Report Information - Report Title: "Bonds Rise Amid Dispute - Asset Allocation Weekly" - Date: September 7, 2025 - Analysts: Luo Yunfeng, Huang Hailan 1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Report Core View - China is in a marginal de - leveraging process, with the entity sector's debt growth rate trending downward. The government aims to stabilize the macro - leverage ratio, and large - scale debt resolution is beneficial for the whole society's expectations [2][19]. - In the short - term, the capital market shows a pattern of "stock bear and bond bull", with risk preference declining. The cost - performance ratio of stocks and bonds favors bonds, and the equity style turns to value dominance [6][24]. - In the de - leveraging cycle, the cost - performance ratio of stocks and bonds favors equities to a limited extent, and the value style is more likely to be dominant. The report recommends an A + H dividend portfolio and an A - share portfolio [9][66]. 3. Summary According to the Directory 3.1 National Balance Sheet Analysis Liability Side - In July 2025, the debt growth rate of the entity sector was 9.1% (previous value 8.9%), expected to drop to about 9.0% in August and further decline to around 8% by the end of the year. The capital situation in the financial sector may be tight in September [2][19]. - The net increase of government bonds last week was 184 billion yuan (higher than the planned 156.5 billion yuan), and this week's planned net increase is 578 billion yuan. The government's debt growth rate is expected to decline to 12.5% by the end of the year [3][20]. - The one - year Treasury bond yield is expected to have a lower limit of about 1.3%, the ten - year Treasury bond yield's lower limit is about 1.6%, and the thirty - year Treasury bond yield's lower limit is about 1.8% [3][20]. Asset Side - After a brief stabilization in June, the physical quantity data declined again in July. The full - year nominal economic growth target in 2025 is about 4.9%, and it is necessary to observe whether this will become the central target for China's nominal economic growth in the next 1 - 2 years [4][21]. 3.2 Stock - Bond Cost - Performance and Stock - Bond Style - Last week, the capital situation tightened, risk preference declined, and the cost - performance ratio of stocks and bonds favored bonds. The ten - year Treasury bond yield decreased by 1 basis point to 1.84%, and the one - year Treasury bond yield increased by 3 basis points to 1.40% [6][24]. - The broad - based rotation strategy underperformed the CSI 300 index by - 1.07 pct last week and - 7.11 pct since July. The maximum drawdown was 12.1% (compared with the CSI 300's 15.7%) [6][24]. - This week, the report moderately increases the proportion of growth stocks, recommending the CSI 1000 index (80% position) and the 30 - year Treasury bond ETF (20% position) [8][27]. 3.3 Industry Recommendation 3.3.1 Industry Performance Review - This week, A - shares declined with reduced trading volume. The Shanghai Composite Index fell 1.2%, and the Shenzhen Component Index fell 0.8%, while the ChiNext Index rose 2.4%. Among the Shenwan primary industries, power equipment, comprehensive, non - ferrous metals, medicine and biology, and textile and apparel had the largest increases, while national defense and military industry, computer, non - bank finance, electronics, and steel had the largest declines [32]. 3.3.2 Industry Crowding and Trading Volume - As of September 5, the top five crowded industries were electronics, power equipment, machinery, computer, and communication, while the bottom five were beauty care, comprehensive, coal, petroleum and petrochemical, and steel [33]. - The top five industries with increased crowding this week were power equipment, commercial retail, media, medicine and biology, and basic chemicals, while the top five with decreased crowding were computer, non - bank finance, national defense and military industry, electronics, and food and beverage [33]. - As of September 5, the crowding of power equipment, communication, electronics, machinery, and commercial retail was at relatively high percentiles since 2018, while that of petroleum and petrochemical, food and beverage, agriculture, forestry, animal husbandry and fishery, transportation, and coal was at relatively low percentiles [33]. 3.3.3 Industry Valuation and Earnings - This week, among the Shenwan primary industries, real estate, coal, petroleum and petrochemical, beauty care, and textile and apparel had the largest increases in PE(TTM), while national defense and military industry, computer, non - bank finance, electronics, and communication had the smallest increases [39]. - As of September 5, 2025, industries with high full - year 2024 earnings forecasts and relatively low current valuations compared to history include banks, insurance, coal, petroleum and petrochemical, transportation, auto parts, beauty care, and consumer electronics [40]. 3.3.4 Industry Prosperity - Externally, there was a general recovery. The global manufacturing PMI rose from 49.7 to 50.9 in August, and most major economies' PMIs increased. The CCFI index decreased by 0.62% week - on - week in the latest week, and port cargo throughput rebounded [44]. - Domestically, second - hand housing prices fell in the latest week, and quantity indicators showed mixed trends. The highway truck traffic volume declined, and the ten - industry fitted capacity utilization rate continued to rise slightly from July to August [44]. 3.3.5 Public Fund Market Review - In the first week of September (September 1 - 5), most active public equity funds outperformed the CSI 300. As of September 5, the net asset value of active public equity funds was 4.05 trillion yuan, slightly up from 3.66 trillion yuan in Q4 2024 [61]. 3.3.6 Industry Recommendation - In the de - leveraging cycle, the cost - performance ratio of stocks and bonds favors equities to a limited extent, and the value style is more likely to be dominant. The recommended A + H dividend portfolio and A - share portfolio mainly focus on industries such as banks, telecommunications, petroleum and petrochemical, and transportation [66].

