摩根士丹利-中國股票策略-全球跨國公司中國人氣指數(shù)（2021年第一季度）：V型復(fù)蘇擴大-2021.5.26-23正式版

May26,202109:00PMGMT

ChinaEquityStrategy|AsiaPacific

GlobalMNCsChinaSentiment

Index(1Q21):V-shapeRecovery

Extended

1Q21'sfinalreadingis40,thefourthconsecutiveQoQincreasesince1Q20andalsothehighestreadingsinceindexlaunch.

Weprovide1Q21finalcutofAlphaWiseGlobalMNCChinaSentimentIndexbasedon1,252qualifieddatapointscollectedfrom444multinationalcompanies'earningstranscripts.Keyfindingsinclude:

MNCs'sentimentfinalreadingfor1Q21is40(unchangedvsinterim),upby3pointsvs.4Q20andhighestsinceindexlaunchin1Q18(Exhibit1):

Thesentimentscoreroseforthefourthconsecutivequarter,supportedbyresilientmacroconditionsandearningsrecoverypostpandemic.

PercentageofMNCsfeelingpositivehitall-time-highat70%.

HalfofsectorsandallregionsbutJapancontinuedtoseesentimentimprovementin1Q21:Sixsectorsoutof11recordedrobustQoQsentimentincreasein1Qfinalreading.US,EuropeandEM/APxJallpostedrecord-highscoresandregisteredQoQimprovementforfourquartersinarow.

MacrothemepostedthelongeststreakofQoQimprovementwith21-pointincreasevs4Q20,andconsumptionregisteredastrongcomebackafterhiccupin4Q20:ConsumptioncontinuedtobethethememostfrequentlyreferencedbyMNCs,andwestaypositiveonitsincrementalmomentumaccelerationinChinaduringtherestof2021.

Costthemecontinuestoshowsentimentimprovement.WeplantomonitorforsignsofweaknessasPPIspikesandCPIcatchesupthroughrestofyear–implyingrisingcostsandpressureoncorporatemargins.

TheupbeatMNCsentimentisinlinewiththecontinuousresilientmacro

recoveryweexpected,butweseelingeringuncertainties:1)Limitedroomforupwardlyrevisedearningsestimatesonfront-loadedpositivemarketexpectationsandinflationarypressures;2)MS'srevisedUSD/CNYforecastisweakerthanbefore,hencebringsmarginallynegativetranslationaleffect;3)Chineseequitymarketliquidityislikelytostaytightthrough2021,assuggestedbyourFreeLiquidityindicatorstayinginnegativeterritoryfortherestof2021;4)Sector-levelregulatorytighteningcoupledwithongoingUS/Chinaauditdisputeaddstothepressureontheoffshorespace,asmostChineseInternetandEducationcompaniesarelistedasADRswhicharesubjecttoHoldingForeignCompaniesAccountableAct.Readmore:ChinaEquityMid-YearOutlook:PatienceforInflection;PricingPowerforAlpha(17May2021).

MORGANSTANLEYASIALIMITED+

LauraWang

EQUITYSTRATEGIST

Laura.Wang@

+8522848-6853

FranChen,CFA

EQUITYSTRATEGIST

Fran.Chen@

+8522848-7135

JonathanFGarner

EQUITYSTRATEGIST

Jonathan.Garner@

+8522848-7288

Exhibit1:AlphaWiseGlobalMNCs'ChinaSentimentIndex–1Q21finalreadingcontinuedtheextensionofV-shaperecovery,3pointshigherthanin4Q20andrecordingall-timehighsinceindexlaunchin1Q18

45

40

40

35

30

25

20

15

10

GlobalMNCs'ChinaSentimentIndex

5

0

1Q182Q183Q184Q181Q192Q193Q194Q191Q202Q203Q204Q201Q21

Source:Refinitiv,AlphaWise,MorganStanleyResearch

Note:SentimentIndexisplottedagainsttheactualplausiblereleasedate,whichisaround4-6weeksaftereachquarterends.

MorganStanleydoesandseekstodobusinesswithcompaniescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanleyResearch.InvestorsshouldconsiderMorganStanleyResearchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionsoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.?

