Export and Trade Data - July exports in USD increased by 7.2% year-on-year, up 1.3 percentage points from June, alleviating concerns about a significant decline in exports for the second half of the year[4] - Imports rose by 4.1% year-on-year in July, a substantial increase of 3 percentage points from the previous month, with imports from the US dropping to -18.9%, the lowest level this year[6] PPI and CPI Trends - July PPI month-on-month was -0.2%, a slight increase of 0.2 percentage points from the previous month, while year-on-year PPI remained stable at -3.6%[8] - July CPI year-on-year was 0%, a slight decrease of 0.1 percentage points from the previous month, with core CPI at 0.8%, up 0.1 percentage points[11] Market Dynamics - Recent shifts indicate a transition from safe assets to risk assets among residents and financial institutions, driven by low bond yields and a rising equity market since the beginning of the year[16] - The current equity market is experiencing a bullish atmosphere, with small-cap stocks outperforming large-cap stocks, reflecting an increase in market risk appetite[16] Economic Outlook - The macroeconomic environment is changing, suggesting that the most significant downward pressure on the economy may be behind, which is a fundamental driver for the stock-bond switch[18] - The expectation of a stable economic recovery, supported by proactive credit expansion, is likely to push the equity market to higher levels[18] US Interest Rate Expectations - Market expectations for US interest rate cuts have risen, with projections indicating approximately three rate cuts in 2025, totaling around 57 basis points[26]

Group 1 - The recent increase in risk appetite has led to a strong stock market, which has put pressure on the bond market, raising questions about the sustainability of the current stock-bond switch and whether the "bond bull" trend has ended [1] - Since mid-July, the A-share market has shown significant strength, with the Shanghai Composite Index breaking through key levels of 3500 and 3600 points, and trading volume reaching 1.93 trillion yuan on July 22, the highest since March 7 [1] - Despite the stock market's performance, the bond market has not experienced panic selling, with the yield on 10-year government bonds only rising by 5.45 basis points in July, indicating a cautious market outlook on growth and inflation factors [1] Group 2 - The strong performance of the A-share market this year has been primarily driven by bank stocks and small-cap stocks, while cyclical sectors such as steel, coal, real estate, and consumer goods have lagged behind [2] - The "anti-involution" policy signals and the development of hydropower projects have boosted market expectations for economic fundamentals, but the sustainability of cyclical stock and commodity price increases remains uncertain due to challenges in capacity reduction policies and weak demand [2] - The economic fundamentals show a mixed picture, with external uncertainties and a need for stronger domestic demand, while monetary policy remains accommodative [3] Group 3 - Current price levels are low, with CPI and core CPI remaining subdued, and PPI showing an expanding year-on-year decline, which affects corporate revenue and consumer confidence [3] - The government is actively increasing leverage, but the willingness of the real economy to expand credit remains insufficient, leading to weak demand for credit from enterprises and households [3] - Although local government bond issuance has accelerated, it mainly addresses refinancing of hidden debts, with new bond issuance lagging behind historical averages, potentially delaying economic support [3] Group 4 - Overall, the market environment for the "bond bull" has not fundamentally changed, but short-term fluctuations in the bond market may increase due to low long-term interest rates and heightened attractiveness of the stock market [4]

Report Overview - Report Title: "Market Expectation Gap Correction, Potential Switch in Stock-Bond Allocation" [2] - Report Date: July 23, 2025 - Research Team: Fixed Income Research Team - Analysts: Chen Xi, Liu Wei Report Investment Rating - Not provided in the report Core Views - In the second half of 2025, the economic cycle is in an upward phase, similar to 2016 - 2017, in the second half of the L-shaped cycle [5]. - The key to the market rally is the correction of the expectation gap. Currently, the pricing in the stock, bond, and commodity markets is weak, and the upward correction of the market expectation gap may drive the market up [6]. - With the economic expectation correction, there may be a switch between stocks and bonds. The bond yield and the stock market are expected to rise [9]. Summary by Relevant Catalog Economic Upward Trend in H2 2025 - The local debt resolution plan launched in November 2024 may drive the economy to recover continuously, as past debt rectification periods were followed by economic rebounds [5]. - After the digestion of policies from 2021 - September 2024 and structural transformation, the year - on - year growth rate of social financing stock has been rising since November 2024 [5]. - The supply - side anti - involution measure proposed on July 1, 2025, is conducive to the recovery of the PPI year - on - year rate, similar to the 2015 supply - side reform [5]. Market Expectation Gap and Its Impact - As of July 22, 2025, the equity risk premium rate of the Wind All - A Index was 3.14%, at the 72.1% percentile in the past 10 years; the 10 - year Treasury yield was 1.69%, at the 4.0% percentile in the past 10 years; the Nanhua Industrial Products Index was at the 43.2% percentile from 2022 to the present, indicating weak pricing in the market [6]. - The market's weak pricing is based on the view that the full - year GDP target of 5.0% is easy to achieve (with H1 GDP growth at 5.3%), leading to low expectations for H2 policies. However, there is a significant expectation gap in the market's pricing of the economic recovery [6]. - The all - around policies from July 2025 are expected to gradually realize the market's expectation of economic recovery, forming a positive feedback loop for market confidence and expectations [7]. Stock - Bond Switch - The economy is similar to that in 2016 - 2017, in the second half of the L - shaped cycle. The economic growth rate in H2 2025 is not expected to decline significantly, and with the solution of structural problems, there may be a switch between stocks and bonds, with bond yields and the stock market expected to rise [9].

