Credit and Financing Trends - In July, new credit decreased by 500 billion, marking a year-on-year reduction of 3.1 trillion under a low base[3] - Household loans saw a net decrease of 489.3 billion, with a year-on-year drop of 279.3 billion, indicating ongoing debt cycle contraction influenced by the real estate market[3] - Corporate medium and long-term loans decreased by 260 billion, with a year-on-year reduction of 390 billion, reflecting strict control over new hidden debt in traditional infrastructure investments[3] Social Financing and Government Support - New social financing in July reached 1.16 trillion, a year-on-year increase of 386.4 billion, primarily supported by government debt financing[3] - New government bonds issued amounted to 1.24 trillion, with a year-on-year increase of 555.9 billion, highlighting the government's role in boosting social financing[3] - Corporate bond financing increased by 279.1 billion, a year-on-year rise of 75.5 billion, as companies turned to bonds as an alternative to loans[3] Monetary Supply and Market Dynamics - M2 growth rebounded to 8.8%, a 0.5 percentage point increase, the highest since 2024, indicating a synchronized high growth trend with social financing[4] - Non-bank financial institutions saw a significant deposit increase of 1.39 trillion, suggesting a flow of wealth into capital markets[4] - M1 also rose by 1.0 percentage point to 5.6%, the highest since March 2023, reflecting improved corporate revenues and consumer spending[4]

Economic Indicators - The 1-year Federal Reserve Financial Conditions Index (FCI-G Index) dropped to -0.4, the lowest since July of last year, indicating strong monetary policy support for corporate output and employment[9] - The 3-year FCI-G Index fell to -0.7, the lowest since April 2022, suggesting limited necessity for rate cuts compared to last year[9] Market Trends - As of August 8, the S&P 500 Index EPS growth reached 10%, significantly exceeding the expected 4%, reflecting robust U.S. economic growth[10] - Broad dollar speculative positions shifted from short to long, with net long positions reaching 31,000 contracts, the highest since April this year[10] Credit Market Developments - The proportion of banks tightening credit standards for large and medium-sized enterprises decreased from 18.5% to 9.5%, and for small enterprises from 15.9% to 8.2%[21] - The European Central Bank's deposit facility rate was reduced from 2.75% to 2%, yet broad credit expansion remains sluggish, with Eurozone M3 growth dropping to 3.3%, the lowest since September last year[17] Risk Premiums - The equity risk premium (ERP) for the CSI 300 Index is at 5.1%, one standard deviation above the 16-year average, indicating potential for valuation uplift[22] - The 10-year Chinese government bond arbitrage return is at 19 basis points, 49 basis points higher than December 2016 levels, suggesting favorable conditions for leveraged bond market strategies[27] Currency and Commodity Insights - The 3-month USD/JPY basis swap stood at -17.9 basis points, indicating a relaxed offshore dollar financing environment post-tariff adjustments[29] - The copper-to-gold price ratio fell to 2.9, while the offshore RMB exchange rate rose to 7.2, signaling diverging trends in global demand and currency valuation[34]

Group 1 - The current "anti-involution" theme has a broader industry coverage compared to the supply-side reform from 2015-2018, including sectors like photovoltaic, new energy vehicles, steel, coal, building materials, basic chemicals, and pig farming [22][23][28] - The steel and coal industries are transitioning from passive destocking to active restocking, with steel profitability already improving, while photovoltaic and medical devices show stronger demand for "anti-involution" [27][28] - The report highlights that the photovoltaic and medical device sectors are in an active destocking phase, with high potential for price rebound if successful [27][28] Group 2 - The equity market is experiencing a slight decline in sentiment, with expectations for a high-level fluctuation in August, as the overall financial and industrial sentiment has decreased [31][32] - The 10Y government bond yield is expected to slightly decline to 1.70% in August, influenced by factors such as economic growth and inflation [50][53] - The real estate sector is under increasing demand-side pressure, with the industry pressure index rising slightly to 0.597, indicating a potential worsening of the market situation [69][71] Group 3 - The report recommends focusing on high win-rate and high payout industries, including computer, electric equipment and new energy, non-ferrous metals, agriculture, transportation, and light manufacturing [4] - The "clearing reversal" strategy suggests investing in industries that are at the end of the clearing phase, with rising demand and improved competitive landscape, such as oil and petrochemicals, non-ferrous metals, and utilities [4][88] - The report emphasizes the importance of monitoring the performance of small-cap stocks, which have shown a slight increase in attention compared to large-cap stocks [87][88]