1

GlobalMNCs'ChinaSentimentContinuedStrongV-shapeRecovery

GlobalMNCChinaSentimentIndexisasmartindicatorandauniquedataseriesbackedbyAlphaWise,leveragingAIforaggregated,systematicsentiment.Theunderlyingautomatedandsystematicmethodologyallowsforreal-timemeasurementofGlobalMNCs'sentimenttowardChinaandonaparticulartheme.SeeAppendixfordetailedmethodology.

StrongRecoveryExtendedFurtherwithAll-time-highScoresince1Q18

Ourmachine-andAlphaWise-poweredGlobalMNCsChinaSentimentIndexrecordedafinalreadingof40for1Q21,thehighestscoresincewelaunchedtheindexin1Q18,andupby3pointsvs.4Q20:Wesawthelongeststreakofimprovingsentimenttrajectorysince1Q20'strough.Finalreadingfor1Q21isthesameasinterimreading,whichwaspublishedonMay2,2021(link).GlobalMNCs'sentimenttowardChinabusinessoperationsfullyrecoveredtopre-COVID-19levelbytheendof2020,and1Q21'sfinalreadingisconsistentwithV-shaperecovery.ThisissupportedbyresilientChinamacroeconomyrecovery(1Q21GDPgrowthat18.3%YoY),andourChinaeconomistsmaintaintheirabove-consensusfull-yearGDPgrowthforecastof9%for2021,basedonarevivalofprivateconsumptionandmanufacturingcapex.Chinesecompaniesoverallreported4Q20resultsinlinewithconsensusearnings(link).For1Q21,A-sharecompaniespostedamarginalbeat,ledbycyclicalsectors(link).EarningsdeliveryisamainfactorinourframeworkforevaluatingChineseequitiesandisofparticularimportanceduringperiodsofliquiditytightening,whichcapsvaluationupside(seeChinaEquityMid-YearOutlook:PatienceforInflection;PricingPowerforAlpha(17May2021).

Exhibit2:AlphaWiseGlobalMNCs'ChinaSentimentIndex–1Q21finalreadingcontinuedextensionofV-shaperecovery,up3pointsvs.4Q20andanewhighsinceindexlaunchin1Q18

45

40

40

35

30

25

20

15

10

GlobalMNCs'ChinaSentimentIndex

5

0

1Q182Q183Q184Q181Q192Q193Q194Q191Q202Q203Q204Q201Q21

Source:Refinitiv,AlphaWise,MorganStanleyResearch

Note:SentimentIndexisplottedagainsttheactualplausiblereleasedate,whichisaround4-6weeksaftereachquarterends.

ThepercentageofMNCsfeelingpositive("Verypositive"+"Slightlypositive")is70%,thehighestsinceindexlaunch,4pptshigherthaninlastquarter:Aggregatescoreof40

in1Q21putsMNCs'sentimentcomfortablyinthemid-rangeof"Slightlypositive"

2

category(21to60).ThedistributionofMNCs'sentimenttowardsChinain1Q21validated

prolongedextensionofV-shaperecoverypostCOVID-19.Amongthe444MNCsonwhichwerantheanalysis,30%hold"Verypositive"businessoutlooksonChina,up3pptsandthehighestlevelinthehistoryoftheindex(Exhibit3).Bycontrast,thepercentageofMNCswithsentimentcategorizedas"Neutral/Limitedsignal"droppedfrom30%to27%,thelowestsinceindexlaunch.TheproportionofMNCsfeelingnegative("Verynegative"+"Slightlynegative")wasflatat3%,anall-time-lowlevel.