Group 1 - The macro leverage ratio in China has increased to 300.4% in Q2 2025, marking a significant rise from 298.5% in Q1 2025, indicating a growing debt burden associated with economic growth [1] - The rapid increase in debt levels in China is primarily driven by government departments and state-owned enterprises leveraging up [2][9] - The macro leverage ratio of China is projected to rise from 239.5% in 2019 to 286.5% by the end of 2024, showing the most significant increase among major economies [2][28] Group 2 - The leverage ratio of non-financial enterprises in China has shown a pattern of increase since 2022, reaching 139.4% by Q3 2024, driven by significant investments in emerging industries and high-end manufacturing [5][32] - The debt levels of state-owned enterprises are notably higher than those of non-state enterprises, with an average asset-liability ratio of 85.6% for state-owned enterprises compared to 78.3% for non-state enterprises [7][9] - Government leverage in China has risen from 59.6% at the end of 2019 to 88.4% by the end of 2024, contrasting with the trends in Germany, Japan, and the US, where government leverage has fluctuated [9][10] Group 3 - The nominal GDP growth in China has been slower compared to the actual GDP growth, which has implications for the macro leverage ratio as it is inversely related to the growth of nominal GDP [32][34] - The price levels in China have been declining, negatively impacting the growth of nominal GDP, which is crucial for managing the macro leverage ratio [36][37] - The efficiency of debt usage in China is under scrutiny, with suggestions for improving capital allocation and enhancing productivity to manage the rising leverage ratio effectively [38][44]

Core Viewpoint - The article discusses the rising macro leverage ratio in China, which has increased to 300.4% in Q2 2025, and compares the debt costs of economic growth among China, the US, Japan, and Germany, highlighting the implications of rising debt levels on economic performance [1][3]. Group 1: Macro Leverage Ratio Trends - China's macro leverage ratio has shown a significant upward trend, increasing from 239.5% in 2019 to 286.5% by the end of 2024, the most pronounced increase among the four countries analyzed [3][5]. - In contrast, Germany, Japan, and the US experienced a "sharp rise and fall" pattern in their leverage ratios, with declines expected by 2024, while China's ratio continues to rise steadily [3][5]. Group 2: Sectoral Debt Analysis - The macro leverage ratio can be broken down into three sectors: households, non-financial enterprises, and government. The household leverage ratios in China, Germany, Japan, and the US have remained relatively stable, with minor fluctuations [5][8]. - Non-financial enterprise leverage in China has shown a "rise-fall-rise" pattern, increasing from 125.5% in 2019 to a peak of 139.4% in Q3 2024, driven by significant investments in emerging industries [8][9]. Group 3: Government Debt Dynamics - The government leverage ratio in China has risen from 59.6% at the end of 2019 to 88.4% by the end of 2024, contrasting with the trends in Germany, Japan, and the US, where government leverage ratios peaked and then declined [13][25]. - The increase in China's government leverage is not solely linked to international economic crises, indicating a potential weakening of the effectiveness of counter-cyclical policies over time [25][26]. Group 4: Economic Growth and Debt Efficiency - The article suggests that the rising leverage ratio may be a result of insufficient economic growth, as nominal GDP growth has lagged behind debt growth, with China's nominal GDP growth being slower than that of the US and other developed nations [40][41]. - To reduce the cost of maintaining growth, the article emphasizes the need for improved efficiency in the use of debt resources, advocating for better capital allocation and investment in human capital and technology [47][48].

