Asset Allocation - The investment research framework has evolved from the traditional Merrill Lynch clock to a Chinese-style monetary credit model, reflecting significant changes in China's economic development model and the diminishing role of investment in driving economic growth [12] - In the new era, liquidity is identified as a core factor influencing asset prices, with the monetary cycle remaining highly relevant. Additionally, international factors, exemplified by US-China relations, significantly impact export engines and cross-border capital flows, becoming crucial for capturing asset price changes [12] Historical Review of Stock and Bond Performance - The report reviews stock and bond performance since 2018, highlighting that in 2018, macroeconomic fundamentals were weak, leading to significant stock market declines while bonds provided good coupon returns. In 2019, equity markets experienced volatility, and bonds continued to offer protection [18] - The analysis indicates that from 2020 to 2025, equity markets have shown resilience driven by technology stocks and structural bull markets, while bonds have entered a bull market phase characterized by declining yields [18] Long-term Bond Market Trends - Historical data shows that each bond bull market corresponds with a downward trend in 10-year government bond yields, driven by the interplay of "debt bulls" and "asset scarcity" [20] - The current bond bull market has seen 10-year government bond yields reach new lows, indicating a significant shift in the bond market landscape [21] Equity Market Trends - The equity market is believed to be in a long-term upward trend, with the current phase identified as the third wave of a five-wave cycle. This phase is expected to last longer than previous cycles, indicating a gradual upward movement [25] - The report draws parallels with Japan's experience, noting that after the economic bubble burst in the 1990s, the Japanese stock market entered a long-term upward channel, supported by structural reforms and monetary easing [29] Core Investment Themes - The report emphasizes a bullish outlook on A-shares and Hong Kong stocks, driven by stable US-China relations and a supportive global monetary environment. It suggests that technology stocks will lead the market in the next 5-10 years [36] - The bond market is expected to maintain a volatile environment, with a focus on coupon strategies as interest rates are projected to fluctuate between 1.7% and 2.0% [36]

Monetary Supply Trends - As of the end of October, M2 growth rate was 8.2%, down from 8.4%, a decrease of 0.2 percentage points[1] - M1 growth rate was 6.2%, down from 7.2%, a decline of 1 percentage point[1] - The M1-M2 gap widened to -2%, an increase of 0.8 percentage points from the previous month[1] Deposit Dynamics - Household deposits decreased by 1.34 trillion yuan, a year-on-year decline of 770 billion yuan[12] - Non-financial enterprise deposits fell by 1.09 trillion yuan, a year-on-year decrease of 355.3 billion yuan[12] - Fiscal deposits increased by 720 billion yuan, a year-on-year increase of 124.8 billion yuan[12] - Non-bank deposits rose by 1.85 trillion yuan, a year-on-year increase of 770 billion yuan[12] Credit and Financing - New RMB loans in October amounted to 220 billion yuan, a year-on-year decrease of 280 billion yuan[3] - Social financing increased by 815 billion yuan, a year-on-year decline of 432.1 billion yuan, with a month-end growth rate of 8.5%[8] - Corporate loans increased by 350 billion yuan, a year-on-year increase of 220 billion yuan[5] Economic Outlook - The central bank indicated that the most significant pressure points may have passed, suggesting a potential decrease in the likelihood of rate cuts in the fourth quarter[15] - The cumulative excess savings of households since 2020 is estimated at approximately 2.54 trillion yuan, reflecting ongoing shifts in deposit behavior[14]

Market Overview - The Shanghai Composite Index rose by 0.7%, while the CSI 300 increased by 1.2%, the STAR Market 50 by 1.4%, the CSI 1000 by 1.4%, and the ChiNext Index by 2.6%. The Hang Seng Index saw a rise of 0.6% [5][7] - The best-performing sectors included power equipment (+4.3%), non-ferrous metals (+4.0%), comprehensive (+3.3%), basic chemicals (+2.6%), and building materials (+1.7%). The worst-performing sectors were utilities (-0.3%), telecommunications (-0.2%), oil and petrochemicals (-0.1%), banks (-0.1%), and home appliances (+0.3%) [5][7] - The total trading volume in the Shanghai and Shenzhen markets was 20,420 billion, with a net outflow of 3.52 billion HKD from southbound funds [5][7] Key Recommendations - The report recommends Inke Recycling (688087) as a leading player in the integrated recycling plastic industry, highlighting its solid quality and steady growth. The recommendation is