M UpdateChina Quantitative Strategy | Asia PacificFlows and Positioning on A-shares Among Offshore FundsNorthbound stock connect program recorded the fifth consecutive month of outflows in December, and it continues in January MTD. 2023 also marked the year with lowest inflows of the program since launch. Whilst active funds accelerated to sell China in 2H23, passive funds were the only buyers.Morgan Stanley Asia Limited+Gilbert Wong, CFAQuantitative Strategist Gilbert.Wong@morganstanley.com +852 2848-7102 Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Jason Ng, CFAQuantitative Strategist Jason.Dl.Ng@morganstanley.com +852 2848-8845 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Request your ballot here. Exhibit 2 : Monthly net fund flows of stock connect northbound program ($bn) 1.4 3.8 1.6 1.3 3.1 3.2 3.3 4.1 3.2 1.8 1.9 1.9 5.4 (0.4)1.8 6.3 9.1 4.6 4.4 5.2 4.0 (1.8)6.8 2.3 9.0 9.0 0.7 (3.5)(9.5)6.7 2.3 1.8 9.1 4.5 8.6 11.2 5.5 1.7 (9.7)6.4 4.2 7.2 1.2 (0.3)(4.8)1.2 8.8 10.1 6.2 6.4 2.9 4.5 9.5 1.9 1.2 4.2 3.8 4.7 2.9 14.8 2.7 0.6 (7.1)0.7 1.8 10.7 (3.4)1.9 (1.6)(7.9)8.5 6.2 20.9 1.4 5.2 (2.2)(1.7)2.0 6.7 (12.3)(5.1)(6.4)(0.2)(1.8)(1.3) (15.0) (10.0) (5.0) - 5.0 10.0 15.0 20.0 25.0Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-24 Source: Bloomberg, Morgan Stanley Research; data as of January 10, 2024 Exhibit 4: China portfolio active weights by share classes managers among offshore active long-only managers2.1%1.5%2.0%3.3%3.6%2.8%2.8%2.8%2.8%2.3%3.4%4.6%5.2%5.2%5.7%7.9%12.1%11.6%-15%-16%-14%-12%-13%-12%-13%-13%-11%-11%-13%-11%-13%-11%-11%-12%-14%-13%13%15%12%9%9%9%10%10%9%9%10%6%8%6%5%4%2%2%-20%-15%-10%-5%0%5%10%15%20%Dec 20Mar 21Jun 21Sep 21Dec 21Mar 22Jun 22Sep 22Oct 22Dec 22Mar 23Jun 23Jul 23Aug 23Sep 23Oct 23Nov 23Dec 23China AChina HADR Source: MorningStar, FactSet, Morgan Stanley Research; data as of December 31, 2023At stock level, Moutai, Midea, and Haier Smart Home led the weight additions in Staples, while WuXi AppTec and Yunnan Baiyao from Biotech also saw net buying. On the flip side, LONGi Green Energy Tech, CATL and Wuliangye were sold down the most. Our fund positions data shows a big picture that active managers remained defensive in China via overweight A and underweight H; the lifted portfolio concentration also implies a lack of bottom-up ideas amid the current macro challenges.Exhibit 1:Top 30 A-share holdings and their active weights vs. MSCI China A, being owned by the large-scale offshore mutual funds we trackRankRank Change 4Q23Rank Change FY23TickerCompany NameGICS Industry GroupUnderlying Market Values ($m)Weights as of 12/31/2023MSCI China A Index WeightsActive WeightsWeights as of 9/30/2023Active Weight Changes 4Q23(% of AUM)Weights as of 12/31/2022Active Weight Changes FY23(% of AUM)1----600519-CNKweichow MoutaiFood Beverage & Tobacco6,498...