Summary of Key Points from the Equity Research Report Industry Overview - **Chinese Stock Market**: Since June 2025, both onshore and offshore Chinese stocks have experienced a rise, primarily driven by abundant liquidity from various sources including deposit migration, mutual funds, insurance funds, and the National Team's ETF purchases [3][10][11]. Core Investment Themes 1. **China Buys China**: - Domestic investors have significantly increased their participation in the stock market, with non-bank deposits rising by RMB4.4 trillion since April 2025 and margin financing exceeding RMB2.1 trillion, reflecting a 15% increase since May 2024 [3][11][20]. - Newly opened A-share accounts are nearing 2.5 million, indicating heightened retail investor activity [11][19]. - Total household savings are approximately 1.88 times the A-share floatable market cap, suggesting potential for further investment inflows into the stock market [12][25]. 2. **AI Innovation**: - AI infrastructure stocks have outperformed other segments within the AI value chain, with a 22.2% increase since July 2025, driven by a capex upcycle among cloud service providers [4][49]. - The disparity in capex spending strategies between US and Chinese companies highlights a focus on self-reliance in chips and national computation networks in China [46][59]. - Rising AI penetration is evident, with 68% of A-share companies mentioning "AI" in their 2024 annual reports [59]. 3. **Going Global**: - The extension of the China-US tariff truce indicates ongoing trade negotiations, with overseas revenue for CSI300 companies rising to 11.7% of total revenue, up 1.4 percentage points year-on-year [5][67]. - The healthcare sector has shown strong business development momentum, with total deal values in 1H25 exceeding USD60 billion, surpassing the entire year of 2024 [68][79]. 4. **Anti-Involution**: - The anti-involution campaign, or supply-side structural reform 2.0, aims to address price competition and overcapacity across various industries, including traditional sectors like steel and emerging sectors like solar and lithium batteries [6][88]. - Industries such as steel (+16.7%), solar (+13.5%), and lithium batteries (+11.9%) have shown strong market performance since the campaign's implementation [6]. Market Projections - **Index Targets**: The end-2025 targets for major indices have been raised, with SHCOMP expected to reach 4,000, CSI300 at 4,600, and SZCOMP at 13,000, indicating a potential upside of 5-7% [7][10]. Additional Insights - **Liquidity Drivers**: Key factors contributing to market liquidity include strong buybacks, a recovery in mutual fund issuance (up 137% year-on-year), and increased stock allocations from insurance funds [20][28]. - **Sector Performance**: Financials, healthcare, and IT sectors have seen significant inflows through the Southbound channel since July 2025 [31][32]. - **Underweight Industries**: Banks and non-bank financials are notably underweight in active stock-focused mutual funds, suggesting potential for reallocation and growth in these sectors [36][42]. This comprehensive analysis highlights the current trends and future outlook for the Chinese stock market, emphasizing the importance of domestic investment, AI innovation, global expansion, and structural reforms in shaping market dynamics.

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **China Equity Strategy** and the positioning of institutional investors in various sectors, particularly focusing on the **AI value chain**, **financials**, and **Hong Kong market** dynamics [1][10]. Institutional Investor Positioning - In **2Q25**, domestic and northbound funds increased their allocations to **AI infrastructure** by **2.4 percentage points** and **0.7 percentage points**, respectively, while reducing exposure to **AI enablers** and **AI adopters** [2][11]. - Domestic mutual funds showed a preference for leading **insurance companies** and **deep value banks**, while northbound funds favored **non-ferrous metals** and **electrical equipment** [3][26]. - Both groups of investors added to **communication services**, **banks**, and **non-bank financials**, but reduced allocations to **food & beverage (F&B)**, **autos**, and **home appliances**, indicating concerns about consumption recovery [4][34]. Hong Kong Market Dynamics - Domestic active stock-focused mutual funds increased their positions in **HK-listed stocks** from **RMB466.1 billion** to **RMB496.3 billion**, raising their market position from **13.4%** to **14.5%** [5][41]. - Notable inflows through the **Southbound channel** amounted to **HKD146.5 billion** since June, with significant investments in **financials** and **healthcare** [43][49]. Stock Index Funds Development - China's stock index funds have seen substantial growth, with **AUM** reaching over **RMB3.3 trillion** and new issuance up **210% year-on-year** [6][51]. - The **CSI300** remains the most widely used index, but there is a growing trend towards **growth style indexes** like **Star Composite** [52][53]. Underweighted Industries and Stocks - The most underweighted industries by domestic active mutual funds compared to the **CSI300** include: - **Banks**: -10.6 percentage points - **Non-bank financials**: -9.3 percentage points - **Utilities**: -2.5 percentage points - **F&B**: -1.7 percentage points [7][62]. - Key underweighted stocks include **Ping An Insurance**, **Industrial Bank**, **Eastmoney**, and **CITIC Securities** [62][67]. Consensus and Market Sentiment - Both domestic and northbound funds have shown a more positive outlook, with domestic mutual funds increasing stock positions to **86.0%** and northbound funds contributing **RMB26.5 billion** in net inflows during 2Q25 [33][34]. - Investors are particularly optimistic about **upstream computing hardware** and banks with high asset quality and attractive valuations [35][40]. Notable Stock Transactions - Domestic mutual funds significantly increased their holdings in **Innolight** (+**RMB13.1 billion**) and **Ping An Insurance** (+**RMB2.7 billion**), while northbound funds favored **CATL** (+**RMB10.3 billion**) and **Zijin Mining** (+**RMB4.0 billion**) [30][31][26]. Conclusion - The conference call highlights a cautious yet optimistic sentiment among institutional investors in China, with a clear focus on AI infrastructure, financials, and a strategic shift in stock allocations reflecting broader market trends and consumption concerns.