Report Industry Investment Rating - No specific industry investment rating is provided in the report. Core Viewpoints - As of July 21, 2025, the Wind All A Index broke through the high point on October 8, 2024, for the first time [3]. - The key logic for the market rally lies in the fundamental change in policy orientation and the economic cycle being in an upward phase. The current economy is similar to that in 2016 - 2017, in the second half of the L - shaped curve. In the second half of 2025, with no significant economic downturn and the resolution of structural issues, there may be a stock - bond switch, with bond yields and the stock market expected to rise [5][7]. Summary by Relevant Catalogs Market Understanding of the Rally - Industry highlights and thematic market trends may not be sufficient to drive the index up. For example, from 2022 - 2024, there were industry highlights like Huawei's chips in 2023, but the index continued to decline [4]. - The current market rally may not be mainly driven by the "national team" propping up the market. There were previous instances of the "national team" propping up in February 2024, but the market fell again after May 2024 [4]. - The reversal of the "American Exceptionalism" may not be the key factor. Overseas funds may not have flowed into China significantly, and the US and Chinese stock markets are rising in resonance [4]. - Low - interest rates may not drive the stock market up. From 2022 - 2024, bond yields declined, but the stock market fell. A high stock - bond ratio is not a sufficient condition for a rise, as seen from May - September 2024 [4]. Key Logic for the Rally - Policy orientation has undergone a fundamental change. The Politburo meeting in September 2024 marked a policy inflection point, ending the long - term economic de - leveraging from 2021 - 2024 and the local hidden debt rectification from January - September 2024 [5]. - The economic cycle is in an upward phase. After the policy inflection point in September 2024, market confidence has been on an upward path. Currently, it is similar to the second and third quarters of 2016, with significant upward potential in market expectations [5]. - The policy aims to stabilize the demand side and solve structural problems. Since July 2025, anti - involution policies and urban renewal are similar to the supply - side reform and shantytown renovation from 2016 - 2017. Although it may not drive a large - scale real - estate up - cycle or PPI growth over 7%, real - estate stabilization and positive inflation may boost market expectations [6]. Economic Expectation Revision and Stock - Bond Switch - The current economy is similar to that in 2016 - 2017, in the second half of the L - shaped curve. It has ended the downward phase from 2021 - 2024 and entered a stabilization phase, with the policy addressing structural issues to promote real - estate stabilization and inflation normalization [7]. - In the second half of 2025, with no significant economic downturn and the resolution of structural issues, there may be a stock - bond switch, with bond yields and the stock market expected to rise [7].

Group 1: Report Industry Investment Rating - Not mentioned in the provided content Group 2: Report's Core View - The economy in the second half of 2025 may not decline significantly, and bond yields and the stock market may rise. If the economy doesn't decline significantly, bond market funds may flow out, and stock market funds may flow in, leading to a potential shift in asset allocation from bonds to stocks [4] - The current asset price reflects the consistent expectation of high uncertainty about the future economy. The bond market has priced in "increased loose monetary policy in the second half of the year" in advance, and the stock market shows high cost - effectiveness [2] - The reason for the consistent expectation of asset prices may come from historical experience, but the economy in the second half of 2025 may be better than the market's expected decline, with GDP growth likely to be above 5% [3][4] Group 3: Summary by Related Contents Current Asset Price and Market Expectations - Bond market: The bond market has priced in "increased loose monetary policy in the second half of the year" in advance, with a significantly flattened yield curve, and most bond market funds are bullish and holding positions waiting for price increases [2] - Stock market: The stock market shows high cost - effectiveness. Compared with domestic deposits and bond yields, the dividend yield is high, and compared with overseas stock markets, the domestic stock market valuation is low [2] Reasons for Consistent Expectations of Asset Prices - Since 2021, the economic rhythm has been "economic pressure, policy support, economic pressure". After policy support ends, the economy usually faces downward pressure again, causing the stock market to fall and bond yields to decline [2] - From the perspective of GDP targets, in 2023 and 2024, the GDP targets were just achieved. Given that the GDP growth rate in the first half of 2025 was relatively high, the market expects a decline in the second half [3] Economic Situation and Outlook - From 2021 to September 2024, it was similar to the "three - phase superposition" from 2011 to 2015. After continuous de - leveraging, the current social financing growth rate has fallen to match the economic target [3] - Local government implicit debt rectification occurs about once every five years. After each shock, the economy usually rebounds. After the debt - resolution plan was introduced on November 8, 2024, the economy is expected to rebound [4] - In September 2024, the economy may have reached a double inflection point. In the second half of 2025, it may show "stable social financing and stable economy", with GDP growth likely to be above 5%, better than the market's expected decline [4] Asset Allocation Outlook - Bond market: If the economy doesn't decline significantly in the second half of the year, bond market funds may gradually flow out, similar to the situations in 2009 and 2020. The rhythm may be "stock market rise - bond yield lagged rise - capital interest rate rise last" [4][5] - Stock market: If the economy doesn't decline significantly in the second half of the year, off - market funds will gradually enter the stock market [5]