Report Industry Investment Rating No relevant content provided. Core Viewpoints - The current RMB exchange - rate appreciation is more likely the third scenario where domestic entities' risk preference changes, so it does not benefit Hong Kong stocks, and the sustainability of the RMB's strength is questionable. It is hoped that future RMB appreciation will be the first scenario, corresponding to the burst of the US tech bubble [17]. - In the de - leveraging cycle, the bias of the stock - bond ratio in favor of equities is limited, and the value style has a higher probability of relative dominance [9][58]. Summary by Directory 1. National Balance Sheet Analysis - **Liability Side**: In November 2025, the liability growth rate of the real sector was 8.6% (previous value 8.7%), expected to decline to around 8.3% in December. The money market continued to loosen marginally last week. The central bank's stance indicates that the goal of stabilizing the macro - leverage ratio remains unchanged, waiting for the quantitative fiscal target from the Two Sessions in 2026 [2][16]. - **Fiscal Policy**: Last week, the net increase in government bonds was 1707 billion yuan (higher than the planned 1148 billion yuan), and the planned net increase next week is 174 billion yuan. The government liability growth rate is expected to decline to around 12.4% in December from 13.1% in November [2][18]. - **Monetary Policy**: Last week, the average weekly trading volume and price of funds increased, and the term spread widened. The one - year Treasury yield dropped to 1.29% at the weekend. The market may have over - anticipated a 2026 interest - rate cut. The term spread between the ten - year and one - year Treasuries widened to 55 basis points. The money - market loosening may be approaching its limit [3][18]. - **Asset Side**: In November, physical quantity data showed signs of stabilizing at a low level. The full - year nominal economic growth target for 2025 is 4.9%, and it is necessary to confirm whether 5% will be the central target for China's nominal economic growth in the next 1 - 2 years [3][19]. 2. Stock - Bond Cost - Effectiveness and Stock - Bond Style - **Economic Cycle**: Since 2011, China has entered a downward cycle of potential economic growth, which seems to have ended in Q4 2024. The Chinese government put forward three policy goals in 2016. Currently, the convergence on the liability side is not over but has limited space. If the valuation of the US technology sector is re - evaluated, global funds may flow to China [6][20]. - **Last Week's Market Performance**: The money market continued to loosen, risk preference rose, and the growth style dominated. The stock - bond ratio favored stocks. The ten - year Treasury yield rose 1 basis point to 1.84%, the one - year yield dropped 7 basis points to 1.29%, and the 30 - year yield remained stable at 2.22%. The broad - based rotation strategy underperformed the CSI 300 by - 0.32 pct last week and - 5.41 pct since July 2024 [7][21]. - **Investment Recommendations**: Bonds at the long end are considered to have investment value. For equities, a neutral stance is taken, with a focus on style. Before seeing the government's bond - issuance plan, the value style is expected to dominate. This week, the Shanghai 50 Index (60% position), the CSI 1000 Index (20% position), and the 30 - year Treasury ETF (20% position) are recommended [8][22]. 3. Industry Recommendations - **Industry Performance Review**: This week, A - shares rose with increased trading volume. Among Shenwan primary industries, non - ferrous metals, national defense and military industry, power equipment, electronics, and building materials had the largest increases, while beauty care, social services, banks, coal, and food and beverage had the largest declines [28]. - **Industry Crowding and Trading Volume**: As of December 26, the top five crowded industries were electronics, power equipment, machinery, national defense and military industry, and non - ferrous metals. The trading volume of the whole A - share market rebounded. Transportation, non - ferrous metals, and other industries had the highest trading - volume growth rates, while banks, coal, and other industries had the largest declines [31][32]. - **Industry Valuation and Earnings**: This week, the PE(TTM) of non - ferrous metals, national defense and military industry, and other industries increased the most, while that of social services, beauty care, and other industries decreased the most. Industries with high 2024 full - year earnings forecasts and relatively low current valuations include banks, securities, and others [36][37]. - **Industry Prosperity**: Externally, there was a marginal decline. The global manufacturing PMI decreased in November, and export growth rates of some countries changed. Domestically, the second - hand housing price dropped, and quantity indicators fluctuated. The highway truck traffic volume declined, and the industrial capacity utilization rate showed a fluctuating trend [41]. - **Public - Fund Market Review**: In the fourth week of December, most active public - fund equity funds outperformed the CSI 300. As of December 26, the net asset value of active public - fund equity funds slightly increased compared to Q4 2024 [55]. - **Industry Recommendations**: In the de - leveraging cycle, the stock - bond ratio favors equities to a limited extent, and the value style is more likely to dominate. The recommended A + H dividend portfolio includes 13 stocks, and the A - share portfolio includes 20 stocks, mainly in industries such as banks, telecommunications, and oil and petrochemicals [9][58].

Summary of Conference Call Records Industry Overview - The records primarily discuss the bond market and the broader financial market dynamics in the context of China's economic environment and U.S.-China relations [1][2][5][8][15]. Key Points and Arguments 1. **Market Conditions**: The market is currently in a state of marginal contraction, with various asset classes underperforming. Investors are advised to select relatively better assets through a process of elimination, favoring bonds over stocks, particularly value-oriented equities [2][5][9]. 2. **Investment Strategy**: The recommended investment strategy involves concentrating positions in bonds, adjusting duration based on risk appetite. Higher risk tolerance suggests longer duration, while lower risk tolerance suggests shorter duration. The focus is on waiting for market dips to capitalize on value opportunities [9][32]. 3. **Debt Growth Trends**: The growth rate of liabilities in the real sector increased to 9.0% in April, primarily due to front-loaded fiscal measures. A decline in this growth rate is expected in June, with a slight expansion in July, followed by a return to contraction in August [10][11][12]. 4. **Impact of U.S.-China Trade Talks**: Expectations surrounding U.S.-China trade negotiations have temporarily boosted risk appetite. However, the likelihood of systemic improvement from these talks is considered low. If no significant events occur, the market is expected to revert to a contraction phase, favoring fixed income over equities [8][15]. 5. **Artificial Intelligence Influence**: AI has significantly impacted market sentiment, with heightened interest in AI technologies boosting risk appetite. However, concerns about AI replacing human roles limit its potential for large-scale development [6][7]. 6. **Financial Sector Performance**: The financial sector has shown slight improvements in April and May, but the extent of this improvement is limited. The actual yield in the financial sector remains low, with a debt growth rate of approximately 4% corresponding to a yield of about 1.6% [13][14]. 7. **Government Policy and Economic Growth**: The role of monetary policy is diminishing, while fiscal policy is gaining importance due to declining profitability and the risk of liquidity traps. The focus should shift towards fiscal measures rather than relying solely on monetary policy [21][22]. 8. **Global Economic Trends**: Since 2011, the global economic growth center has been declining, leading to increased protectionism. The U.S. economy is expected to revert to lower growth rates, which may further exacerbate protectionist sentiments [19]. Other Important but Overlooked Content - **Debt Market Dynamics**: The records highlight the deep inversion in the bond markets between the U.S. and China, indicating that China's capital controls help mitigate outflow pressures, making it less susceptible to external shocks [17]. - **Market Reactions to Policy Changes**: Historical data shows that after interest rate cuts, both bonds and stocks tend to experience adjustments, indicating that liquidity expansion or policy easing is challenging in the current environment [30]. - **Investment in Growth vs. Value**: While value-oriented equities are recommended, there is a suggestion to consider growth indices for those willing to take on more risk, particularly in a favorable risk appetite environment [32][33].