COVID-19isnolongeramajorconcernforGlobalMNCswithregardtotheirChina

outlook:Ourmachine-learningmodelskeeptrackingthesentimentlevelofMNCsthatexplicitlymentionCOVID-19intheir1Q21earningsscripts.ThenumberofcompaniesmentioningCOVID-19intheirearningsscriptscontinuedtodwindle,to147companiesin1Q21,accountingfor33%ofthetotalnumberofcompaniesanddownfrom57%backin4Q19whenwestartedthisexercise.Thisgroupregisteredasentimentscoreof41,even1pointhigherthantheaggregatescoreof40(Exhibit4).ThisisthefirsttimethatMNCsmentioningthecoronavirusscoredhighersincewestartedtotrackinearly2020.Weseesomedivergenceatthegeographicallevel,though.EM/APxJMNCsshowedmateriallylowersentimentlevelamongthosereferencingCOVID-19vs.theirregionalaggregatescore,likelydraggeddownbytherecentsurgeinCOVID-19casesintheregion,particularlyinIndia,TaiwanandSingapore.JapanandEuropeanMNCshavemoreoptimisticsentimenttowardsChinaamongthosementioningCOVID-19.

Exhibit3:DistributionofGlobalMNCs'ChinaSentimentScore–%ofMNCsholdingpositiveviewstowardsChinaroseby4pptsin1Q21vs.4Q20

GlobalMNCs'ChinaSentimentScore

Verynegative

Slightlynegative

Neutral/LimitedSignal

Slightlypositive

Verypositive

20%

23%

20%

23%

15%

13%

20%

26%

27%

30%

36%

34%

36%

36%

34%

34%

40%

37%

39%

40%

34%

35%

36%

32%

44%

44%

33%

31%

30%

27%

7%

6%

6%

6%

6%

7%

5%

5%

2%

2

2%

2%

2%

3%

1%

2%

2%

1%

1%

1%

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

4Q20

1Q21

Source:Refinitiv,AlphaWise,MorganStanleyResearch

3

Exhibit4:GlobalMNCs'SentimentinaggregateandspecificallytowardsCOVID-19in1Q21–COVID-19concernshavelargelyeasedforallregionsexceptEM/APxJ,whichisexperiencingresurgence

Sentiment-Aggregatevs.thosementioningCoronavirus

1Q21Aggregate

1Q21AmongthosementioningCoronavirus

49

45

40

41

42

39

32

32

23

18

Global EM-APxJ US Europe Japan

Source:Refinitiv,AlphaWise,MorganStanleyResearch

4

Themes:Broad-basedimprovement

Improvementacrossallthemes,mostnotablyinmacro

Weranmachine-enhancedthemeidentificationthroughMNCs'transcriptsagainstfourgroupsofkeythemes–Macro/Economy,Consumer/Consumption,Cost,andLabor:

Thethemeswerechosenbasedonfeedbackfrominvestorsaswellasstockanalystsregardingkeyinvestorconcerns.SentimentscoresarecalculatedforsubgroupsofMNCsthatexplicitlymentionedthesethemesintheir1Q21earningscalls.Forpurposesofcomparison,weperformedretrospectiveanalysissince1Q18.Ourkeyfindings:

SentimenttowardsMacro/EconomyextendedthelongeststreakofQoQimprovementto5quarters,reachingnewhighsinceindexlaunch:Thisthemepostedascoreof53in1Q21,thehighestsince1Q18and6pointshigherthaninterimreading.ThisisconsistentwithChina'sbroad-basedeconomicrecoverytrajectory.ChinaGDPgrowthreached18.3%YoYin1Q21,anditisontracktoregister9%for2021,accordingtoMSestimates.Strongrecoveryinprivateconsumptionandmanufacturingcapexisinsightin2Q,andagradualcountercyclicalcredittighteningcourselargelyintheformofmacroprudentialmeasuresshouldlimittherisktotheeconomicgrowthtrend(link).

Consumer/Consumptionthemesawsentimentcomebackin1Q21fromsetbackin4Q20:Thescoreforthisthemepickedupby9pointsto45in1Q21,consistentwithourviewthattheminordropin4Q20wastransitoryduetosporadicCOVID-19resurgenceinend-2020/early2021andthegovernment'sstaycationguidelinesduringCNY.OurproprietaryChinaFive-factorConsumerActivityZ-scoredepictsasimilartrendwherebyithadahiccuplastDecemberfollowedbystrongreboundsinthefirstthreemonthsof2021.Weremainpositiveonconsumptionmomentumoverthemedium/longterm,supportedbyacatch-upintheservicesectorrecoveryintherestof2021.