Core Viewpoint - The People's Bank of China (PBOC) is conducting a 400 billion MLF operation to maintain liquidity in the banking system, marking the fifth consecutive month of increased operations [1][2]. Group 1: Monetary Policy Actions - On July 25, PBOC will conduct a 400 billion MLF operation with a one-year term, resulting in a net injection of 1000 billion due to 3000 billion MLF maturing this month [1][2]. - The total net liquidity injection in July reached 3000 billion, which is comparable to the previous month's 3180 billion [2][4]. - The central bank's actions are aimed at stabilizing medium-term liquidity and ensuring smooth funding conditions [2][4]. Group 2: Economic Analysis - Analysts suggest that the ongoing net liquidity injection is driven by two main factors: the rapid issuance of government bonds and an accelerated pace of credit extension, necessitating coordination between monetary and fiscal policies [2][4]. - The PBOC's continued use of quantity-based tools signals a supportive monetary policy, which is intended to stabilize market expectations and create a favorable environment for credit expansion [2][4]. Group 3: Market Outlook - In the short term, the probability of interest rate cuts is low, but the monetary policy will remain proactive under the broader goal of expanding domestic demand and stabilizing growth [3][4]. - The MLF operations are expected to continue with increased volumes, alongside timely injections of medium to long-term funds through reverse repos [4]. - The bond market is experiencing adjustments due to tight funding conditions and shifting market risk preferences, with yields on government bonds rising [5].

Report Summary 1) Report Industry Investment Rating No information provided 2) Core View of the Report In June, domestic financial data showed marginal improvement in real - sector financing demand under policy stimulus. The year - on - year decrease in medium - and long - term corporate loans ended, and there was a slight increase in short - term and medium - and long - term household loans. National subsidies and policy - based financial instruments may drive continuous credit expansion. The State Council executive meeting this week mentioned policies to strengthen the domestic cycle, with boosting domestic demand and the new energy industry as current policy priorities. The US Beige Book indicated a slight increase in economic activity but high uncertainty, along with a small decline in manufacturing activity and rising cost pressure. The US CPI rose as expected in June, and the market is most expecting a rate cut in September. Without negative news, market sentiment is positive, with daily trading volume of the entire A - share market around 1.5 trillion yuan and a net inflow of margin trading balance of about 30 billion yuan this week. The broad - based indices of Shanghai and Shenzhen recovered after a decline, and all four major broad - based indices had four consecutive weekly gains. This week, except for the relatively small increase of the Shanghai Composite 50 Index, the mid - to small - cap and micro - cap indices had similar increases, with the 300 - 2000 indices rising 1% - 2%. In terms of basis, the index increase slowed down this week, and the basis fluctuated little, remaining basically the same as last week. IF returned to a slight discount, and the annualized discounts of IC and IM were around 8% and 11% respectively. Except for the expired July contracts, the term structure of other contracts was basically the same as last week, and a diversified term selection strategy could still be maintained [2] 3) Summary by Related Catalogs This Week's Review - Policy stimulus led to marginal improvement in real - sector financing demand in June, with changes in corporate and household loans. National subsidies and policy - based financial instruments may drive credit expansion. The State Council executive meeting focused on policies to strengthen the domestic cycle [2] - The US Beige Book showed a slight increase in economic activity, high uncertainty, a decline in manufacturing, and rising cost pressure. The US CPI rose as expected in June, and the market anticipates a September rate cut [2] - Market sentiment was positive, with daily trading volume