Core Viewpoint - The Hong Kong stock market has remained active since early 2025, driven by new narratives such as DeepSeek, new consumption, and innovative pharmaceuticals, despite external challenges and a weakening domestic growth cycle. The market has experienced a structural rally characterized by high liquidity and asset scarcity [1][15]. Group 1: Market Activity and Liquidity - The average daily trading volume in the Hong Kong stock market reached 240.6 billion HKD, an increase of over 80% compared to 131.8 billion HKD in 2024, marking a historical high [1][2]. - Southbound capital has been consistently active, with an average daily inflow of 6.15 billion HKD, nearly double the 3.47 billion HKD average in 2024, totaling 787.7 billion HKD year-to-date, close to last year's total of 807.9 billion HKD [1][15]. - The IPO market has seen 51 companies listed in 2025, raising over 100 billion HKD, surpassing the total for 2024, with 10 A-share companies converting to H-shares, accounting for 70% of the fundraising [8][9]. Group 2: Structural Market Phenomena - A structurally active market has emerged, with sectors experiencing rotation despite overall macroeconomic weakness, highlighted by the performance of AI, new consumption, and innovative pharmaceuticals [4][15]. - The phenomenon of crowded trades has been observed, where favored stocks and sectors experience short-term expectations and valuation overshooting, as indicated by the analysis of trading volume and market capitalization [6][15]. - The average return on equity (ROE) for the market has stabilized after years of decline, indicating a stabilization in the credit cycle, with outperforming sectors including insurance, brokers, and new consumption [15][16]. Group 3: Future Trends and Market Dynamics - The macroeconomic backdrop of abundant liquidity and limited quality assets is expected to persist, influencing the flow of southbound capital and the number of companies listing in Hong Kong [21][32]. - The liquidity environment is anticipated to tighten in the third quarter due to various factors, including potential liquidity recovery by the Hong Kong Monetary Authority and external pressures from the U.S. dollar environment [39][40]. - The expected inflow of southbound capital for the year is projected to exceed 1 trillion HKD, although the pace may slow down in the second half of the year [40][41]. Group 4: Investment Strategy and Recommendations - The market is advised to focus on structural opportunities, with a "new dumbbell" strategy that balances stable dividend-paying stocks with growth-oriented sectors, particularly in AI applications and innovative pharmaceuticals [54][55]. - The banking sector may face short-term valuation pressures, suggesting a potential shift towards insurance stocks that still offer attractive dividend yields [54][55]. - The overall market sentiment indicates that while the index may oscillate around 24,000 points, a breakthrough will require additional catalysts, particularly in the context of fiscal policy and trade dynamics [51][53].