M IdeaChina Equity Strategy | Asia Pacific4Q23 Pre-Announcements: Major DeteriorationMorgan Stanley Asia Limited+Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Catherine ChenEquity Strategist Catherine.Chen@morganstanley.com +852 3963-4186 Raymond K LiuEquity Strategist Raymond.K.Liu@morganstanley.com +852 2848-7293 Morgan Stanley Asia (Singapore) Pte.+Jonathan F GarnerEquity Strategist Jonathan.Garner@morganstanley.com +65 6834-8172 Exhibit 1 : A-share pre-announcements by number of stocks – a significant deterioration and the worst recorded since 1Q2011.3%6.4%6.3%0.6%0.4%(0.5%)7.3%(17.4%)(5.4%)(1.1%)6.3%16.3%14.8%5.3%6.1%4.2%(7.0%)5.3%(12.0%)2.1%(4.2%)2.7%(14.2%)-20-15-10-50510152025-2,000-1,500-1,000-50005001,0001,5002,0002,5002Q183Q184Q181Q192Q193Q194Q191Q202Q203Q204Q201Q212Q213Q214Q211Q222Q223Q224Q221Q232Q233Q234Q23# of Positive alerts# of Negative alerts# Net Positive as % of all A-share listed companies (RHS) Source: Wind, FactSet, Morgan Stanley Research. 4Q23 result is based on 2,798 A-share listed companies' pre-announcements as of February 5, 2024. Exhibit 2 : MSCI China pre-announcements by number of companies – 4Q23 notably deteriorated from 2Q23 and 4Q22 8.6%5.0%4.5%6.4%(0.7%)12.9%15.3%18.5%5.4%5.3%3.3%(4.2%)-10-505101520-200-150-100-500501001502002502Q184Q182Q194Q192Q204Q202Q214Q212Q224Q222Q234Q23# of Negative alerts# of Positive alerts# Net Positive as % of MSCI Chinaconstituents (RHS) Source: Wind, HKex, MSCI, RIMES, Factset, Morgan Stanley Research. Data as of February 5, 2024. Note: we carry out analysis of pre-announcements for MSCI China on semi-annual basis as HK listings are obligated to report on semi-annual basis only4Q23 alerts have set a new record low since 2020 (net -4.2% for MSCI China since 2018 vs. net -14.2% for A-shares). Deterioration is broad-based across sectors and company size, with relative resilience skewed towards larger caps. Names to own/avoid are listed based on earnings visibility. As of February 5, 2024, 2,798 A-share companies (~54% of all A-share listings, ~42% by market cap) had released 4Q23 pre-announcements, with a major deterioration compared to previous quarters: • 4Q23 A-shares pre-announcements aggregated a net -14.2% (by number of companies), a significant decrease vs 2Q23 (net -4.2%). • Companies across large-cap, mid-cap, and small-cap have all seen significant deterioration and recorded the worst pre-announcement results since 1Q20 ( Exhibit 4 ). By number of companies, 22 out of 24 industry groups saw net negative alerts: All industry groups except Autos had more negative than positive alerts ( Exhibit 5 ). Similar deterioration was observed for MSCI China universe (based on 258 alerts, representing 34% by number of companies and 11% by market cap). • MSCI China posted a net negative of 4.2% in pre-announcements by number of companies, the worst since we launched the earnings analysis in 2Q18: We saw a continuous drop...