around 1.5 trillion yuan and a net inflow of margin trading balance of about 30 billion yuan. The broad - based indices recovered after a decline, and all four major broad - based indices had four consecutive weekly gains. Mid - to small - cap and micro - cap indices had similar increases, with the 300 - 2000 indices rising 1% - 2% [2] - In terms of basis, the index increase slowed, and the basis fluctuated little, remaining basically the same as last week. IF returned to a slight discount, and the annualized discounts of IC and IM were around 8% and 11% respectively. The term structure of non - expired contracts was basically the same as last week [2] Next Week's Forecast - The model predicts that the basis of IH, IF, IC, and IM will strengthen next week [4]

Summary of Key Points from the Conference Call Industry Overview - The macroeconomic data for May 2025 in China shows structural differentiation, with consumption outperforming expectations while investment and exports weaken, leading to a steady slowdown in industrial production [2][11] - The automotive industry remains resilient due to improved consumer spending, despite a decline in retail sales growth [4][6] Core Insights and Arguments Industrial Production - In May 2025, the industrial added value growth rate was 5.8%, a slight decline from the previous month, influenced by a slowdown in exports [3] - Labor-intensive manufacturing saw a decrease in growth rate by 0.2 percentage points to 6.9% [3] - Traditional infrastructure and real estate-related sectors, such as black metals and non-metallic mineral products, experienced weakened production [3] Consumption Data - Retail sales of consumer goods grew by 6.4% year-on-year in May, exceeding market expectations and marking a new high for the year [5] - Categories such as home appliances and communication equipment showed significant growth, reflecting the release of policy dividends [5] - The automotive retail growth rate was only 1.1%, indicating a price contraction despite a sales growth of 11.13% [6] Fixed Asset Investment - Fixed asset investment growth continued to decline to 3.7%, with manufacturing, infrastructure, and real estate investments all weakening [7] - Real estate investment saw a cumulative year-on-year decline of 11.1%, significantly dragging down overall investment performance [7] Real Estate Market - The real estate market showed slight recovery on the supply side, but demand remained weak, with both sales area and sales revenue declining year-on-year [8] - The price index for second-hand residential properties continued to show negative growth, although the rate of decline has narrowed [8] Price Levels and Inflation Risks - The Consumer Price Index (CPI) remained flat, while the Producer Price Index (PPI) continued to decline, indicating a widening gap between the two [9] - The PPI for production materials saw an expanded decline, raising concerns about deflation risks and the impact of price levels on corporate profitability [9] Other Important Insights - The financial data indicates that while social financing growth remains resilient, credit expansion has not significantly started [12] - Government fiscal data shows a decline in both revenue and expenditure growth, with a notable increase in the fiscal deficit scale, reaching a six-year high [14][15] - The government’s reliance on non-tax revenue has decreased, with non-tax revenue turning negative for the first time since 2024 [14] - The employment market showed marginal improvement, with the urban unemployment rate slightly decreasing to 5.0% [9] Conclusion - The macroeconomic landscape in May 2025 reflects a complex interplay of strong consumer demand against a backdrop of weakening investment and export performance, with significant implications for future economic policy and investment strategies [17]

Quantitative Models and Construction Methods 1. Model Name: Six-Cycle Model - **Model Construction Idea**: The model characterizes macroeconomic states based on three dimensions: monetary, credit, and growth. It identifies different economic phases to guide asset allocation strategies[1][7] - **Model Construction Process**: - The model divides the economic cycle into six stages, with stages 4-6 representing credit contraction and stages 1-3 representing credit expansion[1][7] - Historical data shows that during credit contraction, bonds, gold, and value styles perform better, while credit expansion favors stocks, commodities, and growth styles[7][10] - **Model Evaluation**: The model effectively captures macroeconomic trends and provides actionable asset allocation insights[7] 2. Model Name: Credit Pulse Timing Model - **Model Construction Idea**: This model