Group 1: Bond Market Dynamics - The demand structure for government bonds reflects the risk appetite of funds, with a net supply of nearly 14 trillion yuan expected in 2025, a 23% year-on-year increase [2] - Commercial banks have become the most stable demand side, holding an additional 2.9 trillion yuan in government bonds in the first seven months of 2025, absorbing 84% of the net supply [2][5] - Insurance companies have shown resilience in bond demand, increasing their holdings by 400 to 600 billion yuan annually over the past five years, despite a shift towards high-dividend stocks [5] - Offshore investors have recently turned into net sellers of bonds, but the outflow of Chinese government bonds is expected to be limited due to high holdings by long-term investors [12] - The central bank may restart bond purchases if there is a lack of demand in the bond market, providing a potential policy buffer [13] Group 2: Stock Market Opportunities - The A-share market is experiencing strong momentum driven by a "debt-to-equity rotation" and "anti-involution" logic, with local participation reaching a new high [14] - The widening yield spread of 10-30 year government bonds is prompting funds to shift from bonds to stocks, particularly as major holders of long-term bonds begin to reduce their positions [14] - High expectations for profit recovery in "involuted" industries could lead to an increase in the MSCI China index EPS growth rate from 10% to 12% between 2025 and 2027 [16] - Goldman Sachs has identified 20 companies with strong potential based on valuation expansion and fundamental improvement, with an average stock price increase of 8% since July [18] Group 3: Market Interactions and Signals - The current market dynamics are characterized by the coexistence of stable demand from banks and insurance companies in the bond market, alongside fluctuating behavior from asset management and offshore investors [21] - The ongoing rotation from bonds to stocks, particularly in anti-involution sectors, is creating structural opportunities driven by profit recovery expectations and fund preferences [21][22] - Investors should closely monitor liquidity changes in the interbank market, the sustainability of stock market profitability, and the central bank's policy signals regarding bond purchases [22]

Core Viewpoint - The recent capital market dynamics show a significant shift in fund flows between equity and bond markets, with a notable increase in equity market performance as the bond market experiences volatility [1][2]. Group 1: Market Dynamics - The stock market has shown resilience, with the Shanghai Composite Index breaking through 3600 points, while the bond market has faced fluctuations, indicating a "see-saw" effect between the two [1][2]. - The bond market has seen a sharp increase in the 10-year government bond yield, rising from approximately 1.65% in mid-July to 1.75% by July 25, reflecting a shift in investor sentiment [1][2]. - Recent net liquidity operations have tightened the market, causing overnight repo rates to rise above 1.65%, leading to a significant tilt in the balance between equity and bond markets [2]. Group 2: Fund Flows and Investment Trends - There is a clear trend of funds migrating from bond markets to equities, driven by improved risk appetite and a shift in market sentiment towards sectors with higher profitability certainty, such as consumer and pharmaceutical stocks [2][5]. - The redemption signals in the bond market were triggered by a decline in net asset values of bond funds, with a cumulative drop of 15.1 basis points over three days, indicating a significant reaction from institutional investors [3]. - The demand for traditional savings products, such as savings bonds, has decreased as investors seek higher returns in the equity market, leading to a notable decline in the attractiveness of these once-popular investment vehicles [5][6]. Group 3: Institutional Behavior - Institutional investors, particularly banks and funds, have been reducing their bond holdings significantly, indicating a proactive defensive strategy in anticipation of rising interest rates [3][4]. - The current market environment has allowed institutions to accumulate floating profits, enhancing their resilience to bond market fluctuations, which has not yet resulted in negative feedback from redemptions [4]. - The trend of investors seeking higher returns has led to increased activity in the large-denomination certificate of deposit market, with many investors opting to redeem their deposits early to invest in equities [6].

