1. Report Industry Investment Rating - The report is bullish on the bond market in the short - term, expecting the 10Y Treasury yield to return to around 1.65% in the next six months and the 5Y national and regional bank secondary capital bonds to reach below 1.9% [1][2] 2. Core View of the Report - The bond market may gradually decouple from the stock market as the long - term bond holdings of securities firms' proprietary trading and bond funds decline significantly. The recent bond market correction is due to the systematic active reduction of duration by bond funds and securities firms' proprietary trading, not related to the economic fundamentals [1] - Since 2010, only stock bull markets driven by fundamentals have led to bond bear markets, while those driven by funds have not. The current stock market rally may be driven by funds and has a weak relationship with fundamentals [1] - The diversion of funds from the bond market by the stock market is limited. The growth of the bond investment of bank proprietary trading is significant, and the scale growth of wealth management products is less affected by the stock market [1] - There are multiple reasons to be bullish on the bond market in the short - term, including continuous central bank easing, increasing economic downward pressure, possible restart of central bank's Treasury bond purchases, continuous decline in bank liability costs, and the passing of the peak of government bond net issuance [1][2] 3. Summary by Relevant Catalogs 3.1 Bond - Stock Relationship - From July 1 to August 22, 2025, in the secondary trading of inter - bank market interest - rate bonds, securities firms' proprietary trading net - sold 479 billion yuan, including 114.6 billion yuan of bonds with a remaining maturity of over 20 years; public funds (excluding money - market funds) net - sold 436 billion yuan of interest - rate bonds, including 60.5 billion yuan of those with a maturity of over 20 years. As the long - term bonds held by bond funds and securities firms' proprietary trading are transferred to insurance funds and other allocation players, the impact of the stock market on the bond market will weaken [1] - Since 2010, there have been three major stock market bull markets: the 14Q4 - 15Q1 bull market was driven by funds, resulting in a bull market for both stocks and bonds; the 2017 and 2020 - 2021 bull markets were driven by economic recovery, leading to a bear market in bonds. The 2024 "924" stock market rally led to a rapid adjustment in the bond market, but the bond market stabilized quickly after the stock market peaked on October 8 [1] 3.2 Diversion of Funds - As of the end of July 2025, the bond - holding scale of bank proprietary trading reached 99 trillion yuan, accounting for 52% of the total scale of China's bond market. In the first seven months of 2025, the net issuance of Chinese bonds totaled 14.3 trillion yuan, and the bond investment balance of the banking industry increased by 9.6 trillion yuan, accounting for 67.5% [1] - The diversion of funds from the bond market by the stock market is mainly reflected in the possible moderate increase in the stock investment ratio and decrease in the bond investment ratio of flexible allocation funds, annuities, and insurance funds during a stock bull market, but the actual diversion scale is limited. The scale growth of wealth management products is due to the substitution of deposits and is less affected by the stock market [1] 3.3 Reasons for Bullish on the Bond Market - Central bank's continuous easing: Since 25Q2, the DR001 and DR007 interest rates have dropped significantly, indicating a shift from "de - facto interest rate hike" in 25Q1 to "de - facto interest rate cut". It is expected that the capital interest rate will remain low and have low volatility in the next six months [1] - Increasing economic downward pressure: Consumption subsidies may overdraw the demand for household appliances, the consumption growth rate started to decline in July, the real estate market remains sluggish, and the investment growth rate has dropped significantly, so the economic downward pressure may increase significantly in the second half of the year [1] - Possible restart of central bank's Treasury bond purchases: Considering the recent significant rebound in Treasury bond yields, indicating an oversupply of Treasury bonds, the central bank may restart Treasury bond purchases when the 10Y Treasury yield reaches above 1.8% [1][2] - Decrease in bank liability costs: As the deposit interest rates have been significantly reduced in the past few years, the bank liability cost rate is expected to decline quarter - by - quarter. The 10Y Treasury bonds have certain allocation value for most bank proprietary trading, and the weak credit demand may prompt banks to increase bond investment [1][2] - Passing of the peak of government bond net issuance: As of August 22, the net issuance of government bonds since the beginning of the year has reached 10.4 trillion yuan, accounting for 75% of the annual plan, and the net issuance scale in Q4 is expected to be small [2]

Group 1 - The report indicates that the Chinese capital market began to bottom out in February 2024 and has since entered a significant upward trend, with the Shanghai Composite Index rising from below 2700 points to over 3600 points by August 2025, representing an increase of over 35% [2][9]. - The report analyzes the current bull market's height and length through eight dimensions, concluding that this bull market is driven by capital and is in the early stages of a new bull-bear cycle [9]. - The overall trend of the A-share market is characterized by a "slow bull" state, with monthly low points gradually rising, indicating a potential breakthrough of previous bull market highs [10][11]. Group 2 - The market capitalization to GDP ratio for A-shares reached 64.1% as of June 2025, indicating a significant gap from historical bull market peaks, suggesting room for growth in the index [13][15]. - Historical analysis shows that A-shares have experienced four bull-bear cycles since 2001, with the current cycle being the fifth, typically lasting between 3 to 5 years [16][19]. - Current valuation levels in the A-share market exhibit extreme differentiation, with most indices showing high valuations but still having room to grow compared to historical extremes [20][21]. Group 3 - The leverage level in the A-share market has reached a high point, with financing balances at 20,462.4 billion yuan as of August 13, 2025, surpassing the peak levels of the previous bull market [31][34]. - The report highlights that only a few of the major bull markets since 2005 have shown significant profit growth, indicating that the current market may not see similar profit improvements [32][36]. - The risk premium of A-shares remains above the median, suggesting that equities still offer a favorable risk-return profile compared to bonds [42][44]. Group 4 - Certain industries are identified as consistent performers during bull markets, with defense and non-ferrous metals being the strongest, while transportation and public utilities tend to underperform [48][50]. - The report provides a comparative analysis of industry performance across five bull markets since 2005, indicating trends and potential future leaders in the current market [48][60].

