Summary of Conference Call Records Industry Overview - The conference call discusses the bond market and financial data predictions for August 2025, highlighting the expected decline in social financing growth and its potential negative impact on economic growth and fixed asset investment [1][2][3]. Key Points and Arguments 1. **Social Financing Growth**: - Social financing growth is expected to decline significantly from 9.0% at the end of July to approximately 8.1% by year-end, which may negatively affect economic growth and fixed asset investment [2][3]. - Historical data indicates that social financing growth typically leads nominal GDP growth by one to two quarters [3][4]. 2. **Bond Market Outlook**: - The bond market is anticipated to remain volatile, with the 10-year government bond yield expected to fluctuate between 1.6% and 1.8% [1][5]. - Current bond market conditions are characterized by low revenue growth for listed companies, aligning with the bond market's performance [1][5]. 3. **Stock Market Performance**: - Despite the stock market outperforming expectations, with the All A index doubling since last year, the operating performance of listed companies has not significantly improved [6]. - The actual growth rate of the Chinese economy remains low, indicating that the bond market may continue to experience volatility [6]. 4. **Government Leverage and Financing Demand**: - There is a lack of motivation for individuals and market-oriented enterprises to increase leverage, leading to a reliance on government leverage to drive financing demand [7]. - The anticipated increase in government bond issuance may not offset the ongoing weakness in other financing demands, posing challenges to the overall financial environment [7]. 5. **Investment Recommendations**: - A bullish stance on 30-year long-term government bonds is recommended, with a focus on high-value products such as 30-year national development bonds and 10-year capital bonds [12][13]. - Investors with lower risk tolerance are advised to consider long positions in 10-year national development bonds due to potential price increases when yields decline [12][13]. 6. **Southbound Trading Expansion**: - The expansion of southbound trading requires attention to the choice of custody models and the liquidity of the offshore RMB market, which can impact offshore RMB bond yields [14][16]. - The differences between multi-level direct custody and global custody models are highlighted, with implications for investment range and associated costs [15]. 7. **Regulatory Environment**: - The progress of domestic debt replacement for offshore debt is hindered by existing barriers, with few successful cases reported [17]. - Continuous observation of regulatory attitudes is necessary to determine if channels for domestic replacement can be opened, which would support the reduction of offshore credit risk [17][18]. Additional Important Points - The central bank's loose monetary policy and declining bank liability costs support the value of government bond allocations [1][9]. - The average cost of bank liabilities is expected to decrease further, enhancing the attractiveness of government bonds [9]. - The liquidity of the offshore RMB market is a critical factor influencing offshore RMB bond yields, with current conditions indicating manageable risks [16]. This summary encapsulates the essential insights and forecasts from the conference call, providing a comprehensive overview of the current financial landscape and investment strategies.

Group 1: Southbound Bond Connect Expansion - The Southbound Bond Connect's overall custody balance may exceed 800 billion RMB, with a theoretical maximum custody scale of over 1.8 trillion RMB by the end of 2025 if investment quotas and institutional expansions are implemented[2] - As of July 8, 2025, the Southbound Bond Connect has announced multiple optimization measures, including support for more domestic investors to invest in offshore bond markets and enhancements to liquidity management for foreign investors[2] - The total scale of bonds under the Southbound Bond Connect is currently 7.68 trillion RMB, with USD bonds, HKD bonds, and dim sum bonds accounting for 95% of the total[2] Group 2: Dim Sum Bonds Overview - The current stock of dim sum bonds under the Southbound Bond Connect is 1.7 trillion RMB, with credit bonds, government bonds, and certificates of deposit making up 57%, 29%, and 14% of the total, respectively[3] - Investment-grade dim sum credit bonds constitute 55% of the total dim sum credit bonds, while unrated bonds account for 44%[3] - The issuance scale of dim sum credit bonds reached 6.181 billion RMB by the end of July 2025, with a net financing scale exceeding 4 trillion RMB in 2024[2] Group 3: Market Dynamics and Opportunities - The dim sum bond market has seen significant expansion since 2021, driven by policy support and tightening financing conditions for domestic city investment bonds[2] - The supply of dim sum bonds is primarily concentrated in the 3-year and under category, which accounts for 77.32% of the total stock[3] - The average coupon rates for government and non-city investment credit bonds range between 2.3% and 3.3%, while city investment dim sum bonds have significantly higher rates, exceeding 5% for bonds with maturities of 3 years or less[3] Group 4: Risks and Considerations - Potential policy changes may impact the future expansion and scope of the Southbound Bond Connect, posing risks to investors[9] - Unexpected changes in overseas markets could disrupt offshore RMB liquidity, affecting the performance of dim sum bonds[9] - Credit defaults beyond expectations could significantly disturb the offshore bond market, highlighting the need for careful credit risk assessment[9]