Core Viewpoint - The macro leverage ratio in China has risen significantly, reaching 300.4% in Q2 2025, indicating a growing debt burden associated with economic growth [2][3][4]. Group 1: Macro Leverage Ratio Trends - China's macro leverage ratio increased from 298.5% in Q1 2025 to 300.4% in Q2 2025, marking the first time it has exceeded 300% [2]. - By the end of 2024, the macro leverage ratios for China, Germany, Japan, and the U.S. were projected to be 286.5%, 198.6%, 387%, and 249.3% respectively, with China showing the most significant increase [3]. - The rise in China's macro leverage ratio is attributed to the debt growth outpacing nominal GDP growth [3]. Group 2: Sectoral Analysis of Leverage - The leverage ratio of non-financial enterprises in China has shown a pattern of "rise-fall-rise," with a notable increase since 2022, reaching 139.4% by Q3 2024 [4][5]. - In contrast, the leverage ratios of non-financial enterprises in Germany, Japan, and the U.S. have experienced a "rise-fall" trend, with a decline expected by the end of 2024 [4]. - Government leverage in China has increased from 59.6% at the end of 2019 to 88.4% by the end of 2024, while the government leverage ratios in Germany, Japan, and the U.S. have shown a decline after initial increases [5][6]. Group 3: Economic Growth and Debt Relationship - The relationship between economic growth and leverage is highlighted, with the assertion that faster GDP growth could lead to a reduction in government leverage ratios [10]. - Despite China's actual GDP growth outpacing that of the U.S., the nominal GDP growth has been slower, contributing to the rising leverage ratio [11]. - The nominal GDP growth has been hindered by low price levels, which negatively impacts the overall economic growth and leverage dynamics [12]. Group 4: Policy Implications and Recommendations - The need to lower local government leverage has been recognized, with various measures already implemented to address local hidden debts [14]. - Improving the efficiency of policy resource utilization is essential for stabilizing growth and addressing structural economic issues [14][15]. - The focus on enhancing human capital and technological advancement is crucial for improving labor productivity and overall economic performance [16][18].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - The Chinese economy is in a marginal de - leveraging process, with the liability growth rate of the real - sector expected to decline. The government aims to stabilize the macro - leverage ratio, and the monetary policy will generally remain neutral and difficult to be continuously loose. The market is currently affected by risk preference, and the subsequent trends of risk preference, economic recovery, and the US economy need to be focused on [2][3][7] - In the context of the contraction of the national balance sheet, the allocation of financial assets should adopt a dumbbell - shaped strategy. The bond market is the large base, and the stock market is the small head. The stock allocation strategy is dividend plus growth, and the bond allocation strategy is duration plus credit - sinking [25] - In the contraction cycle, the equity - bond ratio favors equities to a limited extent, and the value style is more likely to be dominant. Red - dividend stocks with characteristics of non - expansion, good profitability, and survival are recommended [12][67] 3. Summary by Relevant Catalogs 3.1 National Balance Sheet Analysis - **Liability Side**: In July 2025, the liability growth rate of the real sector was 9.0%, with a lower - than - expected rebound. It is expected to decline to 8.9% in August and further to 8% by the end of the year. The government's liability growth rate is also expected to decline from 15.7% in July to 14.8% in August and 12.5% by the end of the year. The money market has tightened marginally, and the peak of the money market in August was likely in the first week [2][3][21] - **Monetary Policy**: The trading volume of funds decreased last week, and the price was stable. The one - year Treasury yield rose to 1.37%, and the term spread widened. The estimated lower limit of the one - year Treasury yield is 1.3%, the ten - year Treasury yield is about 1.6%, and the thirty - year Treasury yield is about 1.8% [3][22] - **Asset Side**: After a brief stabilization in June, the physical volume data declined again in July. The annual real economic growth target for 2025 is about 5%, and the nominal economic growth target is about 4.9%. Whether this will be the central target for the next 1 - 2 years needs further observation [4][23] 3.2 Stock - Bond Ratio and Stock - Bond Style - **Market Performance Last Week**: The money market tightened marginally, but risk preference