A genuine reflection of strong demand; Buy HOLI and Inovance.    Despite a high comparison base, China's industrial automation (IA) demandfurther accelerated to 12% YoY in 2Q after a strong start in 1Q (+11%YoY). Encouragingly, this robust growth largely reflected end demand, given adiminishing impact from channel restocking (making up c.10% of demand in2Q17 vs. c.1/3 in 4Q16). Strong momentum in traditional verticals like textilemachinery (+21% YoY), machine tools (+16% YoY) and metallurgy (+8% YoY) wassustained, suggesting that China's manufacturing upgrades will likely be broadbased.    July orders and leading indicators suggest that growth momentum is likelyto persist in 3Q.    Market dynamics by sub-segment.    OEM market further accelerated in 2Q (+16% YoY vs. +13% in 1Q) asmanufacturing upgrades gained momentum. The project market turned to highsingle-digit growth in 2Q (+8% YoY vs. +6% in 1Q), driven by municipals,metallurgy and automotive. Apart from the government's strong top-down push,a recovery in profitability in certain traditional verticals (such as metals andmining) also led to upgrades of manufacturing facilities.

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