Costasathemehasalsobeenimprovingfor4quartersinarowaftertroughinginQ12020.WithPPIspikingandCPItocatchupfurtherthroughthecourseofthisyear,itwouldbeinterestingtomonitorwhetherMNCs'sentimenttowardscostonshorestartstoshowweaknessasreflationgoesonandpotentiallyputspressureonmargins.

Note:WepreviouslyranthisexerciseontheTrade/Tarifftheme.Thenumberofunderlyingmentionsofthisthemeisdecliningovertimewhichmeansthatthesentimentscoreismorelikelytobeskewedbyindividualvalues.Wethereforedroppedthisthemeforthequarter.

5

Exhibit5:GlobalSentimentScorebytheme:Scoresforallthemesadvancedin1Q21vs4Q20,inparticularMacro/Economywith21-pointincrease

GlobalSentimentScorebyThemes

Q12018

Q22018

Q32018

Q42018

Q12019

Q22019

Q32019

Q42019

Q12020

Q22020

Q32020

Q42020

Q12021

53

50

43

43

45

44

42

46

39

40

43

43

40

3836

40

39

37

35

37

32

34

36

35

37

34

34

33

35

33

34

30

30

29

30

30

30

30

31

31

30

29

30

27

27

26

27

28

27

23

2626

21

22

24

23

21

19

1516

14

13

12

11

9

Aggregate

Macro/Economy

Consumer/Consumption

Labour

Cost

Source:Refinitiv,AlphaWise,MorganStanleyResearch

6

Morethanhalfofsectorscontinuedtoseesentimentimprovement

Abouthalfoftotalsectorsrecordedanotherquarterofmeaningfulsentimentimprovementin1Q21vs.4Q20,alongwitharobustrecoveryattheaggregatelevel.Threesectors,CommunicationServices,RealEstateandUtilities,sawmaterialsentimentdeterioration.Theothertwosectors'sentimentstayedonpar,i.e.,MaterialsandHealthCare.Allsector-levelsentimentscoresstayedinthe"Slightlypositive"bucket(from21to60)exceptforUtilities,whichpostedthemostsentimentdeteriorationin1Q21.

Leadersinsentimentimprovement–Energy,Financials,IndustrialsandIT:MNCsinthesefoursectorssawtheirsentimentscorestowardChinapickingupby27,9and8and6points,respectively,in1Q21vs.4Q20.ConsumerDiscretionaryMNCs'sentiment

scoreincreasedthemostduringthethreeweekssinceour1Q21interimcutandfinished3pointshigherthanin4Q20.ThisreboundsuggeststhatglobalMNCs'confidenceinChineseconsumersisincrementallybuildingupamidcontinuedrecoveryinserviceconsumptionandretailsalesafterahiccupduetoacombinationofsporadicemergenceofCOVID-19casesandboycottbycertaininternationalretailersinChina.

Sectorswithdeterioratingsentiment–CommunicationServices,RealEstateand

Utilities:GlobalMNCsentimentscoresforthesesectorssaw6,17and24pointsofdeteriorationin1Q21vs.thelastquarter.NotethatUtilitieshasverylimitedsamplesizewithfewerthan20datapoints.

Exhibit6:MNCs'SentimentIndexbysector–Sixsectorsshowedimprovement,ledbyEnergy,FinancialsandIndustrials;UtilitiesandRealEstatesawmajordeteriorationin1Q21vs.4Q20

