Group 1 - The core viewpoint is that China's economic transformation and emerging business models are key drivers for the sustained rise of the stock market, with traditional economic cycles clearing out and stabilizing [1] - The focus of Chinese policy is shifting towards development, with fiscal expansion supporting livelihoods, boosting consumption, and improving corporate cash flow [1] - The "anti-involution" movement reflects a change in economic governance thinking, which is expected to provide conditions for stabilizing long-term return on equity (ROE) [1] Group 2 - In the real estate sector, residential investment as a percentage of GDP is projected to fall to 5.4% by Q2 2025, aligning with levels seen in the US, Japan, and South Korea, indicating a significant reduction in economic drag [1] - The total repayment amounts for domestic debts of real estate companies are forecasted to decrease annually, with figures of 469.4 billion, 319.4 billion, and 313.9 billion yuan for 2025, 2026, and 2027 respectively, suggesting that credit risk is largely cleared [2] - The manufacturing sector is experiencing a self-driven supply clearing, with capital expenditure decreasing by 10.6% year-on-year in Q1 2025, marking the lowest growth rate in nearly a decade [2] Group 3 - The implementation of more reasonable macroeconomic policies is effectively reducing tail risks in the economy and stabilizing investor expectations [2] - New economic opportunities are emerging in sectors such as AI and robotics, with accelerated capital expenditure, indicating a shift towards higher economic quality driven by transformation [2] - The "new three arrows" policy post-September 24, 2024, focuses on debt resolution, demand stimulation, and asset price stabilization, aiming to address the issue of insufficient domestic effective demand [2]

Group 1 - The core viewpoint is that China's economic transformation and emerging business models are key drivers for the continuous rise of the stock market, with traditional economic cycles clearing and stabilizing [1] - The focus of Chinese policy is shifting towards development, with fiscal expansion supporting livelihoods, boosting consumption, and improving corporate cash flow [1] - The decline in traditional economic sectors is reducing their drag on the economy, particularly in the real estate sector, where residential investment as a percentage of GDP is expected to fall to 5.4% by Q2 2025, aligning with experiences from the US, Japan, and South Korea [1] Group 2 - According to Wind statistics, the total repayment amounts for domestic debts of real estate companies in 2025, 2026, and 2027 are projected to be 469.4 billion, 319.4 billion, and 313.9 billion respectively, indicating a gradual decrease in credit risk [2] - The "new three arrows" policy post-September 24, 2024, aims to address debt issues, stimulate demand, and stabilize asset prices through monetary easing and debt restructuring [2] - Emerging sectors such as AI and robotics are seeing accelerated capital expenditure, indicating the initial emergence of new economic opportunities [2]

Production - Industrial production growth in August was 5.2%, below the expected 5.8% and down 0.5 percentage points from the previous month[3] - The decline in industrial production was primarily due to a decrease in export growth, which turned negative at -0.4% for the first time this year, down 1.2 percentage points from last month[3] - The service production index growth fell to 5.6%, indicating a slowdown in the service sector[3] Investment - Fixed asset investment growth in August was -7.1%, a decline of 1.8 percentage points, with a cumulative growth of 0.5%, down 1.1 percentage points from the previous month[4] - Real estate investment saw a significant drop, with a monthly growth rate of -19.5% and a cumulative decline of -12.9%[4] - Infrastructure investment also decreased, with broad infrastructure cumulative growth at 5.4% and narrow infrastructure at 2.0%, both down from the previous month[4] Consumption - Retail sales growth in August was 3.4%, a decrease of 0.3 percentage points from the previous month, indicating a cooling in consumer spending[5] - Dining consumption showed slight recovery with a growth rate of 2.1%, while overall goods retail growth was 3.6%, down 0.3 percentage points[5] - The consumption of gold and jewelry surged to 16.8%, doubling from the previous month, while other discretionary categories showed mixed results[6] Outlook - The economic slowdown in August reflects ongoing pressures in production, investment, and consumption, necessitating targeted policy interventions[7] - Future policy efforts are expected to focus on boosting investment and service consumption, with financial tools likely to support infrastructure investment[7] - The overall economic environment remains challenging, with continued pressure from declining exports and a cooling real estate market[7]