increased. Stocks rose, and bonds fell. The equity growth style was dominant, and the stock - bond ratio favored stocks, breaking through the previous high on August 15th [6][26] - **Future Outlook**: The trend of risk preference is uncertain. There are three possible scenarios: range - bound fluctuations, a short - term upward trend, or a fundamental change in the subjective weighting of Chinese profitability. A portfolio of growth - type equity assets and long - term bonds is recommended, with a 70% position in the CSI 1000 Index and a 30% position in the 30 - year Treasury ETF [10][11][29] 3.3 Industry Recommendation - **Industry Performance Review**: The A - share market rose this week. The communication, electronics, non - bank finance, power equipment, and computer sectors had the largest increases, while the bank, steel, textile and apparel, coal, and public utilities sectors had the largest declines [35] - **Industry Crowding and Trading Volume**: As of August 15th, the top five crowded industries were electronics, computer, power equipment, machinery, and non - bank finance. The trading volume of the whole A - share market increased this week, with non - bank finance, real estate, and other sectors having the highest growth rates [36][38] - **Industry Valuation and Profitability**: The PE (TTM) of the comprehensive, communication, and other sectors increased the most this week, while the bank, steel, and other sectors declined. Industries with high 2024 full - year profit forecasts and relatively low current valuations include banks, coal, and oil and petrochemicals [41][42] - **Industry Prosperity**: External demand generally declined. The global manufacturing PMI decreased in July, and the CCFI index fell. Domestic indicators such as port throughput and industrial capacity utilization showed mixed trends [46] - **Public Fund Market Review**: In the second week of August, most active public equity funds outperformed the CSI 300. As of August 15th, the net asset value of active public equity funds was slightly higher than that in Q4 2024 [62] - **Industry Recommendation**: In the contraction cycle, the equity - bond ratio favors equities to a limited extent, and the value style is more likely to be dominant. An A + H red - dividend portfolio of 20 stocks and an A - share portfolio of 20 stocks, mainly concentrated in banks, telecommunications, and other industries, are recommended [12][67]

Group 1 - The macro leverage ratio is a relative indicator of debt levels, calculated as the ratio of non-financial sector debt to total GDP [1] - The increase in macro leverage ratio is driven by the growth rate of debt exceeding the growth rate of nominal GDP [2] - As of the end of 2019, the macro leverage ratios for China, Germany, Japan, and the United States were 239.5%, 202%, 382.9%, and 256.3% respectively, with projections for 2024 showing significant increases for China [3] Group 2 - The trend for Germany, Japan, and the United States shows a pattern of "sharp rise and fall," with their macro leverage ratios peaking in 2020 and returning to levels similar to 2019 by the end of 2024, while China's ratio continues to rise steadily [4] - The macro (non-financial sector) debt total is composed of household, non-financial enterprise, and government debt [6] Group 3 - Household leverage ratios in China, Germany, Japan, and the United States remained relatively stable, with changes within a range of approximately ±5 percentage points from 2019 to 2024 [7] - China's non-financial enterprise leverage ratio exhibited a pattern of "rise-fall-rise," with a notable increase since 2022, contrasting with the trends in Germany, Japan, and the United States [8][10] Group 4 - The government leverage ratio in China has been steadily increasing, projected to rise from 59.6% at the end of 2019 to 88.4% by the end of 2024, while the ratios for Germany, Japan, and the United States show an initial increase followed by a decline [14] - The increase in China's government leverage ratio is not solely linked to international economic crises, indicating a potential weakening of the effectiveness of counter-cyclical policies over time [24] Group 5 - The analysis indicates that the increase in China's macro leverage ratio is associated with a slower growth in nominal GDP, despite higher real GDP growth compared to the United States [38][39] - The nominal GDP growth in China from 2022 to 2024 is projected to lag behind that of the United States, Germany, and Japan [39] Group 6 - The current macro leverage ratio in China is significantly higher than the global trend, indicating a situation of "debt before wealth" [43] - The government debt levels in China have increased significantly, with the nominal value of government debt nearly doubling from 2019 to 2024, while the increases in Germany, Japan, and the United States are comparatively lower [33][34]

