Stay cautious on China as uncertainties linger for earningsrevision, liquidity tightening, and industry regulations. Favorbeneficiaries of reflationary cycle (Materials, Industrials, banks)and consumption recovery (service, durables). UW internet.Recommend pricing power for alpha generation.

We stay relatively cautious on broad China equity market given lingeringuncertainties on multiple fronts: 1) limited room for earnings upside revisions onfront-loaded market expectation and rising margin pressure from a reflationaryenvironment; 2) weaker USDCNY forecast with marginal negative translationaleffect (6.48 and 6.40 for USDCNY by 4Q21 and 4Q22, respectively, vs. 6.25 and6.20 previously); 3) persistent equity market liquidity tightness that could curbvaluation re-rating; and 4) ongoing regulatory uncertainty for Internet, fin-techand education. Our Jun-22 base-case price targets are 115, 29,200, 11,200 and5,530 for MSCI China, Hang Seng, HSCEI and CSI300, respectively, suggestingmid- to high-single-digit upside from current levels, and only marginally higherthan our global EM and regional base target upside, supporting a continued EWstance on the market within the broad EM/APxJ universe. Meanwhile, we cautionagainst downside risks, including: 1) earlier implementation of Holding ForeignCompanies Accountable Act at a jurisdictional level, rekindling ADR delisting risk;2) overshoot of credit tightening policy; and 3) under-expected COVID-19outbreaks and disruption to social/economic reopening.