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In July, the manufacturing PMI declined marginally, and the economic momentum of the manufacturing industry also showed a marginal decline, indicating downward pressure on the overall economy. However, the Politburo meeting has set a positive policy tone, and the economy is expected to make steady progress. The government will speed up the issuance of government bonds, and incremental policies may be introduced when economic data shows continuous downward pressure [3][7]. - The Fed's Powell made relatively hawkish remarks at the FOMC meeting. The Fed's core goals are employment and inflation. The inflation data in June was pushed up by rising commodity prices, slightly exceeding expectations, adding uncertainty to the Fed's interest - rate cut timing [3]. 3. Summary by Relevant Catalogs 3.1 Economic Marginal Decline, Policy Still Has Resilience 3.1.1 Manufacturing PMI Marginal Decline - In July, the manufacturing PMI was 49.3%, down 0.4 percentage points from the previous month, lower than market expectations, and below the boom - bust line for four consecutive months. The production index decreased by 0.5 percentage points to 50.5%, and the new order index decreased by 0.8 percentage points to 49.4%. The new export order index dropped to 47.1%. The raw material purchase price index and ex - factory price index increased by 3.1 and 2.1 percentage points respectively [4]. 3.1.2 Policy Tone Continues to Be Proactive and Effective - The Politburo meeting at the end of July continued the previous policy tone and further clarified the intensity and direction of policy efforts in the second half of the year. The decision - makers are aware of the economic situation, acknowledging that while the economy has shown good performance in the first half, there are still potential risks in the second half. The consumer demand is weak, and corporate profit growth is negative, with over - capacity in some industries [9]. - The policy space in the second half of the year is sufficient, and fiscal and monetary policies will work together. The government will speed up the issuance of government bonds, and there is still room for interest - rate cuts in the future, which may be implemented when overseas interest - rate pressure eases and domestic economic pressure increases. Service consumption may become a new engine for consumption growth in the second half of the year, and the stock market's allocation value is gradually emerging [12][17][19]. 3.1.3 Focus on US Inflation and Employment Data - The inflation data in June slightly exceeded market expectations, mainly driven by rising commodity prices. At the FOMC meeting, the Fed paused interest - rate cuts as expected, and there was internal disagreement. Powell's speech sent a hawkish signal, and the subsequent path of inflation is uncertain, so the expectation of interest - rate cuts may fluctuate with economic data [21]. 3.2 Key Economic Data and Events to Focus On 3.2.1 Domestic Key Events - Important policies include the release of the national childcare subsidy plan, market regulation of inferior and low - price competition, and strengthening the governance of key industries such as new - energy vehicles and photovoltaics. Key economic data shows that the total operating income of state - owned enterprises from January to June was 40.75 trillion yuan, a year - on - year decrease of 0.2%, and the manufacturing PMI in July was 49.3%, down 0.4 percentage points from the previous month [24][27]. 3.2.2 Overseas Key Events - In the US, the Treasury Department significantly increased its borrowing estimate for the third quarter. The Fed maintained the interest rate unchanged, and there were internal differences. There were also issues related to tariffs, employment, and economic growth. Geopolitical events included Trump's stance on Russia, and cease - fire agreements in Thailand and Cambodia [28][34]. 3.3 Key Events and Data to Focus on Next Week - The table lists key events and data to be released next week, including US treasury bill auction rates, eurozone PPI, US export and import volumes, and Chinese CPI and PPI data [36]. 3.4 Weekly Performance of Major Asset Classes - The report provides charts of domestic stock index trends, bond market trends, and various commodity index trends, including the CSI 500, CSI 1000, and various South China commodity indices [38].

Market Overview - The A-share market is currently experiencing fluctuations around the 3600-point level, reflecting increased divergence between bulls and bears [2][16][17] - The market is likely to enter a period of consolidation, with the index expected to oscillate around 3600 points to digest accumulated pressure [17] - Short-term market sentiment is influenced by profit-taking and external disturbances, while medium-term trends remain upward due to policy support and industry upgrades [5][17] Sector Performance - The semiconductor and AI application sectors have shown strength, indicating a potential shift towards technology stocks, particularly among small and mid-cap growth stocks [1][16] - The "Yalu River Downstream Hydropower" concept stocks have experienced significant volatility, with a recent pullback after a period of strong performance [11] - The healthcare sector, particularly innovative drugs and medical devices, is expected to see continued growth due to favorable policy changes and an aging population [10] Investment Strategy - Short-term strategies should focus on avoiding high-flying stocks and selectively reducing positions in sectors that have seen substantial gains, such as the Yalu River hydropower concept [3][17] - Mid-term investments should target growth sectors with elastic potential, including AI infrastructure, innovative pharmaceuticals, and humanoid robotics, driven by both policy and technological advancements [3][17] - The cultural media sector is also highlighted as a potential area for investment, particularly in gaming and interactive content, benefiting from advancements in AI technology [9] Economic Indicators - The report emphasizes the importance of monitoring tariff negotiations and the overall liquidity environment, which are expected to positively influence the A-share market [3][17] - The upcoming fiscal policy window in Q3 and the timing of the Federal Reserve's monetary policy shift are critical factors to watch for market direction [3][17]