Report Industry Investment Rating No relevant content provided. Core Viewpoints - The report recommends maintaining a high allocation to equity assets in August, with small-cap and growth styles expected to be dominant. It also suggests focusing on relatively stable "Fixed Income +" funds and short-duration bond funds [3][69]. Summary by Directory 7 - Month Review Stock Market - A - shares and U.S. stocks rose. The Shanghai Composite Index rose 4.33%, the Science and Technology Innovation 50 rose 5.06%, the Dow Jones Index rose 1.83%, and the Nasdaq Index rose 3.63%. Positive signals drove A - shares up, and the U.S. economy's resilience led to U.S. stock gains [9][11]. Bond Market - U.S. Treasury and Chinese government bond yields increased. The 1 - year U.S. Treasury yield rose to 4.09%, the 10 - year to 4.40%; the 1 - year Chinese government bond yield rose to 1.38%, and the 10 - year to 1.73% [9]. Commodity Market - Commodity prices increased. The CRB Commodity Index rose 1.67%, the Nanhua Commodity Index rose 6.22%, and COMEX gold rose 0.71%. Crude oil prices also slightly increased [9]. Foreign Exchange Market - The U.S. dollar index rose to 97.67, and the RMB exchange rate fluctuated slightly, remaining around 7.17 [9]. Fund Market - The fund market performed well in July, but the issuance scale decreased. As of July 25, the total fund issuance scale was 81.9 billion yuan, a 33% decrease from the previous month. Equity - type funds accounted for 38% of the issuance, with a 30% decline in scale compared to the previous month. Ordinary stock - type funds performed outstandingly. In addition, on - exchange funds had a net inflow, while equity - type ETFs and LOFs had net outflows [29][34]. - Active equity funds increased their positions in the prosperity, dividend, and quality styles, with median positions of 33%, 24%, and 30% respectively, up 12%, 10%, and 9% from the end of the previous month, and reduced their positions in the value - potential style, with the median position dropping 13% to 2% [35]. 8 - Month Outlook Asset Allocation Logic - The stock - bond rotation model indicates that the private - sector financing growth rate continued to rise in June, with growth and inflation factors increasing, suggesting significant fundamental improvement and continued bullishness on equity assets. The A - share market sentiment index shows that sentiment indicators are oscillating at a high level, and overall market sentiment remains optimistic [3][69]. Market Style - The growth - value style rotation model recommends the growth style, as market factors and U.S. Treasury yields are favorable for growth, although style momentum favors value [59]. - The small - and large - cap style rotation model suggests the small - cap style, as the current monetary environment and short - and long - term style momentum still recommend small - cap stocks [64]. Fund Allocation Strategy - It is recommended to maintain a high allocation to equity assets, focus on small - cap and growth styles, pay attention to relatively stable "Fixed Income +" funds, and short - duration bond funds. Specific funds recommended include Dongwu Mobile Internet (001323.OF, medium - high risk), Anxin Advantage Growth (001287.OF, medium - high risk), Huaxia Innovation Frontier (002980.OF, medium - high risk), Bank of China Steady Income (380009.OF, medium risk), and Penghua Stable Income Short - Term Bond (007515.OF) [3][69].

Summary of Key Points from the Conference Call Industry or Company Involved - The report focuses on the A-share market and investment strategies proposed by Industrial Securities, particularly in the context of macroeconomic conditions and sector performance. Core Insights and Arguments - **Market Valuation and Timing**: The improved stock-bond valuation indicator suggests that A-shares have been in a low valuation state since 2022, with potential bottom-fishing opportunities starting in 2024 [1][3] - **Economic Leading Indicators**: The economic leading index constructed by Industrial Securities shows a slight upward trend in comprehensive leading indicators, real economy, and financial environment as of June 30, 2025, indicating a relatively positive outlook [4] - **Stock-Bond Rotation Strategies**: Two types of stock-bond rotation portfolios have been constructed: a flexible allocation portfolio with a historical annualized return of 14% and a conservative fixed-income portfolio with a 7.8% annualized return, both outperforming fixed-weight benchmark portfolios [5] - **Growth vs. Value Rotation Model**: The growth-value rotation model has achieved approximately 25% annualized returns since its inception in late 2013, outperforming the benchmark by 5%. As of June 30, 2025, the model indicates a preference for value stocks [6] - **Market Sentiment and Fund Flows**: As of June 30, 2025, the A-share margin financing balance is at a historical median level, indicating a neutral market sentiment. However, net inflows from major funds are optimistic, with over 90% of the data indicating positive sentiment [10] Additional Important Content - **Sector Recommendations**: Industrial Securities recommends sectors such as telecommunications, defense, construction decoration, steel, and computers, which include both cyclical and growth-oriented industries. The defense sector's weight is doubled based on macroeconomic calendar effects [11][12][14] - **Performance Metrics**: The recommended strategy has an annualized return of approximately 14% as of June 30, 2025, exceeding the benchmark by 15 percentage points, with a volatility of 9.33% and a Sharpe ratio of 1.63 [16] - **Historical Similarity Analysis**: The current macroeconomic environment is compared to historical periods, particularly noting similarities with the second half of 2015, characterized by economic pressure and a loose monetary environment, leading to a cautious outlook for the stock market [9] - **ETF Strategy**: The strategy includes matching ETF holdings based on correlation and return levels, with a performance difference of 2 to 3 percentage points compared to the rotation results [15]

Core Insights - The report emphasizes the integration of AI into asset allocation strategies, enhancing the predictive capabilities of stock and bond performance through a dynamic weighting system [2][3] - The current monetary credit framework has a high weight of 65%, indicating a favorable environment for bond markets while stock market performance is expected to converge marginally [3] - Predictions for 2025 suggest that bonds will outperform stocks, with stock market performance expected to bottom out in Q3 and show slight recovery in Q4 [3] Summary by Sections AI Empowerment in Investment Research - The AI-enabled investment research system developed by Guosen integrates five major cyclical frameworks, allowing for dynamic weighting and back-testing to predict stock and bond performance for the month and year [2] - AI learns from Guosen's historical asset allocation frameworks and adjusts predictions based on macroeconomic policies and market sentiment [3] Market Predictions - The report confirms that the prediction made last month, stating "value will outperform growth in March-April," has been realized [3] - The updated forecast indicates that the bond market will continue to show relative strength throughout the year, while the stock market is expected to experience a delayed recovery due to global economic disturbances [3] Asset Allocation Frameworks - The report outlines various frameworks for asset allocation, including the Merrill Lynch clock framework, cyclical overlay framework, monetary credit framework, credit inventory framework, and policy combination framework, each with specific indicators and current stages [10] - The current stage of the monetary credit framework indicates tight monetary policy and loose credit, suggesting a bearish outlook for stocks and a bullish outlook for bonds [10]