based on the global shift towards recycled plastics and the company's advantages in full industry chain layout, global channel development, and overseas production capacity [8] - The expected revenue for Inke Recycling from 2025 to 2027 is projected to be 3,355.96 million, 3,869.30 million, and 4,494.48 million respectively, with revenue growth rates of 14.78%, 15.30%, and 16.16%. The net profit attributable to shareholders is expected to be 298.44 million, 357.11 million, and 434.07 million, with growth rates of -2.89%, 19.66%, and 21.55% respectively [8] Industry Insights - The Chinese traditional medicine industry is expected to see continuous improvement in revenue growth rates from Q1 to Q3 of 2025. The report anticipates that excellent companies will accelerate revenue growth after clearing channel inventory, coupled with the recovery of gross margins due to declining prices of traditional Chinese medicine materials [10][11] - The report emphasizes that 2026 marks the beginning of the "14th Five-Year Plan," and state-owned enterprises are likely to focus on achieving a strong start for the "15th Five-Year Plan," which may lead to improved performance in the second half of 2025 [10][11] - The macroeconomic report indicates that achieving the growth target for a moderately developed country requires an average annual GDP growth of 4.17% during the "15th" and "16th Five-Year Plans." This growth target is based on the actual GDP growth rate, not nominal [12][13]

Group 1: Report's Investment Rating - No investment rating information for the industry is provided in the report. Group 2: Core Views of the Report - After the Japanese bond yield broke below 2%, it remained in a long - term low - level oscillation. The weak economic reality restricted the upward movement of the yield, but there were still significant obstacles to further decline. The Japanese stock market, on the other hand, experienced a long - bull market due to factors such as positive macro - economic expectations, improved corporate micro - profitability, and the support from the Bank of Japan [1]. Group 3: Summary Based on the Directory 1. Japan's Stock and Bond Review and Insights ➢ Japanese Bonds: Long - term Oscillation after Breaking below 2% - **1990 - 2018 Phases**: From 1990 to 1998, the 10 - year Japanese bond yield was in a downward period, dropping from over 8% to 0.77%. From 1999 to 2008, it was in an oscillation period, fluctuating around a 1.5% central level. From 2008 to 2018, under continuous and substantial monetary policy easing, the yield steadily declined and remained in a low - level oscillation. Since 2018, as Japanese monetary policy gradually normalized, the bond's elasticity increased, and the yield moved from a long - term zero - interest state to positive interest [10]. - **1998 - 1999**: Fiscal adjustment and the Asian financial crisis led to a significant deterioration of the Japanese economy. The Bank of Japan cut interest rates, causing the 10 - year Japanese bond yield to break below 2% in October 1997 and reach a low of 0.77% in October 1998. Subsequently, due to the imbalance between the supply and demand of national bonds (the government's large - scale fiscal expansion increased bond issuance, while the main buyer, the Ministry of Finance's Fund Management Bureau, suspended bond purchases), the yield quickly rebounded to 2.43% [13][14][19]. - **2002 - 2003**: The Japanese government adopted fiscal austerity while the central bank implemented loose monetary policies. The 10 - year Japanese bond yield started a new downward trend in February 2002 and reached a low of 0.43% in June 2003. After 2002, the global economic recovery improved Japan's economic outlook, and the yield rebounded. The sell - off by commercial banks using the VAR model accelerated the bond market's adjustment, with the yield rising by nearly 120BP from June to September 2003 [20][22][23]. ➢ Japanese Stocks: Long - Bull Trend after 2013 - After hitting a historical high in 1989, the Japanese stock market entered a long - term correction. In 2013, it started a new long - bull market, reaching a new high in February 2024. As of the end of October 2025, the Nikkei 225 index was at 52,411.34 points, a cumulative increase of 512.27% compared to the beginning of 2012 [28]. - Abenomics was an important catalyst for the rise of the Japanese stock market. In 2013, the Abe cabinet launched a 20.2 - trillion - yen economic stimulus package, the Bank of Japan introduced the QQE policy, and the government launched the "Japan Revitalization Strategy". Multiple factors such as positive macro - economic expectations, the development of high - tech industries, and the support from the central bank led to a double - whammy of improved corporate profitability and valuation, driving the long - bull market [31][32].

