CATL remained solid no.1 in EV battery, producing a capacity of 35.5 GWh in the first two months of 2024. Its market share has widened to 38.4% year-to-date from 33.6% during the same period last year, followed by LG Energy Solution’s 12.7% and BYD’s 12.1%. For the overseas market, the Chinese leader also expanded its market share by a 0.6% point to 26.3%. The company has recently launched what it claims is the first mass-produced energy storage system with zero degradation in the first five years of its lifespan. This new equipment is capable of 15,000 charge cycles, a significant increase of 25% from the previous generation. The advancement of the new energy storage should help the company expand beyond its dominant EV battery business. The attractive dividend policy, coupled with improved market sentiment and rising EV demand, accounted for CATL’s recent strong stock price performance. The company has proposed a total of over RMB 22 billion in dividend payout, reflecting a payout ratio of 50% and a dividend yield of 2.5%. CATL is currently the top holding at Premia CSI Caixin China New Economy ETF (3173.HK).

A bull market seems emerging in some of China’s traditional and new economy sectors, as investors are seeing an upside to current valuations from policy measures to bolster the economy and the capital market. The National People's Congress (NPC) has reinserted stability to market sentiment. Historically, the A-share market gained about 3.9% on average during the month following each NPC since 2006. Fund inflows turned to be more vigorous since the NPC. Northbound flows were net outflow of RMB 8.4 billion in the first week of March but then changed to net inflows of over RMB 20 billion after the NPC month-to-date as of 21st March. The return to net inflows in March, building on February's strong momentum, could set the stage for back-to-back months of net inflows. A second consecutive month of northbound inflows could be an early sign of increasing foreign investors’ confidence.

China tech sector has outperformed in the recent market rebound, riding on the global AI rally. The AI related and chip stocks in China advanced as the authorities urged accelerating the technology’s development and cultivating more competitive companies. Nvidia’s Chief Jensen Huang sees Huawei is among a field of “very formidable” competitors in the race to produce the best AI chips. China pledged to harness the entire nation’s resources to speed homegrown scientific breakthroughs, reaffirming a central priority to become self-reliant in spheres from AI to chipmaking to wrest technological supremacy from the US. The central government will increase spending on scientific and technological research by 10% to RMB 370.8 billion in 2024. Both Premia China STAR 50 ETF (3151.HK) and Premia CSI Caixin China New Economy ETF (3173.HK) have showed strong performance since early Feburary.

Chinese long-duration government bonds’ bull run since 2018 shows no signs of cooling in 2024. The momentum will likely continue for the rest of 2024 as China plans to open up its repo markets to overseas investors, and PBOC may cut the policy rates as many as three times this year, according to local brokers’ forecasts. Over the past decade, policymakers have opened up the fixed-income market through the bond and swap connect program. Recently, they vowed to expand foreign access to the onshore repo market, allowing foreign traders to borrow and lend short-term funds using yuan bonds as collateral and gain exposure to CGB using leverage, increasing the foreign holdings of China bonds. On the policy front, the PBOC announced to cut RRR by 50bps, which is a more significant move than the regular practice of a 25bps cut and more than expected. Governor Pan mentioned in his statement that there’s still a gap “between the current price level and the expected price target”, a clear signal that the PBOC is concerned about deflationary pressures raising the market expectation of a cut in February. CITIC Securities even predicts that China needs three rate cuts this year to support the economic recovery. Investors interested in long-duration CGB for capital appreciation or portfolio diversification may look at our Premia China Treasury & Policy Bank Bond Long Duration ETF (2817.HK), which invests in a basket of CGBs and policy bank bonds with ten years or more tenor. We also offer a USD-hedged version (9177.HK) for investors concerned about currency movements.  

Foreign investors put a net RMB 251.3 billion into China's domestic bond market in November, the largest monthly inflow since records began six years ago. Foreigners returned after backed away from the market for much of the past two years. Investors now think the Fed interest-rate hike has reached an end, encouraging them to look for dollar alternatives. The inflows could also signal optimism that Chinese policy makers will be able to shore up the economy and bets the central bank will ease monetary policy further to aid growth. CICC expects China to cut rate from the beginning to the middle of this year. LPR is estimated to be reduced by 20-30 bps. Chief economist with China Securities Finance Co. agreed that Chinese central bank may continue trimming interest rates and RRR this year, similar to what it did in 2023. China’s bond market rally has continued into 2024, the yield on 10-year CGB dropped to 2.50%, the lowest since April 2020. The yields of CGB may have more room to fall if those rate-cut expectations hold firm.

