Core Viewpoint - The aerospace and defense sector is experiencing significant market activity, with notable stock performance and increased liquidity in related ETFs, driven by strong expectations for military-related developments in the near future [1][2]. Group 1: Market Performance - As of July 4, 2025, the CN5082 aerospace and defense industry index shows mixed performance among its constituent stocks, with AVIC Shenyang Aircraft (600760) leading with a 2.54% increase [1]. - The Aerospace and Defense ETF (159227) has an active trading environment, with a turnover rate of 20.04% and a transaction volume of 79.01 million yuan [1]. - Over the past week, the Aerospace and Defense ETF has averaged daily transactions of 80.54 million yuan, ranking it first among comparable funds [1]. Group 2: Fund Flows - The Aerospace and Defense ETF has seen continuous net inflows over the past six days, with a peak single-day net inflow of 37.52 million yuan, totaling 139 million yuan in net inflows [1]. - The defense and military sector index ranked 4th among 31 industries in terms of performance for the first half of 2025, with a record high trading volume [2]. Group 3: Sector Insights - More than 10% of military-listed companies reached historical highs in stock prices during the first half of 2025, driven by strong market expectations [2]. - The Aerospace and Defense ETF tracks the CN5082 index, with a high concentration of 98.2% in the defense and military sector, making it the most "pure" military ETF in the market [2]. - The top ten weighted stocks in the CN5082 index account for 49.42% of the total index, indicating a concentrated investment in key players within the aerospace and defense sector [3].

Investment Rating - Buy (Maintain Rating) [1] Core Viewpoints - The recent military conflict between India and Pakistan has highlighted the effectiveness of Chinese military equipment, particularly in the context of military exports [2][5] - The global arms trade is expected to enter a new cycle of prosperity due to increased demand driven by geopolitical tensions, with China's military exports likely to gain market share [3][4][26] Summary by Sections 1. Overview of the India-Pakistan Conflict - The conflict began with a terrorist attack in India, leading to India's "Operation Zhusha" and Pakistan's counteraction, showcasing the effectiveness of Chinese military equipment used by Pakistan [13][20] 2. Impact on the Military Industry - Global demand for military equipment is increasing, with military spending projected to reach $2.72 trillion in 2024, a 9.4% increase [23][26] - The arms trade saw a significant increase of 29% in 2022, with a projected export value of $28.938 billion TIV in 2024 [3][26] 3. China's Military Export Potential - China's military exports have surged from $1.358 billion TIV in 2021 to $2.982 billion TIV in 2023, with 45% of exports going to Pakistan [4][33] - The report emphasizes the transition of Chinese military equipment into a "DEEPSEEK" era, indicating advancements in technology and capabilities [42] 4. Investment Recommendations - The report suggests focusing on seven key areas for military trade-related investments: aviation equipment, missile systems, radar systems, drones, low-cost munitions, ground equipment, and communication data links [5][67]

Group 1 - The military industry sector has seen a significant increase, with the defense and military index rising by 4.80% in a single day, ranking first among all Shenwan primary industries [1] - Since the May Day holiday, the military theme has continued to strengthen, with the defense and military index accumulating a rise of over 11% in just a few trading days [1] - The recent strong performance of the military sector is primarily driven by event-driven market dynamics, particularly due to the India-Pakistan air conflict, rather than fundamental factors [1] Group 2 - There is a notable improvement in the performance of military listed companies, with 25 military stocks reporting a year-on-year net profit growth of over 100% in the first quarter of 2025 [1] - The military industry has entered a new round of prosperity, with a significant recovery in orders observed after the Spring Festival, and further acceleration in orders noted in March [1] - Recent favorable policies have increased market attention on the military sector, including substantial progress in Sino-U.S. economic and trade talks and a reduction in the reserve requirement ratio by the central bank [1] Group 3 - The recent strength of the military sector reflects a renewed market perception of its prosperity, driven by both high certainty in domestic demand and expansive external demand [2] - Despite the inherent volatility of the military sector, it is in an upward trend of prosperity that is expected to last for a considerable time, presenting opportunities for companies to grow stronger [2] - Companies in the mid-to-upstream segment with improved orders and performance are likely to experience a valuation shift, warranting close attention [2]