60

4Q20

1Q21

50

40

30

20

10

0

Aggregate

Energy

HealthCare

IT

Industrials

Financials

ConsStaples

ConsDiscr

CommSVS

Materials

RealEstate

Utilities

Source:Refinitiv,AlphaWise,MorganStanleyResearch

7

Exhibit7:DistributionofGlobalMNCs'ChinaSentimentScorebySector–1Q21vs.4Q20

SentimentScore4Q20vs.1Q21-BySector

Verynegative

Slightlynegative

Neutral/LimitedSignal

Slightlypositive

Verypositive

28%

33%

18%

19%

28%

26%

30%

23%

29%

38%

37%

40%

39%

36%

39%

43%

38%

48%

35%

42%

37%

33%

49%

41%

25%

39%

41%

30%

28%

22%

24%

27%

22%

25%

26%

19%

5%

1%

2%

4%

2%

4%

5%

1%

2%

2%

0%1

2%

2%

2

0%

1%

3%

1%

1%

0%

1%

4Q20

1%

4Q20

1Q21

4Q20

1Q21

4Q20

1Q21

4Q20

1Q21

4Q20

1Q21

1Q21

Industrials

Materials

ConsumerDiscretionary

HealthCare

InformationTechnology

ConsumerStaples

Source:Refinitiv,AlphaWise,MorganStanleyResearch

Note:Onlytop6sectorswiththelargestsamplesizes(exFinancials)arepresented.

Exhibit8:GlobalMNCs'ChinaSentimentIndexbysectorscoretrajectorysincelaunch–Sector-levelsentimentrecoveryshoweddispersionwitharoundhalfofthemcontinuingQoQincrease

60

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

4Q20

1Q21

50

40

30

20

10

0

29%

Source:Refinitiv,AlphaWise,MorganStanleyResearch

8

RegionalBreakdown:GlobalMNCs'sentimentforallregionsbutJapanrecordednewhighs

AllregionsexceptforJapansawsolidV-shaperecoveryextendedtofourquartersinarowintermsofMNCs'sentimenttowardsChinaoutlook,andpostedrecord-highscoressinceindexlaunchin1Q18.TheUSsawthemostsentimentimprovementin1Q21,by6points,followedbya3-pointQoQadvanceforEM/APxJand2pointsforEurope.Japanistheonlyregionwithsentimentdeterioration,likelydueinparttodomesticresurgenceofCOVID-19casesandmuchlowervaccinationratethanintheUSandEurope.EM/APxJMNCspostedafinalscoreof32,asharpincreasevstheinterimreadingof22(link),duetolargersamplesizeincludedforderivingthefinalsentimentscore.

USMNCsremainthemostoptimisticintermsoftheirChinaoutlook,andtheirscoreof49hastakenafurthersteptowards61,thelowerboundofthe"Verypositive"category.Allregions'sentimentscorescomfortablyendedupwithinthe"Slightlypositive"categoryin1Q21.

Exhibit9:GlobalMNCs'ChinaSentimentIndexbyregion–1Q21finalreadingsforUS,EuropeanandEM/APxJMNCssetrecordhighssince1Q18

60

EM/APxJ

US

Europe

Japan

Global

50

40

30

20

10

0

1Q182Q183Q184Q181Q192Q193Q194Q191Q202Q203Q204Q201Q21

Source:Refinitiv,AlphaWise,MorganStanleyResearch

9

Machine-enhancedMNCsChinaSentimentIndex:Methodology

AssessingglobalMNCs'outlookonChina,employingMorganStanley'sproprietary"PowerofWords"capability

WeofficiallylaunchedtheMorganStanleyGlobalMNCsChinaSentimentIndexonOctober16,2019,amachine-drivenandAlphaWise-poweredsmartindicatortogaugeglobalMNCs'forward-lookingviewsonChina.EquippedwithNaturalLanguageProcessingandConvolutionalNeuralNetworktechniques,MorganStanleyquantitativeresearchersareabletonavigatehundredsofcorporateearningsscripts,digestsentiment,conveythemessage,andsynthesizedataintoanumericalscore.

ThisworkisanextensionofMorganStanley's"PowerofWords"quantitativeanalysis,whichsystematicallyextractsalphafromthetextofMorganStanleyResearchreports.Foramoredetailedintroductiontotheapproach,pleaserefertoQuantitativeEquityResearch:ThePowerofWords:AnAdditionalSourceofAlphafromOurResearch(26Jun2019).

OurinitiationreportonthisMNCChinaSentimentIndexseriescanbefoundhere:Macro

MeetsMicro:China:LaunchingOurGlobalMNCsChinaSentimentIndex:PoweredbyMachineLearning(16Oct2019).