Group 1: Growth Targets - The "14th Five-Year Plan" aims for per capita GDP to reach the level of middle-developed countries by 2035, with a target of exceeding $20,000[1] - To achieve this, an average annual GDP growth rate of 4.17% is required during the "14th" and "15th Five-Year" periods[2] - The per capita GDP in 2035 is projected to be over $20,000, which is below the developed country threshold of approximately $29,000[8] Group 2: Measurement Standards - Two parallel standards for measuring the growth target are established: exceeding $20,000 in nominal terms and doubling the per capita GDP from 2020 levels in real terms by 2035[6] - The International Monetary Fund (IMF) recognizes 41 developed economies with a per capita GDP threshold of about $23,400, while China’s current per capita GDP is approximately $13,300[3] - The World Bank classifies 87 high-income economies, with a high-income threshold of $13,935, placing China in the upper-middle-income category[3] Group 3: Economic Context - The population is expected to decrease by about 0.20% annually by 2035, impacting GDP growth calculations[2] - The actual GDP growth rate needed to meet the target is estimated at 4.1%, which aligns closely with the stated 4.17%[7] - The classification of "middle-developed countries" is contextualized as a transitional goal rather than a benchmark within developed countries[8]

Group 1 - The report identifies several key puzzles resolved in 2025, including the final determination of monetary policy, the stage bottom of the bond market, and the credit risk outlook, indicating that mainstream varieties do not require excessive concern [7] - The report highlights ongoing contradictions for 2026, such as the conflict between the macro narrative and micro sentiment, and the limited space for capital gains versus coupon strategies in the bond market [7] - The bond market is expected to be slightly bullish in 2026, with a focus on timing over selection, and a preference for coupon strategies over duration [7] Group 2 - The report outlines several long-term bullish factors for the bond market, including the experience of low interest rates in other economies, weak economic sentiment, and a lack of leverage among residents [8][9] - Short-term bearish factors are identified, such as the rising equity market attracting funds away from bonds, and the potential tightening of monetary policy due to inflation expectations [8][9] - The report emphasizes that the risk of credit bond defaults is diminishing, with the current market dominated by state-owned enterprises, reducing concerns over credit risk [31][26] Group 3 - The report provides specific strategies for different types of bonds, recommending a focus on financial bonds for their safety and liquidity, while suggesting a cautious approach to city investment bonds and a selective strategy for industrial bonds [10] - The financial bond market is highlighted as a key area for trading strategies, with a focus on liquidity rather than yield in a low coupon environment [10] - The city investment bond market is expected to remain stable until mid-2028, with opportunities for adjustment based on risk preferences and yield demands [10]

Core Insights - The Chinese medicine industry is expected to see revenue growth accelerate as companies clear channel inventory and benefit from lower raw material prices, leading to margin recovery [3][8] - As of Q3 2025, institutional holdings in the Chinese medicine sector have dropped to 0.20%, the lowest since 2021, indicating potential for increased capital inflow [3][16] - The dynamic price-to-earnings ratio for the sector is at a low of 23.05, suggesting attractive valuation levels for investors [19] 2025 Review - Revenue growth for the Chinese medicine industry improved sequentially in Q1-Q3 2025, with year-on-year growth rates of -8.1%, -2.3%, and -1.5% respectively [12] - The gross margin showed signs of recovery, with Q1-Q3 margins at 42.4%, 41.4%, and 40.4%, indicating a potential turning point due to falling raw material prices [12][28] - Over half of the companies in the sector managed to achieve positive net profit growth despite overall negative trends, highlighting effective cost management strategies [12][15] Key Indicators Tracking - The flu incidence rate has returned to normal levels, which may lead to revenue elasticity for companies with low channel inventory [25] - The price index for traditional Chinese medicine materials has declined, alleviating margin pressures for companies in the sector [28] - The institutional holding ratio in the Chinese medicine sector has decreased significantly, reflecting a cautious market sentiment [16] Policy