uses the three-month difference of the year-over-year trailing twelve-month (TTM) growth rate of new medium- and long-term loans to identify the direction of the credit cycle[11] - **Model Construction Process**: - The credit pulse indicator is calculated as the three-month difference of the TTM growth rate of new medium- and long-term loans[11] - Historical analysis shows that during credit expansion, A-shares exhibit high return elasticity, while performance is weaker during credit contraction[11] - Timing based on this model yields an annualized excess return of 6.9%, annualized volatility of 15.2%, maximum drawdown of 24.1%, and a Sharpe ratio of 1.03[11] - **Model Evaluation**: The model demonstrates strong timing ability, significantly improving risk-adjusted returns during credit expansion phases[11] 3. Model Name: CDS-Based Timing Model - **Model Construction Idea**: This model uses the level and direction of China’s sovereign CDS (Credit Default Swap) as a proxy for overseas sentiment towards China’s fundamentals, which is negatively correlated with A-share performance[14] - **Model Construction Process**: - The model assigns different A-share allocation weights based on the rolling 4-year z-score of CDS levels and the 20-day difference in CDS direction[14] - Allocation rules: - CDS declining and at low levels: 100% A-share allocation - CDS declining and at high levels: 75% A-share allocation - CDS rising and at low levels: 25% A-share allocation - CDS rising and at high levels: 0% A-share allocation[15] - Backtesting results show an annualized excess return of 6%, annualized volatility of 14.2%, maximum drawdown of 25.7%, and a Sharpe ratio of 1.03 relative to the CSI 800 index[14] - **Model Evaluation**: The model effectively captures overseas sentiment and provides a systematic approach to adjusting A-share exposure[14] 4. Model Name: Six-Cycle FOF Allocation Model - **Model Construction Idea**: This model integrates the six-cycle framework into a risk-budgeting approach to dynamically allocate assets across equities, bonds, and gold[18] - **Model Construction Process**: - The model adjusts asset risk budgets monthly, targeting a volatility level of 3%[18] - Equity allocation is based on the six-cycle phases: - Phase 1: Growth - Phases 2-3: Manufacturing - Phase 4: Cyclical sectors - Phases 5-6: Dividend-paying stocks[18] - Backtesting from 2013 shows an annualized return of 8%, annualized volatility of 2.6%, maximum drawdown of 2.9%, and a Sharpe ratio of 3.04[18][19] - **Model Evaluation**: The model achieves stable returns with low volatility, making it suitable for conservative investors[18][19] --- Backtesting Results of Models 1. Six-Cycle Model - Annualized Return: Not explicitly provided - Annualized Volatility: Not explicitly provided - Maximum Drawdown: Not explicitly provided - Sharpe Ratio: Not explicitly provided 2. Credit Pulse Timing Model - Annualized Return: 6.9% (excess return) - Annualized Volatility: 15.2% - Maximum Drawdown: 24.1% - Sharpe Ratio: 1.03[11] 3. CDS-Based Timing Model - Annualized Return: 6% (excess return) - Annualized Volatility: 14.2% - Maximum Drawdown: 25.7% - Sharpe Ratio: 1.03[14] 4. Six-Cycle FOF Allocation Model - Annualized Return: 8% - Annualized Volatility: 2.6% - Maximum Drawdown: 2.9% - Sharpe Ratio: 3.04[18][19]

Report Industry Investment Rating No information provided regarding the report industry investment rating. Core Viewpoints of the Report - The overall view is that it's not the right time to over - allocate commodities, and patience is needed. The 10 - year Chinese Treasury bond interest rate is expected to be in the range of 1.6 - 1.8%, and Treasury bond futures should be bought on dips. The stock index has a ceiling and a floor [2][3]. - In 2025, the US economy faces "stagflation" or "recession" risks, while China is on a long "re - inflation" path. Based on these economic judgments, there are corresponding trading opportunities and asset - allocation suggestions in the second half of 2025 [8][25][37]. Summary According to the Directory 1. Review of the First Half of 2025 - **Differentiation of Sino - US Commodities**: In the first half of 2025, US commodities first rose and then fell, while Chinese commodities were weak. Overseas, Trump's tariff policy and the trend of rising initial jobless claims and slowing new employment in the US affected commodity prices. The US had obvious inventory - replenishing imports, with imports from January to March reaching $1.2 trillion, a year - on - year increase of 23%, and retail and food service sales from January to March at $2.1 trillion, a year - on - year increase of 4.6%. Domestically, from March to April, the sales of commercial housing weakened, and the domestic demand was still weak. In May, China's PPI was - 3.3% and continued to decline. Exports were supported by the rush - to - export factor, but overall, under the high - interest - rate environment of the Fed, prices were under pressure [5][6]. 