries[2] - The launch of the sixth-generation fighter jet and the AI system DeepSeek is seen as a pivotal moment for China's technological recognition[3] - China holds approximately 70% of patents in the electric vehicle sector and a similar share in 5G and 6G telecommunications equipment[12] Group 3: Market Dynamics - Global investors are underexposed to Chinese investments, similar to past trends with fossil fuels, indicating a potential market correction as awareness grows[3] - China's market capitalization share is expected to rise significantly, moving away from single-digit percentages as leading companies gain market share across various industries[5] - The trade policies and tariffs imposed by the US may have a manageable impact on China's GDP, estimated at a 0.5% headwind due to tariffs, as US exports account for only 3% of China's GDP[27] Group 4: Economic Comparisons - China's economic growth is compared to Japan's in the 1980s, with current growth rates potentially being viewed as a "miracle" in hindsight[15] - The financial system in China is expected to undergo liberalization similar to Japan's past, which could enhance corporate profitability and attract foreign investment[22] - Despite a declining population, China's advantages in automation and regional initiatives like the Belt and Road Initiative may sustain its economic growth[26]

Key Points **Industry/Company Involved**: - The research focuses on the Hong Kong and Chinese equity markets, specifically the HSI and CSI300 indices. **Core Views and Evidence**: 1. **Trend Change, Not Just a Rally**: - The current market rally is not just a short covering but indicates ongoing strength. - Historical data shows that after four consecutive down years, the market tends to see strong rebounds. - The HSI and CSI300 have fallen more in the past four years than the DJTA did in five years. - The correlation between GDP and market performance has been low, suggesting that economic growth is not the primary driver of the current rally. - The government's focus on accelerating spending and reducing debt is supportive of the market. - The industrial profitability has been weak, but this has coincided with previous market rallies, indicating a bullish outlook for investors. - There is a significant amount of cash on hand, with households ready to spend or invest. - Listed companies have strong balance sheets, with many having net cash positions. - The US market is becoming less concentrated, which could benefit Asian markets. - Valuations of the CSI300 are normal, while the HSI remains undervalued. - The dividend yield in Hong Kong is attractive compared to other markets. - Asian markets are undervalued compared to historical levels. - The model portfolio suggests overweighting Hong Kong/China and energy/commodities sectors. 2. **China's Economic Outlook**: - China's GDP has grown significantly, outpacing the West by 2-3x. - The market correlation to GDP is not evident, suggesting that other factors are driving the market. - China's USD6.5tn cash build-up is expected to be unleashed, making equities attractive compared to bank deposits. - China is under-owned globally, similar to the new fossil fuels. 3. **Market Risks**: - The APAC region has consistently fallen during US rate rise cycles, suggesting caution in markets that have risen sharply since 2009. - The correlation between GDP and market performance is low, indicating that economic growth is not the primary driver of the current rally. **Other Important Points**: - The research highlights the importance of understanding the historical context and market dynamics when analyzing the Hong Kong and Chinese equity markets. - The research provides a comprehensive analysis of the current market conditions and future outlook, offering valuable insights for investors. - The model portfolio provides a specific investment strategy based on the research findings.

Industry/Company Involved * **China**: The document focuses on the Chinese economy, including GDP growth, industrial production, retail sales, property investment, and new home prices. * **United States**: The document discusses the US housing market, including housing starts and building permits. * **United Kingdom**: The document analyzes UK retail sales data. * **Japan**: The document examines Japanese CPI data. * **Europe**: The document discusses European services inflation and German consumer confidence. Core Points and Arguments * **China GDP Growth**: China's GDP grew by 0.9% quarter-on-quarter and 4.6% year-on-year in Q3 2024, beating market expectations. This growth was driven by strong industrial production and retail sales. * **US Housing Market**: US housing starts decreased by 0.5% month-on-month in September, while building permits declined by 2.9% month-on-month. * **UK