<p>The market has recently exhibited typical water buffalo characteristics. We have compiled the five most frequently asked questions from investors and provided our answers.</p>
<ol>
<li>
<p>Where is the recent incremental capital coming from? We initially observed a broad and general net inflow of institutional funds. As the market's profit-making effect began to accumulate, we found that retail inflows were also accelerating, and with the market heat intensifying and the anti-involution narrative logic strengthening, some conservative funds may also be passively adjusting their positions.</p>
</li>
<li>
<p>How long will a water buffalo that diverges from fundamentals and liquidity typically last? Historical reviews show that since 2010, water buffaloes diverging from fundamentals and liquidity usually last no more than four months. Whether this round of water buffalo market can evolve into a longer-lasting comprehensive bull market needs to be observed in terms of subsequent improvements in fundamentals (even if structural).</p>
</li>
<li>
<p>What low-position, undervalued varieties can still be participated in under the anti-involution narrative? In this round of anti-involution market, simply replicating the sustainability of upstream price speculation from 2021 may be limited. However, there are still some cyclical manufacturing varieties with low valuations and low attention in the market, which have been systematically sorted out in the main body of the report.</p>
</li>
<li>
<p>Will the Sci-Tech Innovation Board experience a catch-up rally after the Artificial Intelligence Conference? We believe that the 2025 World Artificial Intelligence Conference is expected to bring catalysts to multiple sub-sectors. Meanwhile, with the continuous advancement of the &#34;1+6&#34; policy for the Sci-Tech Innovation Board and financial support policies related to innovation, the Sci-Tech Innovation Board, which has significantly lagged since April this year, is expected to welcome a catch-up rally.</p>
</li>
<li>
<p>After breaking through 3600 points, what is our current strategic response? Increase allocation to Hengke and the Sci-Tech Innovation Board, while continuing to rotate among sectors such as non-ferrous metals, communications, innovative pharmaceuticals, military industry, and gaming.</p>
</li>
</ol>
<h2><strong>Where is the recent incremental capital coming from?</strong></h2>
<ol>
<li>
<p>There has been a broad and general net inflow of institutional funds. The inflow of institutional funds has not suddenly exploded but has gradually warmed up. Previously, we mentioned in the report &#34;A-share Strategy Focus - The Time to Balance Hong Kong and A-share Allocation Has Arrived (20250713)&#34; that the new issuance scale of public actively managed products in June exceeded the estimated net redemption. Although actively managed equity products are still not very popular, as the industry continues to outperform the relative benchmark, a recovery in the industry seems to be a general trend. In July, two products had individual issuance scales exceeding 2 billion yuan, and the overall issuance scale also surpassed the monthly average level since 2024. The scale of private equity registration exceeded 30 billion yuan in June, a year-on-year increase of 125%. Research on the CITIC Securities channel shows that as of the week of July 18, the sample active private equity positions reached 82%, maintaining a high level. Under policy promotion, insurance funds continue to increase their allocation to equities, with two more cases of shareholding increases in July, bringing the total number of shareholding increases this year to 21, exceeding the total for the entire year of 2024 and the total for 2021-2023. Northbound funds had a net inflow of 60 billion yuan in the second quarter, maintaining net inflows for two consecutive quarters. According to Refinitiv data, foreign passive products have seen net inflows for three consecutive weeks in July</p>
</li>
<li>
<p>As the market's profit-making effect begins to accumulate, the inflow of retail investors is also accelerating. Our constructed trading loss indicator was at the 88.1% percentile level as of July 25, the highest level since 2015. The cumulative value of all stocks in the market this year, calculated as “(weekly closing price - weekly average transaction price) × weekly transaction volume,” has reached 276.3 billion yuan, and the probability of making a profit from frequent trading is increasing. According to our understanding of the channels of CITIC Securities, the margin balance of retail investors has also exceeded the peak on October 9 of last year. The recent increase in financing balance has also been relatively stable, reaching 1.9283 trillion yuan as of July 25, close to the highest level in 2024, but the weekly net increase has risen slowly, without the surge seen after last year's &#34;924 market.