Methodologyoverview–1Q21

Thekeyfocusperiodofthisreportis1Q21,forwhichweusedourproprietarysentimentmodeltoanalyzecorporateearningsscriptsfrom444globalmultinationalcompaniesspanningallmajormarketsandsectors.

Timingofthereport:Thisreportpresentsthefinalcutof1Q21MNCChinaSentimentIndexreading.

Methodology:Inthe1Q21finalcut,weanalyzed1,252datapoints(i.e.,mentionsofChinaintheearningstranscriptsofthese444companies).Themodelgeneratesascore(onascalefrom-100to+100)basedonthemachines'interpretationofeachdatapoint.Thesentimentindexreadinginthe1Q21finalcutisderivedfromthese1,252datapointsacross444companies.Thesamplesizerepresentsa4%increasevs.4Q20'snumberofcompaniesbuta3%decreasevs.lastquarterintermsofdatapoints.

Geographicalrepresentation:OurmodelsencompassglobalMNCsincludedintheS&P500,MSCIEurope,MSCIEM,MSCIAPxJandMSCIJapanindices(Exhibit10).TheUSandEuropehavethebiggestnumbersofMNCsandrespectivelyaccountedfor38%and36%ofourcompanysamplesize.JapanandEM/APxJhaverelativelysmallrepresentationofMNCs,at18%and9%.respectively.

Sectorrepresentation:Globally,wehavematerialrepresentationfromsevenmajorGICSsectors(Exhibit11).ThelargestnumberofcompaniesisinIndustrials,followedbyHealthCare,Materials,ConsumerDiscretionary,IT,FinancialsandConsumerStaples.

10

TherepresentationfromEnergy,CommunicationServices,RealEstateandUtilitiescompaniesissmallinscale.

Exhibit10:Numberofcompaniesbyregionanalyzedin1Q21

Exhibit11:Numberofcompaniesbysectoranalyzedin1Q21

No.ofCompanies-ByRegion

No.ofCompanies-BySector-1Q21

82

Global

436

Industrials

425

HealthCare

67

444

Materials

60

EM/APxJ

80

91

Q32020

ConsumerDiscretionary

55

78

Q42020

InformationTechnology

49

154

US

Q12021

Financials

45

159

167

ConsumerStaples

39

Europe

153

Energy

19

127

159

CommunicationServices

16

Japan

49

RealEstate

9

48

Utilities

3

40

Source:Refinitiv,AlphaWise,MorganStanleyResearch

Source:Refinitiv,AlphaWise,MorganStanleyResearch.

Exhibit12:1Q21sentimentindexcomputation–Samplesizebreakdownbysector:Numberof

companiesandnumberofdatapoints

Industrials

HealthCare

Materials

Consumer

Information

Financials

Consumer

Energy

Communication

RealEstate

Utilities

Total

Discretionary

Technology

Staples

Services

No.of

82

67

60

55

49

45

39

19

16

9

3

444

companies

212

208

191

200

120

96

139

26

33

21

6

1252

Datapoints

Source:Refinitiv,AlphaWise,MorganStanleyResearch.

Classificationofsentimentscores:Wedesignedfivebucketsintowhichascorebetween-100and+100wouldfall.ThesebucketscorrespondtothelevelofoptimismorpessimismonChinathatglobalMNCsconveyedtothemarket.Specifically,wehave:

VeryPositive:61to100

SlightlyPositive:21to60

Neutral/Limitedsignal:-20to20

SlightlyNegative:-21to-60

VeryNegative:-61to-100

Ratherthanisolatingkeywordsasinexistingsentimentmodels,weuseadeeplearningapproachtoanalyzecompletesentencesthatincludedthewords"China"or"Chinese,"alongwiththeprecedingandfollowingsentences.Thisprovidesenoughcontextforustobeabletoleveragetheexpertiseofourresearchanalysts,aswellasothercolleagues,totrainandvalidatethemodel.ThesetechniquesalsofeatureinourrecentNorthAmericanInsight,QuantitativeEquityResearch:ThePowerofWords:AnAdditionalSourceofAlphafromMSResearch.PleaseseeExhibit13forafewexamples.