Retail Sales**: UK retail sales increased by 0.3% month-on-month and 3.9% year-on-year in September, exceeding market expectations. * **Japanese CPI**: Japan's headline CPI increased by 2.5% year-on-year in September, in line with market expectations. * **European Services Inflation**: There is evidence of a turning point in European services inflation, with underlying measures easing. * **German Consumer Confidence**: There is a generational gulf in German consumer confidence, with young people's confidence higher than at any point since reunification. Other Important Points * **Equities Pricing**: The document suggests that equities may be increasingly pricing in a Trump win, but the dollar is not. * **Inflation**: The document discusses the potential for inflation to undershoot target in 2025, particularly if the labor market weakens. * **Week Ahead**: The document provides a preview of upcoming economic data and events, including flash PMIs, central bank policy decisions, and speeches by central bank governors. * **Data Calendar**: The document includes a detailed data calendar for the week ahead, providing information on upcoming economic releases and events in various countries. References * [doc id='2'] * [doc id='3'] * [doc id='4'] * [doc id='5'] * [doc id='6'] * [doc id='7'] * [doc id='8'] * [doc id='9'] * [doc id='10'] * [doc id='11'] * [doc id='12'] * [doc id='13'] * [doc id='14'] * [doc id='15'] * [doc id='16'] * [doc id='17'] * [doc id='18'] * [doc id='19'] * [doc id='20'] * [doc id='21'] * [doc id='22'] * [doc id='23'] * [doc id='24'] * [doc id='25'] * [doc id='26'] * [doc id='27'] * [doc id='28'] * [doc id='29'] * [doc id='30'] * [doc id='31'] * [doc id='32'] * [doc id='33'] * [doc id='34'] * [doc id='35'] * [doc id='36'] * [doc id='37'] * [doc id='38'] * [doc id='39'] * [doc id='40'] * [doc id='41'] * [doc id='42'] * [doc id='43'] * [doc id='44'] * [doc id='45'] * [doc id='46'] * [doc id='47'] * [doc id='48']

Company and Industry * **Company**: Fuyao * **Industry**: Autos & Auto Technology Key Points and Arguments 1. **3Q Results Beat Expectations**: Fuyao's aggregate reported net profit for the first three quarters of 2024 increased by 33% YoY to RMB5.48bn, exceeding market expectations. 3Q 2024 reported net profit jumped by 54% YoY to RMB1.98bn, driven by record-high revenue of RMB9.97bn and a four-year-high quarterly gross margin of 38.8% [2]. 2. **Gross Profit Growth**: 3Q gross profit rose by 21% YoY and 8% QoQ to RMB3.87bn, the company's highest quarterly gross profit since inception. This growth is attributed to decent revenue growth and an expanding gross margin [4]. 3. **Improving Gross Margin**: Gross margin improvement is attributed to falling raw material prices, including sodium carbonate and external sourcing of float glass, as well as a potential improvement in product mix [4]. 4. **Valuation**: The target price of HK$71.00 is derived via a discounted cash flow (DCF) analysis, considering the full maturation of China's auto industry trends – electrification and intelligentization. This implies a 24.6x 2024E P/E, a premium to Fuyao's average 16.9x 12-month forward P/E over the past five years [5]. 5. **Risks**: Key downside risks include weaker-than-expected foreign sales volume due to an exit on favorable new energy vehicle policies in Europe and lower-than-expected margins due to slower-than-expected product mix improvement [7]. Other Important Content * **Rating**: Buy [1] * **Price Target**: HK$71.00 [3] * **Analyst Certifications**: Bin Wang, Laura Li, Edison Yu [10] * **Equity Rating Dispersion**: The Equity Rating Dispersion Chart shows the proportion of recommendations that are rated "buy", "sell", and "hold" over the previous 12 months [13] * **Additional Information**: The report includes various disclosures and certifications regarding the research process and potential conflicts of interest [16-22]

Key Points **Industry/Company Involved**: - Eli Lilly and Company (LLY.N) **Core Views and Arguments**: - **Rating**: Buy - **Revenue and EPS Outlook**: LLY's 3Q24 revenue is expected to miss consensus estimates, but the company maintains its full-year revenue guidance. Non-GAAP EPS guidance is updated to reflect incremental IPR&D charges. - **Tirzepatide (Mounjaro)**: IQVIA scripts for Tirzepatide look softer than expected, but demand remains solid. LLY's manufacturing capacity for Tirzepatide is estimated at approximately 12 million injectors per month. - **Verzenio**: Sales growth is modest, with pressure from Kisqali. CDK4/6 class share is stable. - **Jardiance**: Sales growth is in line with expectations. - **Operating Margin**: Street's OpEx looks fine and in line with LLY's FY24 Operating Margin guide. - **R&D and SG&A**: LLY continues to invest in pipeline development, with R&D and SG&A