Group 1 - The core viewpoint of the article is that the rising macro leverage ratio in China, which has exceeded 300%, reflects the cost of economic growth, and this trend is analyzed in comparison with the leverage ratios of the US, Japan, and Germany [1][2][38] - The macro leverage ratio in China has increased significantly from 239.5% in 2019 to 286.5% in 2024, indicating a faster growth in debt compared to nominal GDP growth [2][34] - The article highlights that the increase in leverage is primarily driven by government departments and state-owned enterprises, with the government leverage ratio rising from 59.6% in 2019 to 88.4% in 2024 [15][29] Group 2 - The article breaks down the macro leverage ratio into three components: household, non-financial enterprises, and government, showing that the leverage ratio of non-financial enterprises in China has risen significantly since 2022, primarily due to state-owned enterprises [9][12] - The leverage ratio of households in China has remained relatively stable, with minor fluctuations, while the leverage ratios of non-financial enterprises and government have shown more pronounced changes [6][15] - The article notes that the increase in government leverage in China is not solely linked to international economic crises, suggesting a potential weakening of the effectiveness of counter-cyclical policies [26][29] Group 3 - The article discusses the impact of nominal GDP growth on leverage ratios, indicating that despite higher real GDP growth in China compared to the US, the nominal GDP growth has been slower, contributing to the rising leverage ratio [39][40] - It emphasizes the importance of improving the efficiency of debt resource utilization to lower the macro leverage ratio, suggesting that enhancing labor productivity and technological advancement are crucial [46][49] - The article concludes that China faces a situation of "debt before wealth," where the macro leverage ratio is high relative to per capita GDP, indicating a need for structural reforms to address the underlying economic issues [46][47]

Group 1: Monetary Data - As of the end of July, the broad money supply (M2) reached 329.94 trillion yuan, with a year-on-year growth of 8.8%, while M1 stood at 111.06 trillion yuan, growing by 5.6% [1] - The difference in growth rates between M2 and M1 has narrowed to 3.2%, down from 8.7% at the beginning of the year [3] Group 2: Stock Market Dynamics - The stock market has seen a significant increase in activity, with a surge in new accounts by 71% in July, indicating a strong influx of capital into the market [3] - Margin trading has surpassed 2 trillion yuan, and the Shanghai Composite Index has achieved an eight-day winning streak, reflecting heightened market enthusiasm [5] Group 3: Fiscal Policy and Economic Impact - The current bull market is characterized as a "water buffalo market," driven by central bank liquidity and fiscal spending, with government bond issuance reaching 8.9 trillion yuan, significantly higher than the previous year [6] - The government has heavily invested in infrastructure, which has bolstered market confidence and contributed to rising prices in upstream commodities [6] Group 4: Loan Data and Economic Concerns - In July, new RMB loans recorded a negative growth of 500 billion yuan, marking the first negative monthly figure since July 2005 [8] - Household loans decreased by approximately 4.9 trillion yuan, indicating a decline in consumer spending and housing purchases [11] - Corporate loans also saw a reduction, with short-term loans decreasing by 5.5 trillion yuan, suggesting that businesses are not borrowing for expansion but rather for financial arbitrage [12] Group 5: Leverage and Debt Levels - The macro leverage ratio in China has surpassed 300%, indicating that total debt has reached three times the GDP, with non-financial corporate leverage being the highest at 174% [14] - Both corporate and household leverage levels have stagnated, limiting future investment opportunities and indicating a shift towards government-led economic stimulation [19]