Trends - The upcoming release of the revised National Essential Medicines List is expected to benefit companies with strong product and commercialization capabilities [34] - Companies like Yiling Pharmaceutical and Lingrui Pharmaceutical are anticipated to gain from their established sales channels and product offerings once included in the essential medicines list [34] Investment Recommendations - Recommended stocks include Dong'e Ejiao, Lingrui Pharmaceutical, and Yunnan Baiyao, which are seen as stable growth candidates with strong dividend yields [38] - Companies like Yiling Pharmaceutical and Huaren Sanjiu are identified as turnaround opportunities, with potential for performance recovery [38]

Market Overview - On November 12, the Shanghai Composite Index fell by 0.07%, the CSI 300 decreased by 0.13%, the STAR Market 50 dropped by 0.58%, the CSI 1000 declined by 0.72%, and the ChiNext Index decreased by 0.39%. In contrast, the Hang Seng Index rose by 0.85% [3][4] - The best-performing sectors on November 12 were home appliances (+1.22%), comprehensive (+1.05%), textiles and apparel (+0.87%), oil and petrochemicals (+0.84%), and pharmaceuticals and biology (+0.61%). The worst-performing sectors included electric power equipment (-2.1%), machinery (-1.23%), computers (-1.04%), defense and military (-0.87%), and automobiles (-0.81%) [3][4] - The total trading volume for the A-share market on November 12 was 19,648.13 billion yuan, with a net inflow of 4.286 billion Hong Kong dollars from southbound funds [3][4] Important Insights Macroeconomic Research - The report anticipates a decreased probability of interest rate cuts and reserve requirement ratio reductions in the fourth quarter, with more significant easing policies likely reserved for early 2026 to support a stable economic start for the year [5] - Market sentiment remains mixed, with some teams still expecting rate cuts in the fourth quarter [5] - The central bank's third-quarter report emphasizes a shift from quantity to price, and the resumption of government bond trading operations in October [5] Machinery Equipment Sector Strategy - The outlook for the machinery equipment sector is optimistic regarding the U.S. market, cautious about Europe, and focused on emerging markets [6] - For the U.S. market, reduced uncertainty around tariff policies, combined with interest rate cuts and tax reductions, is expected to support demand, while small and medium enterprises are seeing improved profitability [7] - In Europe, energy security-related demand is anticipated to boost economic activity, although recovery remains uncertain due to fiscal constraints [7] - Emerging markets are expected to benefit from stable exchange rates and orderly interest rate reductions, with some countries absorbing excess capacity and others experiencing continued urbanization and industrialization [7] - The report highlights a shift in focus for 2026's machinery export chain towards industry prosperity and micro-operational quality, seeking beneficiaries of recovery and those who can navigate trade changes [6][7]

Group 1: Report Industry Investment Rating - Not provided in the content Group 2: Core Views of the Report - The report focuses on constructing a convertible bond multi - factor system from a style dimension, aiming to establish a framework covering 115 factors and five types of style factors (valuation, momentum, volatility, liquidity, and volume - price) based on a "behavior - valuation - volatility" three - dimensional logic, and obtain excess returns while keeping the investment portfolio market - neutral through non - linear combination optimization, providing quantitative strategy support for asset allocation [1] - In the environment of low interest rates and asset shortage, the shift of funds to the "fixed income +" strategy drives the structural prosperity of the convertible bond market. The market has entered a stage of "structural differentiation - complex pricing - refined strategies", and the multi - factor system has significant applicability in the convertible bond market [2] - The style factor framework provides a path for convertible bond research. Different convertible bonds can be regarded as recombinations of style factors, and depicting convertible bonds from the style dimension helps understand market structure and rotation rules and provides a framework for constructing a multi - factor bond - selection system [3] Group 3: Summary According to Relevant Catalogs 1. Introduction - In 2025, driven by the equity market, the convertible bond market continued to strengthen, showing characteristics of active trading, stable stock, and structural differentiation. As