Investment Rating - The report indicates a shift in the public fund industry from "scale" to "return" focus, suggesting a positive outlook for the industry in the medium to long term [1][11]. Core Insights - The recent regulatory changes are expected to lead to a reallocation of public fund investments towards underweighted sectors, particularly in the financial and consumer goods industries, which may enhance overall market performance [4][44]. - The report highlights that the public fund industry is likely to evolve towards a model that closely tracks benchmark indices, with a significant portion of assets allocated to large-cap stocks [3][17]. - The anticipated increase in passive investment strategies is expected to drive up the valuation of benchmark indices like the CSI 300, with a projected increase of 6.8% [4][43]. Summary by Sections Short-term Market Dynamics - Market volatility is attributed to speculative trading based on expectations of increased public fund allocations, particularly in the financial sector [2][16]. - The report notes that the adjustment of fund portfolios will likely be gradual rather than abrupt, as detailed guidelines on performance benchmarks are still pending [2][16]. Medium to Long-term Changes in Fund Behavior - From a product perspective, actively managed equity funds are expected to transition towards a "quasi-index" model, with 60%-80% of assets closely tracking benchmark indices [3][17]. - Larger funds are more inclined to adopt conservative strategies that align closely with benchmarks to ensure stable returns, reflecting the need to meet investor expectations [3][25]. Impact of Regulatory Changes on Market Ecology - The report draws parallels between the current public fund adjustments and the influx of foreign capital in 2016-2017, noting a similar "signaling effect" but emphasizing the current lack of strong fundamental support for the affected sectors [4][26]. - The anticipated shift towards benchmark alignment is expected to elevate the valuation premiums of major indices, particularly the CSI 300 and the CSI 800, as more funds adopt passive investment strategies [4][32]. - Specific sectors such as financial services and consumer goods are identified as likely beneficiaries of increased public fund allocations due to their current underweight positions in fund portfolios [5][44].

Group 1 - The report highlights that the recent regulatory changes by the China Securities Regulatory Commission (CSRC) aim to shift the focus of public funds from "scale" to "returns," indicating a potential restructuring of the capital market ecosystem in the medium to long term [1][11] - Short-term market dynamics are driven by speculative trading based on expectations of increased allocations to public funds, particularly in the financial sector, which has shown significant volatility [2][16] - The report suggests that the active equity funds are likely to evolve into "quasi-index" products, with a significant portion of their portfolios closely tracking benchmark indices while seeking alpha through selective stock picking [3][17] Group 2 - The report indicates that the new regulations will likely lead to a systematic increase in the valuation premium of benchmark indices, such as the CSI 300 and CSI 800, as public funds align their strategies with these indices [4][32] - It is noted that certain sectors, particularly financials and consumer staples, are currently underweighted in public fund portfolios, suggesting that these sectors may see increased allocations in the coming years [5][44] - The report draws parallels between the current public fund adjustments and the influx of foreign capital in 2016-2017, emphasizing that while both scenarios involve a "signaling effect," the current adjustments are primarily driven by liquidity rather than strong fundamental support [4][26]