increasing significantly in 2025. **Other Important Points**: - **Hurricane Helene**: Disrupted retail pharmacies and long-term care facilities in the southeastern US, potentially impacting Tirzepatide scripts by <65bps in a worst-case scenario. - **GLP-1s**: Mounjaro and Ozempic's continuous scripts (CBRx) are growing, while Trulicity's CBRx is eroding. Switching to Zepbound seems to be gaining steam, while Wegovy trends down. - **New Starts**: Mounjaro and Ozempic scripts are running parallel, with Ozempic having slightly higher new starts. - **Humalog**: Sales growth is modest, with a slight decrease in implied net price. - **Valuation**: Price target is $1,025.00, with a 52-week range of $960.02 - $553.93. - **Risks**: Macroeconomic fluctuations, counterparty exposure, issuer creditworthiness, client segmentation, regulation, changes in tax policies, currency convertibility, and settlement issues related to local clearing houses. **References**: - [1] - [2] - [3] - [4] - [5] - [6] - [7] - [8] - [9] - [10] - [11] - [12] - [13] - [14] - [15] - [16] - [17] - [18] - [19] - [20] - [21] - [22] - [23] - [24] - [25] - [26] - [27] - [28] - [29] - [30] - [31] - [32] - [33] - [34] - [35] - [36] - [37] - [38] - [39] - [40] - [41] - [42] - [43] - [44] - [45] - [46] - [47] - [48] - [49] - [50] - [51] - [52] - [53] - [54] - [55] - [56] - [57] - [58] - [59] - [60]

Company and Industry * **Company**: Meta Platforms, Inc. (META.OQ, NAS META) * **Industry**: Internet, Social Media, Advertising Key Points and Evidence 1. **Rating and Price Target**: Deutsche Bank maintains a 'Buy' rating on Meta with a target price of $650, based on a 26x multiple of 2025E GAAP EPS of $24.98. 2. **3Q24E Revenue Estimate**: Deutsche Bank estimates 3Q24E revenue at $40.4 billion, up 18% y/y, with a 17% y/y OI margin. 3. **4Q24E Revenue Estimate**: Deutsche Bank estimates 4Q24E revenue at $46.8 billion, up 17% y/y, with a 22% y/y OI margin. 4. **5Q24E Revenue Estimate**: Deutsche Bank models 15.5% y/y FXN growth for 4Q24E, implying 16% q/q revenue growth. 5. **CapEx Outlook**: Deutsche Bank raises its CapEx outlook to $51 billion for FY25, up from $48 billion previously. 6. **Valuation Multiple**: Deutsche Bank raises its valuation multiple to account for incremental AI-related revenue streams and potential slowing RL losses in FY25. 7. **Ad Spend**: Meta continues to gain share as the highest ROI platform in Social for advertisers, driven by ongoing engagement growth, resilient pricing, and increasing revenue contributions from new surfaces. 8. **AI Investments**: Meta's AI investments are driving enhanced performance, leading to a contracting cost per action and durable ad wallet share gains. 9. **Risks**: Risks include future privacy changes, growing competition for users' time, and deterioration of the macro environment in 2024. Additional Important Content * **3Q24E Revenue Breakdown**: Advertising revenue is expected to be the largest contributor, followed by Other revenue and Reality Labs. * **OI Margin Breakdown**: Family of Apps is expected to have the highest OI margin, followed by Reality Labs. * **Net Income Breakdown**: Net income is expected to be the highest in 4Q24E, followed by 3Q24E and 2Q24E. * **EPS Breakdown**: Diluted EPS is expected to be the highest in 4Q24E, followed by 3Q24E and 2Q24E. * **Target Price Changes**: Deutsche Bank has increased its target price from $585 to $650 based on the updated outlook and valuation multiple.

Key Points 1. RIO - Arcadium Lithium Deal - **Company**: Rio Tinto - **Deal**: Acquisition of 100% of Arcadium Lithium for US$5.85/sh, valuing the company at $6.7bn (EV) - **Strategy**: Expand RIO's lithium production and establish it as a top 3 global producer - **Valuation**: 20x 2025E EV/EBITDA, dropping to 7-8x in 2028E - **Post-Acquisition**: RIO's net debt to increase to ~$12bn, maintaining 60% dividend payout level [2] 2. China Macro - **Fiscal Stimulus**: No details announced yet, likely in mid-to-late October after NPC Standing Committee approval - **Government Goals**: Achieve annual growth target, provide financial support to low-income groups, ensure policy continuity [3] 3. Q3 Base Metals Previews - **FCX**: Focus on Manyar smelter ramp-up, steady state by Q2'25 more realistic than year-end target - **LUN**: Production at Candelaria to improve in Q3, offsetting Caserones strike - **Teck**: Delivery of QB2 project key for sentiment, management confident in hitting nameplate capacity by year-end - **FM**: FY24 guidance achievable despite operational headwinds in Zambia - **ANTO**: FY24 guidance a stretch, FY25 group production guidance likely to be flat YoY - **BOL**: Smelting margins key focus, material adjustment down in annual contract terms next year for copper and zinc - **Hydro**: Upstream results