11

Exhibit13:ScalingofGlobalMNCs'ChinaSentimentIndexanddemonstrationofhowourproprietarymodelswork

QualitativeGrading

ScoreRange

Examples

FiscalQ4results-stronggrowthinDRAMbitaswellasNANDandsecondhalfthedemandis

back,thecustomerdemandisback,andyes,theremaybesomelevelofinventorybuildinChina

VeryPositive

61to100

duetothereasonsmentionedbycertaincustomers,butwedonotthinkthatinventorybuildis

anywhereclosetothekindofinventorybuildthathadgoneoninthesecondhalfoflastyear.So

nowheremateriallyclosetothatlevel.Sooverall,theindustryenvironment,intermsofdemand

returniscertainlysolid.

SlightlyPositive

21to60

Neutral/Limited

20to-20

Signal

SlightlyNegative

-21to-60

VeryNegative

-61to-100

Lastquarter,wementionedrecentmacroeconomicpressuresinChinawereimpactinggrowthinthisregion,andalthoughthereisstillpressure,wedeliveredstrongthirdquartergrowth.Asevidencedbyouroverallsalesgrowththisquarter,ourfundamentalsacrosstheregionremainstrong.

Butasyoucanexpect,ittakestimetocommercializeanewbreakthroughtechnology.Meanwhile,wewillcontinuetolookforwaystooptimizeourcostsandwillprovideupdatesonmaterialprogressovertime.WithrespecttoU.S.tariffsonimportsfromChina,withcontinuedmitigation,wewereabletocontaintheirimpactonourconsolidatedgrossmargininfiscalQ4tolessthan20basispoints.

Sowethinkthecomparisonbetweenusandsomeofourpeercompaniesmightjustbethemixofmarketsthatwe'rein.we'recautiousaboutChina.WejusthadagreatquarterinChina,butweareawareofthevolatileenvironmentthatwe'rein.

IncreaseindemandvolatilityofChinesesmartphonecustomersledtosluggishshipmentgrowthandsteeperASPerosion.Revenuedecreased11%quarter-on-quarter,whilerevenuemixwasmaintainedat23%.Althoughcostperunitwasreducedacrossallapplications,itwasnotenoughtocompletelyoffsetthepricedecline.

Source:Refinitiv,AlphaWise,MorganStanleyResearch

Wherewecouldbewrong:Oursentimentmodelcombinesdeeplearningwithhumanexpertisetoquantifydomain-specificsentiment.However,thepresenceoflinguisticnuances,particularlyacrossregionsandlanguages,andambiguityintranscriptscanhinderthemodel'saccuracy.

Werelyonthedomainknowledgeoffinancialanalystsandback-testingvs.ourpreviousmanualapproachtomitigatetheissueofsubjectivity.

Wealsouseinconsistentscoreswithinacompanycommentarytoidentifyscenarioswhereourmodelmightbewrongorgeneratemixedsignals.

Finally,oursentimentmodelanalyzesonlysectionsoftranscriptsinwhichChinaismentionedspecifically.TherecouldbeadditionalinformationrelatedtoChinathatisnotcapturedinourmodelingprocess.Weseepotentialforfutureresearchinthisareawithadvancementsindeeplearningtechniques.

Theinformationcontainedhereinhasbeenpreparedsolelyforinformationalpurposesandisnotasolicitationofanyoffertobuyorsellanysecurityorotherfinancialinstrumentortoparticipateinanytradingstrategy.Productsandtradesofthistypemaynotbeappropriateforeveryinvestor.Pleaseconsultwithyourlegalandtaxadvisorsbeforemakinganyinvestmentdecision.PleasecontactyourMorganStanleysalesrepresentativeformoredetails.

12

Appendix:DetailsofSampleMNCs–ListbyRegion

Exhibit14:SamplesizebynumberofcompaniesanddatapointsforcomputationofGlobalMNCsChinaSentimentIndex

No.of

Global

EM/APxJ

US

Europe

Japan

companies

Q12018

353

77

172

98

6

Q22018

410

86

201

80

43

Q32018

462