1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core Viewpoints of the Report - The expansion of Southbound Connect and the improvement of its operating mechanism will provide new channels for domestic institutional investors to allocate overseas bonds. The expansion of participants and the improvement of the mechanism will bring new opportunities for domestic institutional investors to invest in overseas bonds. - The expansion of domestic institutional investors in Southbound Connect is expected to alleviate the unmet demand of non - bank institutions for overseas bond allocation. Non - bank institutions will have more channels to invest in overseas bonds, and the overseas bond market may see more capital inflows into high - coupon bonds such as Chinese - funded US dollar bonds and Dim Sum bonds, which may lead to a further decline in bond yields [91][92]. 3. Summary by Directory 3.1 Recent Development of Bond "Southbound Connect" - **Background and Purpose**: Southbound Connect aims to facilitate domestic institutional investors to allocate offshore bonds by strengthening the cooperation between bond market infrastructure institutions in the Mainland and Hong Kong [11]. - **Regulatory Policy Development**: It has gone through three stages: policy preparation (2017 - 2020), policy launch (2021 - 2022), and deep - opening (2023 - present). In 2025, it is proposed to expand the scope of domestic investors to non - bank institutions and improve relevant mechanisms [13][16][17]. 3.2 Operating Mechanism and Participation Methods of Southbound Connect - **Business Operation and Regulatory Mechanism**: The scope of domestic investors is currently limited to 41 banks and QDII/RQDII - qualified institutions. Investors need to open accounts through designated domestic custodian banks or bond registration and settlement institutions and open accounts in the CMU system of the Hong Kong Monetary Authority for cross - border custody. The total annual quota for all participating institutions is 500 billion yuan, and the daily quota is 20 billion yuan [24][33]. - **Current Domestic Investors Participating in Southbound Connect**: As of July 2025, the expansion policy has not been fully implemented. The investors are still limited to primary dealers (excluding non - bank institutions and rural commercial banks) and QDII/RQDII - qualified institutional investors [32]. - **Participation Process**: It includes qualification approval and account opening, and the bidding process (viewing quotation intentions, sending quotation requests, receiving responses from quotation providers, and confirming transactions). Currently, investors mainly prefer investment - grade Chinese - funded US dollar bonds and high - rated Dim Sum bonds, and the expansion of investors may change the investment preference [38][40]. 3.3 Current Investment Opportunities in Southbound Connect - **Overall Situation of Southbound Connect Sector**: The investable bonds include offshore RMB bonds (Dim Sum bonds), Hong Kong dollar bonds, and G3 currency bonds. As of July 29, 2025, the total scale of tradable bonds in the Hong Kong market was 1.2052 trillion US dollars, with 5,892 bonds. Chinese - funded US dollar bonds and Dim Sum bonds accounted for more than 70% of the investable bonds in Southbound Connect [54]. - **Focus on Dim Sum Bonds**: The scale of Dim Sum bonds has expanded significantly since 2023. As of July 17, 2025, there were 3,099 outstanding Dim Sum bonds with a total scale of 1.5449 trillion yuan. The financial services and sovereign debt sectors have a large scale. Dim Sum bonds have a higher coupon rate than domestic bonds, especially in the urban investment, real estate, and bank sectors. However, attention should be paid to their subsequent performance as the yields have declined significantly in recent months [63][64][67]. - **Focus on Chinese - funded US dollar bonds**: As of early July 2025, there were 2,009 outstanding Chinese - funded US dollar bonds with a total scale of 666.7 billion US dollars. The real estate, internet media, bank, and urban investment sectors have a large scale. The issuance of Chinese - funded US dollar bonds has slowed down since 2023, and the newly issued bonds are mainly unrated. Chinese - funded US dollar bonds have a higher coupon rate than domestic bonds, especially in the urban investment and real estate sectors. Attention should be paid to high - quality individual bonds and short - term risks [71][74][83]. 3.4 Impact of the Expansion of Domestic Institutional Investors in Southbound Connect - **For Non - bank Institutions**: The expansion of participants is expected to alleviate the unmet demand of non - bank institutions for overseas bond allocation. They can invest in overseas bonds through the Southbound Connect channel in addition to using QDII quotas [91]. - **For the Overseas Bond Market**: Non - bank institutions have a relatively more active risk preference. High - risk - return bonds such as the real estate and urban investment sectors of Chinese - funded US dollar bonds and the urban investment sector of Dim Sum bonds may receive more attention and capital inflows, which may lead to a further decline in bond yields [92].