Economic Growth Predictions - Several foreign financial institutions have raised their forecasts for China's economic growth following the release of Q2 economic data, with many making consecutive adjustments within six months [1] - Morgan Stanley increased its 2025 growth forecast by 0.3 percentage points, while other institutions like DBS, Nomura, and Goldman Sachs raised their forecasts by 0.3, 0.5, and 0.6 percentage points respectively [1] Industrial Performance - The strong performance of the industrial sector, including electricity, construction, and manufacturing, has been a key driver of economic activity, maintaining growth for 15 consecutive months [3] - Policies such as the appliance replacement program and consumer subsidies have effectively boosted retail sectors, particularly in home appliances, smartphones, and automobiles [3] International Trade - Demand for Chinese exports from economies outside the U.S. remains robust, contributing to a trade surplus in the first half of the year [5] - High net inflows of trade funds and strong export data have been noted by foreign financial institutions [3] Manufacturing Sector - China's manufacturing sector is highlighted as a key strength, supported by a complete industrial system that provides solid backing for the domestic market and serves global markets [10] - The acceleration of high-end, intelligent, and green development in manufacturing is a focal point for foreign research reports [10] Technological Advancements - China is significantly enhancing the added value of its manufacturing, focusing on high-tech and green products such as semiconductors, artificial intelligence, electric vehicles, lithium batteries, and robotics [10] - The country is making substantial progress in global technological advancement and introducing high-quality new products to the global market [10] Economic Resilience - Foreign financial institutions describe China's economy with the term "resilience," attributing this to continuous policy support, improving macroeconomic conditions, and various micro-level highlights [12] - The economy is characterized as "flexible," capable of adapting to various domestic and international economic situations while maintaining stable growth [15][16]

Group 1 - Several foreign financial institutions and international investment banks have raised their economic growth forecasts for China following the release of the second-quarter economic data [1] - Morgan Stanley increased its 2025 economic growth forecast for China by 0.3 percentage points, while other institutions like UOB, Nomura, and Goldman Sachs raised their forecasts by 0.3, 0.5, and 0.6 percentage points respectively [2] - The strong performance of the industrial production sector, including electricity, construction, and manufacturing, has been a key driver of economic activity, maintaining growth for 15 consecutive months [4] Group 2 - The net inflow of funds from domestic goods trade remains high, with strong export data contributing positively [6] - Demand for Chinese exports from economies outside the United States has remained robust, supporting export scale and achieving a trade surplus in the first half of the year [7] - Continuous policy support aimed at boosting domestic consumption and enhancing market confidence has been crucial in attracting foreign investment and adjusting growth expectations [7]

Overall Performance - The second quarter of 2025 shows signs of recovery in the Chinese stock market, with A-shares stabilizing and MSCI China improving [2][3] - As of July 21, 2025, 1,528 A-share companies (30% of total, 25% of total market capitalization) issued earnings forecasts, with a net negative warning rate of -4.8%, an improvement from -18.8% in the previous quarter [2] - The MSCI China index, covering overseas-listed Chinese core assets, reported a net positive warning rate of +6.8%, the highest in four quarters, indicating a rebound in confidence from overseas investors [3] Sector Performance - Strong sectors include financial services, materials, and technology hardware, while consumer services, real estate, and software lag behind [5][6] - Financial services benefit from stable growth policies, materials see gains from commodity price recovery, and technology hardware thrives on innovation [5] - Real estate continues to face pressure due to inventory reduction and financing challenges, while consumer services are affected by slow recovery in domestic demand [5][6] Market Capitalization - Large-cap stocks show stability with a net negative warning rate of -1.4%, indicating strong risk resistance and high earnings certainty [7] - Small-cap stocks have significantly improved, with a net negative warning rate narrowing from -31.1% to -7.4%, reflecting recovery supported by policy and industry revival [7] - Mid-cap stocks perform moderately with a net negative warning rate of -12.7%, showing improvement but still lagging behind large-cap stocks [8] Earnings Forecast Adjustments - Sectors with upward adjustments include technology hardware, consumer staples, and pharmaceuticals, driven by increased orders and stable demand [9] - Sectors facing downward adjustments include semiconductors, utilities, consumer services, and real estate, reflecting cautious market sentiment [9] Investment Recommendations - Morgan Stanley identifies nine stocks to watch, primarily from materials, pharmaceuticals, and technology hardware sectors, based on positive earnings forecasts and analyst ratings [10][11] - Caution is advised for six stocks concentrated in real estate and certain consumer services, reflecting high earnings uncertainty [10][11] Future Outlook - The report suggests focusing on sectors benefiting from policy support, such as finance and infrastructure-related materials, as well as resilient consumer services and technology growth areas [12][13] - The overall recovery remains uneven, and investors are encouraged to prioritize quality stocks with stable earnings and reasonable valuations [13]