2. Outlook for the Second Half of 2025 2.1 The US: Risk of Economic "Soft Landing" to "Recession" - **Risk of "Stagflation" or "Recession"**: The US government's debt support for residents' income and consumption is difficult to sustain. The US government faces the pressure of reducing fiscal deficits (the fiscal deficit/GDP in 2024 - 25 was still as high as 6.8%). In April 2025, the US fiscal expenditure was $591.8 billion, and the 12 - month Rollsum was $7.09 trillion, a year - on - year increase of 11.8%; the fiscal revenue was $850.2 billion, and the 12 - month Rollsum was $5.06 trillion, a year - on - year increase of 7.4%. The annual deficit in April 2025 was $2.03 trillion, accounting for 6.8% of the US GDP in Q1 2025 [8][9]. - **Economic Slowdown**: The real GDP growth rate in the first quarter of 2025 was - 0.2% on a quarter - on - quarter annualized basis, indicating an obvious economic slowdown. It is expected that the real GDP growth rate in 2025 will be between 1.6% - 2.3%, depending on the Fed's interest - rate cut speed and the realization of stable tax - cut policy expectations. Trump's policies have both positive and negative impacts on the US economy [19]. - **High Inflation and Interest - Rate Expectations**: Inflation may remain above the 2% target, forcing the Fed to maintain the policy interest rate above 3.5%. It is expected that by the end of 2025, the US federal funds rate will drop to 3.75%, and the first interest - rate cut in the second half of 2025 is expected to be in October [23]. 2.2 China: A Long "Re - inflation" Road - **Difficulty in PPI Recovery**: In May 2025, China's PPI was - 3.3% year - on - year, and CPI was - 0.1% year - on - year. Under the background of de - globalization and the reconstruction of the Chinese real - estate model, the path for China's PPI to turn positive is long and difficult. The slow recovery of commercial housing sales and M1, as well as the decline in US imports, will lead to a slow recovery of China's PPI [25]. - **Challenges in Inflation Upturn**: China's inflation upturn faces challenges, including the Fed's high - interest - rate policy, the difficulty of the real - estate price recovery, and over - capacity in some industries. To get out of deflation, China can observe three groups of variables: the continuous expansion of base money and stock money, the continuous resilience of external demand exports, and the maintenance of an "active fiscal policy" [25][31][33]. - **Monetary Policy Stance**: Monetary policy will maintain a supportive stance and strengthen the amplitude of reserve - requirement ratio cuts and interest - rate cuts. It is expected that in 2025, China's policy interest rate will be cut by 30 - 40BP in two installments, and the deposit - reserve ratio will be cut by 50 - 100BP in two installments [36]. 3. Allocation Outlook for the Second Half of 2025 - **US Economic Situation and Asset Allocation**: It is expected that in the second half of 2025, the resilience of the US economy will decline, consumption and imports will fall, and private investment will be under pressure. The yield of US Treasury bonds will oscillate at a high level with a risk of decline; the US dollar will oscillate with a risk of further weakening; gold can still be bought on dips, but trading opportunities are not obvious. The 10 - year US Treasury bond yield will oscillate between 3.8% - 4.5% and is expected to decline; the US dollar is expected to oscillate between 95 - 100 and tend to decline [37][38]. - **China's Economic Situation and Asset Allocation**: The active fiscal policy will support the Chinese economy, and the currency will be further loosened. It is expected that inflation will still be under pressure in the second half of 2025. There is still an expectation of a 30 - 40BP interest - rate cut in the monetary - policy end. With the support of liquidity, the A - share market will maintain active trading, and the yield of Treasury bonds will further decline. Before the policy supports the improvement of the fundamentals, commodity prices will still be suppressed by insufficient demand. The CSI 300 index is expected to be between 3400 - 4400 points; the yield of 10 - year Chinese Treasury bonds is expected to be between 1.6 - 1.8%; commodities are expected to oscillate weakly in the second half of 2025, and attention should be paid to the market opportunities in the third quarter of 2025 [37][38][39].

