Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and emerging markets

equity strategist for Morgan Stanley Research. Along with my colleagues bringing you their

perspectives, I'll be talking about path ahead for China equities amid Beijing's regulatory

reset. It's Wednesday, August 11th at 7.30 a.m. in Hong Kong.

As you may have read over the last nine months, China has set in motion a major governance

reset with new regulations in areas such as Fintech, Big Tech, after-school tutoring,

cryptocurrency and carbon emissions. After a decade-long journey to eliminate absolute poverty,

this reset represents a shift in governance priorities from growth first to balancing growth

and sustainability, i.e. social equality, supply chain self-sufficiency and data security.

And in our view, it represents a significant moment in the history of China's economy and capital

markets. Now, under this new governance paradigm, China appears to be attempting to check the

rising corporate power and rebalance the share of the economy in favour of the country's labour force,

and this could result in a decline in the corporate profit share of GDP. For sectors associated with

rising tensions in social inequality, environmental sustainability and data security risks,

this framework suggests regulatory headwinds. At the same time, it provides policy support to

advance manufacturing, technology localisation and renewable energy. Now, with such a major governance

shift, there are actually quite a few developing issues to watch. First, there's always the risk of

over-regulation, and we're watching for any spillover effects to broader economic growth from these

regulation changes. There are also other issues of relevance to investors. For example,

given China's focus on data security, will we see progress on resolving the audit access

dispute with US regulators over Chinese companies listed on US exchanges? So what are the broader

implications for global investors? Our stance on China equities remains cautious, and that has been

...