&#34; Recently, there has been a certain net outflow from broad-based ETFs, reflecting that some conservative institutions are taking profits. The cumulative net outflows from the CSI 300 ETF and the SSE 50 ETF over the past four weeks have reached 17.8 billion yuan and 4.3 billion yuan, respectively; however, thematic ETFs have seen significant net inflows, with net inflows of 12.5 billion yuan, 6.8 billion yuan, and 7.7 billion yuan for cyclical, manufacturing, and technology-related ETFs over the past four weeks, possibly related to the accelerated entry of retail investors. The industry distribution of financing purchases also shows similar characteristics, with the top three industries for financing purchases this week being non-ferrous metals, machinery, and pharmaceuticals, reaching 4.6 billion yuan, 4.5 billion yuan, and 4.0 billion yuan, respectively, accounting for about one-third of the total net financing purchases in the market.</p>
</li>
<li>
<p>As market enthusiasm heats up and the narrative logic of anti-involution strengthens, some conservative funds may also be passively adjusting their positions. The bond market has adjusted, with TL contracts breaking down and falling over the past two weeks, possibly due to the rising expectations of anti-involution, leading to fluctuations in market expectations for future price signals. For fixed income + products and bank wealth management, if this trend continues, it may bring certain redemption pressure or passive adjustment pressure in the future. Since July, conservative trading funds may also have begun to adjust their positions, with the banking sector significantly underperforming the overall market, while the dividend sector has performed relatively well. In July, the Hang Seng Mainland High Dividend Index rose by 7.24%, outperforming the Hang Seng Index by 1.77 percentage points and the Hong Kong banking sector by 3.45 percentage points; the A-share dividend index has cumulatively risen by 4.13%, underperforming the CSI 300 Index by 0.72 percentage points but outperforming A-share banks by 3.62 percentage points. This indicates that allocation-type funds may continue to increase their allocation to dividends, but trading-type funds hiding in the banking sector may have been forced to start adjusting their positions.</p>
</li>
</ol>
<h2><strong>How long will the phase of divergence between fundamentals and liquidity last?</strong></h2>
<p>We reviewed all bull markets since 2010 characterized by phase divergence between fundamentals and liquidity. During periods of fundamental decline, if the index can continue to rise, it is either due to the introduction of significant macro policies or a turning point of comprehensive improvement in liquidity, and the duration usually does not exceed 4 months. Whether this round of bull market can evolve into a longer-lasting comprehensive bull market needs to observe the subsequent improvement in fundamentals (even if structural). If we take June of this year as the starting point for the market's transition from stock to increment (characterized by different style sectors such as institutional stocks, quantitative stocks, and insurance stocks rising synchronously rather than siphoning each other),
Currently, the water buffalo market has lasted less than 2 months, and we can still expect incremental policies to further drive improvements in fundamental expectations. From the perspective of sentiment indicators, there is currently no sign of excessive enthusiasm. The futures index discount has narrowed, and the annualized basis rate (MA5) of IM and IC has declined since July, but the options volatility measured by the at-the-money implied volatility of the CSI 1000/CSI 300 has not significantly increased; recently, the performance of strong stocks has been relatively weak. Taking the recent strong stock index from Tongdaxin as an example (sample screening criteria: a rise of &gt;=30% in the last 20 days, a rise &gt;0 in the last 3 days, not suspended, not ST, not newly listed), the cumulative increase since July has only been 5.2%, far inferior to the performance during January-February of this year; combined with search popularity, as of July 25, 2025, the Baidu Index &#34;stock market&#34; search popularity is at the 54.2% percentile since 2024, far below the levels during the &#34;reciprocal tariffs&#34; period in April in the U.S. and the levels during September-October of last year.</p>
<h2><strong>What low-positioned, undervalued varieties can still be participated in under the narrative of anti-involution?</strong></h2>
<p>We still believe that the current anti-involution is still in a stage where policies have not yet been clarified, driven by expectations, chip games, and muscle memory. Simply replicating the sustainability of the upstream price increase game in 2021 is limited. From the perspective of high &#34;involution&#34; levels and significant reversal potential, industries are concentrated in construction materials (building decoration, specialized materials, structural materials), basic chemicals (chemical fibers, rubber products), steel (ordinary steel, special materials), and transportation (logistics), among others. From the historical percentile of fund holdings, historical PS percentile, estimated expansion cycle, and estimated concentration, two categories can be focused on: 1) Varieties with low attention but may experience a rebound due to &#34;anti-involution,&#34; mainly including leaders in sub-sectors such as polyurethane, LED, polyester, electronic component materials, titanium dioxide, synthetic resin, semiconductor precursors, and aviation; 2) Other cyclical varieties with low valuation percentiles, mainly including leaders in sub-sectors such as aerial work platforms, rubber, oilfield services, paper packaging, containers, and the lithium battery industry chain.</p>