of November 4, 2025, the average daily trading volume in the convertible bond market was about 66 billion yuan, with a high - volatility and high - central - value feature. The market had 415 convertible bonds in circulation, with a total scale of about 595.7 billion yuan. The price distribution was biased towards the medium - high price range, indicating an increase in the performance of the underlying stocks and market risk appetite [12] - Quantitative methods are more applicable in the convertible bond market. The T + 0 mechanism and high - frequency trading structure provide rich price - volume information, and the stock - bond hybrid characteristics of convertible bonds enable the multi - factor system to be applied in five dimensions: valuation, momentum, volatility, liquidity, and volume - price correlation [13] 2. Recent Expansion of the Convertible Bond Market 2.1 Convertible Bonds: "Hybrid Assets" with Both Stock and Bond Attributes - Convertible bonds can be converted into the issuer's stocks under specific conditions, with both "bond" and "stock" characteristics. Their price is composed of the pure bond value and the option value of conversion. The market has expanded rapidly, and its concentrated and active trading provides a basis for multi - factor model testing [15][16] - Compared with stocks, convertible bonds have bond - based downside protection, stock - based upside potential, medium - level volatility between stocks and bonds, and more flexible trading rules. Quantitative methods are highly applicable in the convertible bond market due to high - frequency data support, effective behavioral factors, Alpha - providing stock - bond linkage factors, and the advantage of trading systems [17][19] 2.2 Necessity of Strategies Driven by the Expansion of "Fixed Income +" under Low Interest Rates - In the environment of low interest rates and asset shortage, the shift of funds to the "fixed income +" strategy drives the prosperity of the convertible bond market, creating a situation of strong demand, tight supply, and a rising pricing center, which provides a long - term foundation for quantitative and systematic strategies [18] - As of Q3 2025, the scale of public funds has increased steadily, with a pattern of "expansion of equity products and contraction of bond funds". The "fixed income +" products, especially secondary bond funds, have expanded significantly. The demand for convertible bond allocation has increased, while the supply has slowed down. The market has formed a pattern of "high valuation - high position - low supply", and convertible bonds have shown stronger resilience in the volatile market [20][21][23] 3. Convertible Bonds and Equities from the Perspective of Style Factors 3.1 Style Factors: Systematic Depiction of the Equity Market from the Barra System - Style factors are core dimensions for depicting the common characteristics and systematic differences of assets in the multi - factor model system. The Barra model decomposes asset returns into style factor returns and idiosyncratic returns, and in the Barra framework, style factors in the equity market include valuation, growth, momentum, volatility, scale, leverage, and liquidity, which jointly form the "style map" of the equity market and provide a path for convertible bond research [28][29][32] 3.2 Style - Based Structure of the Convertible Bond Market: Division into Stock - Oriented, Balanced, and Bond - Oriented Types - Convertible bonds can be divided into stock - oriented, balanced, and bond - oriented types based on style factors. Stock - oriented convertible bonds are dominated by stock characteristics, with high elasticity and large fluctuations; balanced convertible bonds have a balanced risk - return profile, with both stock and bond features; bond - oriented convertible bonds are dominated by bond characteristics, with strong defensive properties. This division provides a basis for factor stratification and strategy construction [33] 3.3 The Stock - Dominant Nature of the Convertible Bond Market under the Slow - Bull Expectation - The convertible bond market has shifted from being bond - dominated to stock - dominant. The high correlation between the convertible bond index and the CSI 1000 and CSI 2000 indices indicates that the market is currently in a stock - driven stage. The reasons include the increase in the concentration of high - priced convertible bonds, the change in the capital structure, and the support of the macro - liquidity and interest - rate environment [35][36][37] 3.4 Introduction to the Multi - Factor Convertible Bond System: From Five Style Factors to the Systematic Back - Testing Framework - A