Report Industry Investment Rating - The industry is rated as "Overweight", indicating an expected increase of over 10% compared to the benchmark index in the next 6 - 12 months [67] Core View of the Report - In 2025, the market is driven by incremental funds from institutional liability - side changes, expected to bring 3 trillion yuan in incremental funds. The upward trend of A - shares will continue in the second half of the year. Active equity products will enter a new golden age, and mid - to high - volatility products are likely to attract incremental funds [5][15] Summary According to the Directory 1. Three Rounds of Market Review Driven by Funds: Individual Stock Era, Group - Holding Era, and Active Management Era - From 2014 - 2015, it was the individual stock era driven by retail investors and leverage. Policy encouraged capital market development, with IPO restart, Shanghai - Hong Kong Stock Connect launch, and liquidity release. Leverage and retail investors drove up market turnover and margin trading. Individual stocks and the index outperformed active equity funds [16][20] - From 2019 - 2021, it was the group - holding era of public funds. Core assets like Maotai Index and Ningzuohe aligned with industrial trends. Public funds had a positive feedback loop of new issuance, pricing power, and performance. Active equity funds outperformed the index, and non - heavy - held stocks by public funds performed the weakest [16][25] - In 2025, it is the active management era. Driven by institutional allocation, active equity funds are emerging, with their median returns comparable to individual stocks and outperforming the index [16] 2. The Rise of Active Management: Difficulty in Achieving Excess Returns through Heavy - Holding and Group - Holding, and Alpha Creation through Stock - Picking Ability - In this round of the market, heavy - held stocks by funds have not obtained significant excess returns. As of July 24, 2025, the top 5 heavy - held stocks by institutions only had a 3% excess return, compared to 75% in 2015 and 84% in 2020 [30][31] - The proportion of A - shares held by funds and the concentration of fund holdings are at a low level in the past five years. The proportion of fund - held market value decreased from 14% in 2021 to 7% - 8% in Q1 2025, and the concentration indicators such as CR100 and CR50 have also declined [34] - Fund heavy - held companies are shifting towards small - and medium - market - capitalization enterprises. The proportion of companies below 30 billion yuan in fund holdings increased from 8% in Q4 2020 to 14% in Q2 2025 [35] 3. Three Factors Resonate to Push up the Bottom Central System of A - shares - In terms of funds, major institutional types in 2025 are expected to bring 3 trillion yuan in incremental funds into the market, including 816.2 billion yuan from insurance, 326.8 - 584.8 billion yuan from wealth management, 939.1 billion yuan from public funds, and 583.3 billion yuan from trusts [42][44] - From the perspective of stock - bond ratio, non - bank funds prefer equity assets. With the decline of broad - spectrum interest rates, the 10 - year Treasury yield cannot meet the return requirements of liabilities. Since the beginning of this year, the scale of fixed - income + funds has expanded significantly, indicating strong demand for equity - like asset allocation [45] - A - share earnings are at the bottom. As of Q1 2025, the year - on - year growth rate of the net profit attributable to the parent of all A - shares (ex - finance) turned positive, mainly due to the low - base effect and cost management. Structural improvement is more worthy of attention [51] 4. Taking Fixed - Income + as an Example, What are the Institutional Preferences? - In terms of strategy selection, in bear markets, low - volatility products have a higher probability of achieving excellent performance, while in bull markets, high - volatility products have a higher probability of achieving excellent performance. In the current market, high - volatility products among the top 20% in performance ranking account for over 60% [54][59] - In terms of fund flow, during the 2019 - 2021 bull market, high - volatility products with excellent performance had a higher probability of net subscriptions. In 2025, funds are still in the transition from bear - market thinking to bull - market thinking, similar to 2019. Mid - to high - volatility products are likely to attract incremental funds [54][59]