Report Industry Investment Rating - Not provided in the report Core Viewpoints - In China, the economy turned downward in April due to tariff impacts, but the decline slowed in May. With the agreement reached in the Geneva economic and trade talks between China and the United States, economic confidence has recovered. The government has ample resources and policies are expected to be implemented intensively in June [1][10][15]. - Abroad, tariff and debt issues continue to disrupt the market. Attention should be paid to whether the tariffs based on IEEPA can remain in effect. Short - term debt is not a problem, but the pressure lies in the medium - and long - term [2][27][31]. - For major asset classes, stocks will fluctuate within a range, bonds will fluctuate while waiting for an opportunity for interest rates to decline, the RMB exchange rate will fluctuate between 7.15 - 7.36, and gold will fluctuate within a range in the short term [3][32][39] Summaries by Directory I. Domestic: Waiting for Policy Acceleration (1) April economic downturn, slower decline in May - Most economic data showed a decline in April. In May, the manufacturing PMI rose 0.5 percentage points to 49.5%, but was still below the boom - bust line, indicating that the economy was still in a downward trend, but at a slower pace. From the perspective of leading monetary indicators, the economy is still at the bottom [1][10][11]. (2) The government has more measures in reserve - Fiscal spending is tilted towards people's livelihoods. The expenditure of public finance and government - managed funds is at a high level in history, but the expenditure on infrastructure has decreased. There are still large balances of special bonds and ultra - long - term special treasury bonds to be issued, and government deposits are much higher than in previous years. Most policies to stabilize employment and the economy are expected to be implemented by the end of June [15][16][23]. II. Abroad: Tariffs and Debt (1) Focus on whether the tariffs based on IEEPA can remain in effect - Tariff disruptions continue, but their impact on the market is gradually weakening. The court's decision on the legality of Trump's tariff measures needs attention. If the appeal fails, Trump may try other ways to impose tariffs, which could have a long - term impact on the US economy [27][28][29]. (2) Short - term debt is not a problem - The US has a large short - term debt rolling pressure, but it is unlikely that short - term debt cannot be renewed. The Fed has the SRF tool. The medium - and long - term debt pressure is controllable in the near term, and the pressure lies in the medium - and long - term [31]. III. Outlook for Major Asset Classes (1) Stocks: Range - bound fluctuations - Due to the smooth Geneva economic and trade talks, the overall tariff situation has returned to that on April 5. The export - rush effect in May is expected to continue, but economic uncertainties are still large, and the macro - economy continues to face pressure. The stock market is likely to fluctuate within a range [32]. (2) Bonds: Fluctuating while waiting for an opportunity for interest rates to decline - A full - process interest rate cut has been implemented. Future reserve requirement ratio and interest rate cuts are likely. However, in the short term, the bond market is likely to remain volatile due to high capital interest rates, supply pressure, and potential deposit transfer issues [35]. (3) RMB exchange rate: Range - bound fluctuations - The weakening US dollar index drives the RMB to appreciate, but the appreciation is expected to be limited. The RMB exchange rate is expected to fluctuate between 7.15 - 7.36 [39]. (4) Gold: Short - term range - bound fluctuations - Tariff and debt issues have pushed down the US dollar index and driven up the gold price. However, as these issues are not acute at present, gold is likely to fluctuate within a range in the short term [42].

Export Data and Tariff Impact - In April, China's export growth showed a marginal slowdown, with a significant decline in exports to the US, indicating the actual impact of tariff increases is becoming evident [1][10] - The export growth structure can be categorized into three scenarios: overall export slowdown with simultaneous declines in both US and non-US exports, export decline to the US but an increase in non-US exports, and a decline in US exports with overall export growth improving due to non-US exports [2][12] - Industries facing significant revenue impact due to export declines include home appliances, non-ferrous metals, light industry, machinery, and textiles [2][14] Monthly Market Review - In May, risk assets generally experienced a recovery, with A-shares showing a preference for value styles, while sectors like environmental protection, pharmaceuticals, and military industries led the gains [3][21] - The market saw a mixed performance with fluctuations in risk appetite, influenced by tariff negotiations and concerns over US debt risks [3][21] June Market Outlook and Allocation Recommendations - The market is expected to continue its oscillation with a downward shift in the central tendency, influenced by tariff expectations and policy anticipation [4][5] - The recommendation is to increase allocation in low-volatility dividend stocks, focusing on sectors like electricity, banking, and consumer goods, while also considering trading opportunities in emerging technologies such as AI and robotics [5][6]