Group 1: Financial Data Overview - The growth rate of social financing (社融) remained stable at 8.7% in May, with new social financing of 2.29 trillion yuan, an increase of 227.1 billion yuan year-on-year[9] - Government bonds, corporate bonds, and foreign currency loans were the main supporting items for social financing, while weak entity credit continued to be the largest drag, indicating a weak internal financing willingness[9] - New corporate short-term loans amounted to 1.1 trillion yuan, a year-on-year increase of 230 billion yuan, while new medium- and long-term loans were 330 billion yuan, a year-on-year decrease of 170 billion yuan[21] Group 2: Household Sector Insights - Household short-term loans decreased by 20.8 billion yuan, a year-on-year decrease of 45.1 billion yuan, while new medium- and long-term loans were 74.6 billion yuan, a year-on-year increase of 23.2 billion yuan[22] - The real estate market showed signs of marginal recovery, with the transaction area of commercial housing in 30 cities decreasing by 3.3% year-on-year, but rebounding by 8.8 percentage points compared to the previous month[22] Group 3: Monetary Supply Trends - M1 growth rate increased by 0.8 percentage points to 2.3%, while M2 growth rate slightly decreased by 0.1 percentage points to 7.9%[35] - The increase in M1 was attributed to a low base effect from last year and a tendency for companies to hold cash rather than invest[35] - The marginal decline in M2 was influenced by a decrease in the attractiveness of deposits relative to wealth management products and an increase in fiscal deposits of 880 billion yuan, a year-on-year increase of 116.7 billion yuan[38] Group 4: Future Outlook and Risks - The outlook for social financing growth is expected to fluctuate within the range of 8.5%-9.0%, with government bonds continuing to act as a stabilizer[44] - Key risks include macroeconomic performance falling short of expectations, slower demand recovery, and potential geopolitical risks[45]

Core Viewpoint - The article discusses the May financial statistics released by the central bank, highlighting the continued weakness in credit demand and the implications for the banking sector and overall economic recovery [3][9]. Group 1: Credit and Loan Statistics - In May, new RMB loans amounted to 620 billion, a year-on-year decrease of 330 billion, with a growth rate of 7.1%, indicating insufficient effective financing demand [3][4]. - Corporate loans accounted for 86% of new loans, with an increase of 530 billion, while short-term and medium-long term loans showed contrasting trends [4]. - The weighted average interest rate for newly issued loans remained at 3.2%, indicating a stabilization in loan pricing despite previous rate cuts [5]. Group 2: Consumer and Retail Loan Trends - Residential loans in May totaled 54 billion, a year-on-year decrease of 217 billion, with both short-term and medium-long term loans reflecting weak consumer demand [6]. - Retail loan data showed some improvement compared to April, but mortgage loans continued to exhibit slight negative growth, indicating ongoing weakness in consumer credit expansion [6]. Group 3: Social Financing and Monetary Supply - New social financing in May reached 2.3 trillion, with a stable growth rate of 8.7%, maintaining the upward trend observed since the beginning of the year [7]. - M2 growth rate was 7.9%, while M1 growth rate was 2.3%, indicating a slight improvement in monetary activity, although private sector consumption and investment remained low [8]. Group 4: Banking Sector Outlook - The banking index has risen by 11.8% year-to-date, outperforming the CSI 300 index, with significant gains following the implementation of supportive financial policies [9]. - The "package" policy measures are expected to benefit the banking sector's operational fundamentals, suggesting that positive stock performance may continue [9].