strong, downstream recovery timeline uncertain [4] 4. Week Ahead - **Data Points**: Peru copper production, CISA steel production rate, steel mills inventory, China trade data, CRU copper operating rates, NBS steel production, property investment, retail sales, industrial production, GDP growth, unemployment rate - **Reporting**: Rio, Vale, ANTO, BHP [6] 5. Key Data Points and Newsflow - **Chile Copper Production**: Up 6% MoM and 7% YoY, driven by Codelco, Escondida, QB2, and Candelaria - **Teck QB2 Production**: Rebounded to 19.7 kt in August, matching previous monthly high [7] 6. Commodity Price and FX Trends - **Commodities**: Decreased due to uncertainty over China's fiscal stimulus plans - **Base Metals**: Aluminium (-2%), copper (-1%), zinc (-1%), nickel (-1%) - **Bulk Commodities**: Coking coal (-5%), iron ore (-4%) - **Mining Currencies**: Depreciated against the USD [8] 7. MTM Earnings and Valuations - **Upgrade/Downgrade Risks**: Mixed for base metals names, with Hydro, FM, and Teck facing upgrade risks, ANTO and LUN facing downgrade risks, and FCX facing upgrade risk [9] 8. DB Mining Latest Research Highlights - **RIO Tinto**: Arcadium Lithium deal confirmed, strategic sense but full price [10] - **FCX**: Q3 preview: key period ahead in Indonesia, Hold [11] - **Lundin**: Q3 preview: H2 production recovery, European asset interest [11] - **FM**: Q3 preview: tracking to guidance despite Zambia headwinds, Buy [11] - **Boliden**: Q3 preview: operational inflection point delayed, Hold [11] - **Anto**: Q3 preview: FY24 guidance a stretch, Hold [11] - **Teck**: Q3 preview: QB delivery on the near-term horizon, Buy [11] - **Anglo American**: AMS stake sale: committed to the simplification plan, Buy [11] - **BHP**: Deep dive on copper growth: >$20bn in capex will depress cash flows [11] - **Global Survey Results**: less conviction in the global energy transition [11] - **Commodities Outlook**: Reality check; a pause before further gains [11] - **FM**: Hedged copper play with significant upside potential: upgrade to Buy [11] - **Rio Tinto**: Could the Jadar lithium project be coming back to life? [11] 9. Reporting Calendar & Earnings Snapshot - **Upcoming Results**: Boliden, First Quantum, Lundin Mining, Norsk Hydro, Teck Resources, Freeport [14] 10. Sector Valuation Snapshot - **European Mining**: Composite valuation at a 8% discount to trend levels [16] 11. European Mining Valuations - **Diversified Miners**: Anglo American, Glencore, Rio Tinto, BHP, Vale [18] 12. Commodity & FX Trends - **Base Metals**: Aluminium, Cobalt, Copper, Nickel, Zinc [21] - **Precious Metals**: Gold, Palladium, Platinum, Silver [21] - **Energy**: Thermal Coal, South Africa Coal, Brent Oil, European natural gas [21] - **Bulk Commodities**: Iron ore fines, Coking coal, Alumina spot [21] - **Currencies**: USD vs key currencies [22] 13. Decarbonisation Ranking and Metrics - **Diversified Miners**: AAL, GLEN, RIO, BHP, VALE [29] - **Base Metal Miners**: ANTO, BOL, FCX, FM, LUN, NHY, TECK [29] 14. Balance Sheets and Performance - **Capital Expenditure**: Sector capital expenditure progression [34] - **Net Debt**: Sector net debt progression [34] - **Net Debt to EBITDA**: 2025E net debt to EBITDA [34] - **Dividend and Buyback Yield**: 2025E dividend and buyback yield [34] 15. Key FX and Raw Material Opex Drivers - **DB Cost Index**: Yearly and weekly changes in key opex drivers [35] 16. Share Price Performance - **Global Share Price Performance**: Performance of diversified large caps and mid caps [42] 17. Additional Information - **Important Disclosures**: Conflicts of interest, data sources, and other important information [44] - **Analyst Certification**: Personal views of the lead analyst [45] - **Equity Rating Dispersion and Banking Relationships**: Equity rating dispersion chart and banking relationships [46] - **Additional Information**: Information and opinions in the report, conflicts of interest, and other important information [49-55] - **Deutsche Bank Research Department**: Organizational arrangements and information barriers [56] - **Macroeconomic Fluctuations**: Risks associated with fixed-rate instruments [57] - **Derivative Transactions**: Risks associated with derivative transactions [58] - **Foreign Exchange Transactions**: Risks associated with foreign exchange transactions [59] - **Additional Information**: Additional information relative to securities, other financial products, or issuers discussed in the report [74] - **Backtested, Hypothetical, or Simulated Performance**: Limitations of backtested, hypothetical, or simulated performance results [75] - **ESG Scores**: Methodology and limitations of ESG scores [76] - **Copyright**: Copyright information [77] - **Research Contacts**: Contact information for various research departments and locations [78]