Core Viewpoint - Hong Kong insurance stocks experienced a morning rally, with major players like China Ping An and China Pacific Insurance both rising over 5% due to the expansion of the southbound trading scheme, which is expected to alleviate investment pressure for insurance companies [1] Group 1: Market Reaction - China Ping An (02318.HK) and China Pacific Insurance (02601.HK) both saw their stock prices increase by more than 5% [1] - Other insurance stocks such as Sunshine Insurance (06963.HK), New China Life Insurance (01336.HK), and AIA Group (01299.HK) also followed the upward trend [1] Group 2: Regulatory Changes - The People's Bank of China and the Hong Kong Monetary Authority announced an expansion of the southbound trading scheme [1] - Dongwu Securities indicated that this expansion will create new channels for insurance capital to invest overseas, which will help alleviate investment pressure faced by insurance companies [1]

Group 1: Investment Rating - The document does not mention the industry investment rating. Group 2: Core Views - The bond "Southbound Connect" may be expanded in the future, with insurance funds and other non - bank institutions likely to be included in the scope of eligible investors. The main expansion directions are the dim - sum bond market and the Chinese dollar bond market. [2][23] - In the second half of 2025, the dim - sum bond market is expected to remain strong with narrowing excess spreads. For the Chinese dollar bond market, the short - term market is volatile, and short - term participation should be cautious. [2] Group 3: Summary by Directory 1. Policy - driven, Southbound Connect Expansion is Imminent - Since the launch of the bond "Southbound Connect" in September 2021, the participation enthusiasm has been increasing. As of the end of April 2025, the balance of bonds under the Southbound Connect reached over 530 billion yuan. [15][19] - Currently, the scope of eligible investors for the bond "Southbound Connect" is small, mainly including some banks and QDII/RQDII. Since 2025, relevant policies have been continuously promoted, and it is expected that the scope of eligible investors will be expanded, with insurance funds likely to be included. [20][23] 2. Core Mechanisms of Southbound Connect: How to Invest in Overseas Bonds through Southbound Connect? 2.1 Current Main Institutional Arrangements of Southbound Connect - The trading venue is the Hong Kong bond market, mainly settled through the Central Moneymarkets Unit (CMU) of the Hong Kong Monetary Authority. - The investment scope includes all bond types issued overseas and traded in the Hong Kong bond market. - The annual total quota for the whole market is 500 billion yuan equivalent in RMB, and the daily quota is 20 billion yuan equivalent in RMB, with closed - loop management of funds. - Domestic investors must trade with qualified "Southbound Connect" market - makers approved by the Hong Kong Monetary Authority, with 22 market - makers currently. [30] 2.3.1 Trading Mechanism: Request - Quote Mechanism - Domestic investors send quote requests to overseas quote institutions through the CFETS system. Overseas market - makers reply with quotes, and domestic investors confirm the transactions. The market - makers may have a re - confirmation process, and then the transaction is completed. [34][35] 2.3.2 Custody Mechanism: Nominee Holder System, Direct Connect Custody/Global Custody Modes - Under the nominee holder system, domestic investors can choose either direct connect custody (by domestic bond registration and settlement institutions) or global custody (by domestic custody and clearing banks). The direct connect custody mode is limited to bonds registered and held by CMU, while the global custody mode has no restrictions on bond types. [36][37] 3. New Investment Opportunities under Southbound Connect Expansion 3.1 Introduction to the Hong Kong Bond Market - As of the end of 2024, the Hong Kong bond market mainly traded in G3 currencies, with corporate bonds accounting for a large proportion. The CMU - held bonds only accounted for a small part of the Hong Kong bond market, mainly in RMB and with maturities concentrated within 3 years. [53][56][59] 3.2 Dim - sum Bond Market Analysis - As of the end of May 2025, the dim - sum bond market had a stock size of nearly 2 trillion yuan, with high supplies of government bonds, financial bonds, and urban investment bonds. - For dim - sum government bonds, short - to medium - term local government bonds and long - term Hong Kong government bonds are recommended. For dim - sum credit bonds, non - urban investment and non - real - estate investment - grade bonds, especially financial bonds and TMT bonds, are worth considering. - The spread between offshore RMB sovereign bonds and on - shore treasury bonds is affected by the offshore RMB inter - bank lending rate. In 2025, the net supply of dim - sum bonds has been positive but with a slowdown in growth. The expansion of demand under the Southbound Connect may further compress the spreads. [5][71][91] 3.3 Chinese Dollar Bond Market Analysis - As of the end of May, the stock size of Chinese dollar bonds was 634.6 billion US dollars, mainly credit - type bonds with a low proportion of government bonds. - The overall yield of Chinese dollar bonds is relatively high, with spreads over the same - term US treasury bonds ranging from 100 - 150 BP (except for sovereign bonds). Short - term investment - grade financial bonds (especially non - bank financial bonds) and long - term TMT bonds are recommended. - Investment in dollar bonds needs to consider exchange rate and interest rate risks. Currently, the cost of hedging exchange rate risks is relatively high, so short - term allocation should be carefully observed. [6][101][113]