multi - dimensional system covering 115 daily - frequency factors is constructed based on the price - volume characteristics and clause structure of the convertible bond market, including valuation, momentum, volatility, liquidity, and volume - price correlation factors. These factors form a relatively complete convertible bond quantitative framework [41][42] - Daily - frequency data is chosen as the core sample dimension for constructing the convertible bond multi - factor system. It can capture short - term market changes, maintain signal effectiveness, and balance signal sensitivity and execution feasibility [44][45] 4. Convertible Bond Multi - Factor System and Back - Testing Results 4.1 Historical Performance of Five Types of Style Factors - Based on the back - testing results from 2021 to 2025, the five types of style factors can be divided into three categories: the leading group includes momentum and volatility factors with high annualized excess returns; the stable group includes the liquidity factor; the medium group includes the five - factor equally - weighted composite factor, valuation factor, and volume - price correlation factor [47] - The excellent performance of the momentum factor is due to its ability to capture the "trend effect" in the convertible bond market. The volatility factor has high risk - adjusted returns and good risk control, which may be related to risk - pricing compensation and avoiding the "volatility trap" [48] 4.2 Portfolio Optimization Logic - Single - factor investment in convertible bonds has shortcomings such as high return volatility, insufficient factor synergy, significant trading - cost erosion, and style - deviation risk. A non - linear optimization framework is used for portfolio construction, with the goal of maximizing risk - adjusted returns under multiple constraints such as market value, industry, style, and individual bond weights [51][53][54] - Back - testing results show that the liquidity factor performs best under market neutrality since 2021, followed by volume - price and momentum factors. After optimization, the excess returns of most style factors decline significantly, indicating that high returns in the convertible bond market often come from style deviation and high turnover [56] 4.3 Follow - up Optimization Logic - The follow - up optimization should change the way of synthesizing large - category factors from "equally - weighted synthesis" to "weighted synthesis based on historical performance". Specific methods include weighted synthesis based on risk indicators, weighted synthesis based on return indicators, and direct optimization by eliminating ineffective or redundant sub - factors [58][59] 5. Follow - up Strategy Optimization 5.1 Event - Driven: Seizing the Certainty Opportunities in Clause Games - The event - driven strategy uses issuers' active actions such as downward - revision of conversion prices and share repurchases to obtain excess returns. It is necessary to establish a systematic event database and real - time monitoring mechanism [60][61][62] 5.2 Mispricing: Exploiting the Cognitive Bias of Option Value - The mispricing strategy is based on the market's mis - evaluation of the option value of convertible bonds. It involves constructing a theoretical value model, identifying pricing deviations, and constructing a market - neutral portfolio to earn value - regression returns [63]

Market Overview - On November 11, the Shanghai Composite Index fell by 0.39%, the CSI 300 decreased by 0.91%, the STAR 50 dropped by 1.42%, the CSI 1000 declined by 0.3%, the ChiNext Index fell by 1.4%, while the Hang Seng Index rose by 0.18% [3][4] - The best-performing sectors on November 11 were retail (+1.43%), real estate (+0.81%), steel (+0.62%), basic chemicals (+0.61%), and agriculture (+0.60%). The worst-performing sectors included telecommunications (-2.2%), electronics (-1.74%), computers (-1.41%), coal (-1.34%), and defense (-1.18%) [3][4] - The total trading volume for the A-share market on November 11 was 20,139 billion, with a net inflow of 4.467 billion HKD from southbound funds [3][4] Industry Insights - The mechanical equipment sector, particularly PCB equipment, is experiencing a surge in both volume and price due to AI-driven demand and high-end PCB technology iterations [5] - The industry is expected to benefit from a new capital expenditure cycle driven by AIDC, indicating a potential explosion in investment opportunities [5] - Key investment opportunities include PCB drilling, exposure, plating equipment, and drilling needles, with catalysts being the rapid expansion of global AI data centers and the demand for high-end PCB technology [5]