Group 1: Monetary Data Overview - As of the end of July, the broad money supply (M2) reached 329.94 trillion yuan, growing by 8.8% year-on-year, while the narrow money supply (M1) was 111.06 trillion yuan, up by 5.6% year-on-year, and the currency in circulation (M0) was 13.28 trillion yuan, increasing by 11.8% year-on-year [1] - In the first seven months of 2025, RMB loans increased by 12.87 trillion yuan, and the total social financing scale increased by 23.99 trillion yuan, which is 5.12 trillion yuan more than the same period last year [1] - RMB deposits rose by 18.44 trillion yuan in the first seven months of 2025, indicating strong financial support for the real economy [1] Group 2: Government Bond Issuance and Fiscal Policy - The issuance of government bonds has accelerated, with a total of 13.3 trillion yuan issued in the first half of the year, including 7.89 trillion yuan in national bonds, a 36% increase year-on-year [2] - The proactive fiscal policy, combined with the accommodative monetary policy, has led to a reasonable growth in social financing scale and monetary credit [2] - The increase in government leverage is seen as a way to optimize the macro leverage structure while stabilizing corporate and household leverage [3] Group 3: Credit Data Analysis - Recent credit data fluctuations are influenced by seasonal factors, with July typically being a low month for credit growth [4] - It is important to analyze loan data from multiple dimensions, including cumulative growth and balance growth rates, rather than just monthly increments [5] - As of the end of July, the total RMB loan balance was 268.51 trillion yuan, with a year-on-year growth of 6.9%, indicating stable support for the real economy [6] Group 4: Credit Structure Optimization - The structure of credit is continuously improving, with inclusive small and micro loans growing by 11.8% year-on-year and medium to long-term loans for the manufacturing sector increasing by 8.5% [6] - The financial policies are increasingly aligned with the economic structure transformation, emphasizing the quality of credit allocation [6] - The focus on key areas such as technology innovation, consumption, green finance, and inclusive finance is expected to continue driving reasonable credit growth throughout the year [7]

Market Overview - The market opened lower yesterday but rebounded slightly, with the three major indices showing small gains. The Shanghai Composite Index rose by 0.66%, the Shenzhen Component Index increased by 0.46%, and the ChiNext Index gained 0.5% [1] - The total trading volume in the Shanghai and Shenzhen markets was 1.5 trillion yuan, a decrease of 99.8 billion yuan compared to the previous trading day [1] - Sectors such as military industry, precious metals, humanoid robots, and commercial aerospace saw the largest gains, while insurance, film and television, photovoltaics, and snacks experienced the most significant declines [1] Policy Insights - CITIC Securities interprets the recently issued "Implementation Plan for the Childcare Subsidy System" as a measure to support families in raising infants and toddlers, which may lead to the introduction of various comprehensive policies in the future [2] - The childcare subsidy aims to improve birth rates or prevent further declines, but achieving an increase in birth intentions is a long-term process that cannot be solely addressed by economic subsidies [2] - Following the announcement, related sectors such as dairy, maternal and infant products, and toys experienced a brief surge before slightly retreating, indicating cautious market expectations regarding the policy's effectiveness [2] Commercial Real Estate Outlook - Huatai Securities expresses optimism about the commercial real estate sector under the logic of value reassessment, noting that leading operators' shopping center assets exceed the fair value of their investment properties [3] - The C-REITs channel facilitates a smoother realization of this value, enhancing liquidity and making the valuation more meaningful [3] - Companies focused on development in commercial real estate and those with operational management premiums are expected to face growth opportunities [3] Macro Economic Perspective - CICC highlights several macroeconomic factors supporting the performance of the Chinese stock market, despite the need for improvement in economic indicators [4] - Since the fourth quarter of last year, market confidence in China's medium to long-term economic outlook has significantly improved, particularly due to positive effects from DeepSeek [4] - Although the real estate sector is still adjusting, its impact on the economy has diminished as its proportion in the economy has significantly decreased [4] - Policymakers are increasingly focused on the economy, stock market, and real estate, leading to reduced concerns about downside risks in these areas [4] - The increase in the proportion of safe asset allocations among Chinese residents, coupled with limited returns on safe assets, has heightened the motivation to allocate to risk assets, especially equities [4] - Looking ahead, addressing debt-related policies during financial downturns is crucial for improving balance sheets and enhancing economic vitality, which is also significant for capital markets [4]