China passenger vehicle sales rose 26% YoY and 2.4% MoM, growing even faster in November after the traditional strong season in September and October. New energy vehicle (NEV) sales gave a boost to the industry, outperforming the market with growth rates of 39.8% YoY and 8.9% MoM. The penetration rate of NEV reached 40.4% in November, as compared with 36% at the same time last year. This ratio further climbed to 62.1% for the NEVs sales among the domestic independent brands. On one hand, automakers have stepped up promotion efforts to meet sales goals. On the other hand, a new package of tax breaks for NEV purchases through 2027 imposes caps on tax exemptions starting in 2024, which will add to the cost of higher-priced models and has served as a tailwind for year-end sales. All the leading domestic brands show significant growth in NEVs sales on a yearly basis in November, including BYD +20.9%, Geely +98.4%, Wuling +57.3%, and Changan Auto +71%. The recent strong NEV sales should bring a positive impact to the supply chain. Premia CSI Caixin China New Economy ETF (3173.HK) and Premia Asia Innovative Technology and Metaverse Theme ETF (3181.HK) both have about 15.7% exposure in NEV supply chain.

Alibaba’s share price hit a one-year low after announcing the shutdown of its quantum computing research lab, a sign that the Chinese e-commerce giant is considering more cutbacks in non-core businesses. The lab is part of the DAMO Academy, which is positioned as the group’s moonshot division, responsible for exploring and delivering cutting-edge technologies. Investors were already disappointed by the shocking decision of Alibaba to cancel the planned spinoff of its cloud division earlier last month. Analysts see the outlook for domestic e-commerce growth has weakened and the amount of value-unlocking capital market activities has decreased. Jack Ma even urged Alibaba employees to help the company correct its course. These highlight the challenges involved for the Chinese internet platforms to transform their business model despite the reducing scrutiny from Beijing. Indeed, the internet sector was not performing well in the stock market, while the policy-supported semiconductor plays outperformed significantly. The divergence may continue as long as the Chinese government determines to promote the domestic development of advanced hardcore technologies.

The rebalancing of the Chinese economy is happening, aligning the government’s intention in allocating resources from speculative sectors to manufacturing and high-tech sectors. Outstanding loans to the property sector fell RMB 100 billion to RMB 53 trillion at the end of September from a year earlier, the first decline on record. In contrast, lending to the industrial sector surged by almost RMB 5 trillion in the same period. Despite the historic drop in loans, the PBOC said that the overall slowdown in property loans has stabilized, adding that the pace of declines remained unchanged. With more supportive policies such as lower downpayment requirements and reducing mortgage rates, the property sector saw a soft-landing last month. Value of new home sales among the 100 biggest real estate companies in October fell 27.5% YoY to RMB 406.7 billion, narrowing from a 29.2% decline in September, according to China Real Estate Information Corp. On the corporate front, Vanke said it will repay its debts on time after getting signals of support from a local regulator and its biggest shareholder last week, driving a strong rebound in its dollar bonds. Our Premia CSI Caixin China New Economy ETF (3173.HK) offer a diversify universe to capture the opportunities from the economic rebalancing in China, with ~21% invested in industrials and ~27% in information technology. Besides, our Premia China USD Property Bond ETF would be an efficient instrument bottom fish the USD property bonds issued by Chinese developers.

According to Bloomberg, Indonesia's digital banking sector might grow quicker than most countries in Southeast Asia and reach USD 8.6 billion by 2025. Traditional banks, such as Bank Rakyat, have high incentives to adopt digital banking as the government requires them to allocate 30% of lending to micro, small and mid-sized business (MSME) and to provide banking services to 90% of the population by the end of 2024. Given the country's unique landscape of more than 6,000 islands, digital banking would be the best option for traditional banks to meet the government's requirements and goals. Bloomberg sees the country's digital financial services revenue could see a 34% compound average growth rate in 2019-25. Bank Central Asia's Blu recorded 205% loan growth 1H vs 1H22, while Bank Mandiri Persero's Livin' saw its user base growth of 55% in a year. Our Premia Dow Jones Emerging ASEAN Titans ETF (2810.HK) has significant exposure to Indonesian banks, more than 15% including the above-mentioned names, which may be a good tool for investors looking not only to participate in the growth of digital banking in Indonesia but also the long-term economic growth in the region.

China’s economy finally saw some modest pickups in manufacturing activities with China's official manufacturing purchasing managers' index (PMI) for September came in at 50.2, up 0.5 points from the previous month. This is an encouraging sign that factory activities finally recorded an expansion. In addition, the overall industrial profits surged 17.2% YoY in August, marked the first increase since the second half of 2022. Profits improved for 30 of 41 major industrial sectors during the period, with the losses in the raw material manufacturing industry narrowing significantly on rising commodity prices and recovered demand. Economists believe the reversal was mainly driven by the rebound in market demand, improved prices of industrial products, the implementation of macro-support policies, and the low base effect. Investors should monitor closely with the consumption data during the upcoming Golden Week holidays, which may help further boost investors’ confidence in Chinese assets.