亚洲量化策略：中国量化策略——坚守A股、科技板块内轮动

China Quant Strategy: Stay with A-shares... Rotate within Tech Mainland market (A-shares) has outperformed MSCI China over the long-term, and evenYTD, China A is up 13.6% vs. MSCI China down -12.2%. We expect China A leadership tocontinue driven by growth stocks while for China tech, we see some room for rotation. Rupal Agarwal+65 6326 7641rupal.agarwal@bernsteinsg.com Cheng Zhang, CFA, CQF+852 2123 2636cheng.zhang@bernsteinsg.com Concerns for broader China exposure persist:MSCI China remains in a valuation downcycle with equity risk premium rising. Disappointing earnings has been a key drag sinceQ425 with increased pace of earnings downgrades. Unfortunately, we don’t see near terminflection on either valuation or earnings. While 70%/77% of MSCI China stocks are tradingbelow their 5yr/10yr PE; historically, market has bottomed when more than 80% of thestocks fall below average valuations. Investor sentiment also remains weak with passive China A-share leadership expected to continue:While MSCI China A typically trades ata premium to HK listed names, A-share index is now trading at 17.7x fwd. PE ie. below itsown mean and at an average relative premium to H-shares; indicating a favorable returnoutlook over the next 12months vs. H-shares. China A, cap-wtd. earnings revision stillremains in net upgrade territory indicating that the large-caps in mainland markets still have Sector-level dynamics:The dispersion within Chinese equities has been driven by AIand geopolitics with Tech, Energy, Materials, Utilities outperforming while Real Estate/Consumer sectors struggle. While Industrial/Materials are still reasonably valued; Tech,Energy, Utilities are expensive and earnings revision for Industrial/Tech are seeingmoderating trends recently while upward revisions for Energy/Materials are near extreme. Expect rotation within China tech:While Communication equipment and ComputerPeripherals could continue to do well; we expect rotation out of Electronic equipment/Semis into Entertainment, Interactive Media & Services and Internet. The rally this year hasbeen led more by multiple expansion and the sector (along with Communication Equipment,Electronic Equipment, IT Services and Semis) is already in a de-rating cycle after hittingpeak valuations (49x fwd. PE, 5.3x PS) in May’26. Internet/Entertainment have fallen to Growth exposure better than chasing momentum:Across both China A and MSCIChina, momentum, growth and high vol stocks have done the best generating more than20% alpha YTD. China momentum is not in a bubble (unlike KR/TW, see here), however, riskof peak upgrades is high. However, growth stocks still look reasonably valued with ampleroom for upward revisions to continue.Our preferred screens are in Exhibit 37-Exhibit DETAILS THE LEADERSHIP OF CHINA A SHARES CONTINUES Mainland China market has structurally outperformed MSCI China equities and HSCEI over the long-term, and the gap haspersisted over the past 20 years. Even YTD, the trend has continued with China A, up 13.6% vs. HSCEI/MSCI China down-11.1%/-12.2% respectively. Within A-shares, Tech (50%), Energy (32%), Materials (18%) and Utilities (14%) have done wellwhile Real Estate (-20%), Staples (-20%) and Discretionary (-17%) sectors have been the worst. Even within MSCI China, Tech EXHIBIT 1:Mainland equities have offered a much higher return vs. MSCI China or HK listed Chinese equities overthe long-term. The trend has continued YTD, as MSCI China A is up +13.6% while HSCEI/MSCI China are down-11.1%/-12.2% respectively EXHIBIT 3:Similarly for MSCI China, Tech (55%), Energy (25%) and Materials (5%) have been the winning sectorsYTD VALUATIONS & EARNINGS MSCI China is attractively valued, trading at 12.8x fwd. PE ie. -0.4SD below the 10-year average. However, equity risk premiumhas been on the rise, presenting a challenging environment. There has been a broad-based valuation de-rating for MSCI China,since Q425 and now 70% of MSCI China stocks are trading below their 5yr PE (above the long-term average of 62%) and 77% 80% of stocks being cheap (Exhibit 6-Exhibit 8) MSCI China A has consistently traded at a premium to HK listed Chinese equities, and the valuation dispersion has widened inthis cycle. MSCI China A saw persistent re-rating since 2025, reaching peak valuations of 22x fwd. PE in May 2026. Since then,it is in de-rating cycle and is now trading at 17.7x fwd. PE ie. below historical mean and at its average relative premium to H-shares. Historically, lower valuation premium for A-shares vs. H shares has worked in favor of A-shares over the next 12months - However, earnings support has been disappointing across both MSCI China and MSCI China A. The pace of downgrades hasbeen increasing in MSCI China as well as MSCI China A, though in A-shares earnings revision started moderating in Q2 ofthis year vs. since Q425 for MSCI China. Interestingly, cap-wtd earnings revisions shows a different picture-China A cap-wtdearnings revisions still remain