<h2><strong>Will the Sci-Tech Innovation Board experience a rebound after the AI conference?</strong></h2>
<p>Since April of this year, the Sci-Tech Innovation Board has significantly lagged behind. From April 1 to July 25, the cumulative returns of the Wind Micro Index, North Securities 50, ChiNext Index, National Securities 2000, Wind All A, Shanghai Composite Index, and CSI 300 were 39.7%, 14.8%, 11.2%, 10.2%, 9.8%, 7.7%, and 6.2%, respectively, while the return of the Sci-Tech 50 during the same period was only 3.1% (including a single-day increase of 2.1% on July 25). After the recent implementation of &#34;layering&#34; on the Sci-Tech Innovation Board, there are a total of 557 companies in the non-growth layer, of which 187 are still &#34;below par,&#34; with a cumulative market value of 1,274.1 billion yuan, accounting for 17%, concentrated in the electronics, pharmaceuticals, and electric new industries. Under the new regulations on share reductions, the controlling shareholders of these companies are temporarily unable to reduce their holdings, which may become the rebound targets sought by funds in the &#34;water buffalo&#34; environment
The 2025 World Artificial Intelligence Conference is expected to catalyze multiple sub-sectors. Meanwhile, with the continuous advancement of the &#34;1+6&#34; policy on the Sci-Tech Innovation Board and financial support policies related to sci-tech innovation, the Sci-Tech Innovation Board, which has been significantly lagging since April this year, is expected to welcome a rebound.</p>
<h2><strong>After breaking through 3600 points, what is our current strategic response?</strong></h2>
<p>First, it is still a good time to balance the Hong Kong-A share allocation, and we recommend increasing the allocation to the Hang Seng TECH Index. Secondly, we suggest paying attention to the rebound opportunities in the Sci-Tech 50, Sci-Tech chips, and Sci-Tech 100. Finally, from now until the end of the mid-term report season, we still recommend rotating among five industries in the A-share market: non-ferrous metals, telecommunications, innovative pharmaceuticals, military industry, and gaming, while also considering some anti-involution varieties with thematic thinking; towards the end of the mid-term report season, if accompanied by stabilization of tariff war expectations, we believe that overseas expansion may re-form a sectoral market rally. These sectors, which have seen relatively small gains previously, are expected to benefit from the event catalysis of the AI conference and the policy catalysis of the 6th anniversary of the Sci-Tech Innovation Board. August is often a month with frequent external disturbances, and sectors with significant short-term gains may inevitably experience some volatility. However, considering that the market as a whole has slowly transitioned from a stock pattern to an incremental pattern, and market sentiment is not extremely exuberant, we still generally recommend that investors downplay macro disturbances, maintain industry focus, ensure stock stability, and avoid frequent high-fear trading.</p>
<p>Risk Warning and Disclaimer</p>
<p>The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk</p>

STECH

<p>Recently, the market has shown a bull market, and the five questions of concern for investors include: 1) Incremental funds come from net inflows of institutions and retail investors; 2) A bull market that diverges from fundamentals and liquidity usually lasts no more than 4 months; 3) Participation opportunities in low-priced and undervalued varieties; 4) The sci-tech innovation board is expected to catch up after the artificial intelligence conference; 5) The strategy after breaking through 3600 points is to increase allocation to Hengke and sci-tech innovation, focusing on industries such as non-ferrous metals and telecommunications</p>

- The article discusses recent market trends, highlighting significant net inflows from institutional investors and an acceleration of retail participation as market conditions improve.  
- It analyzes the potential duration of the current bull market, noting historical patterns of divergence between fundamentals and liquidity, and suggests that the market may evolve into a longer-lasting bull phase if fundamentals improve.  
- The article also identifies sectors with low valuations that could benefit from the ongoing "anti-involution" narrative and anticipates a rebound in the Sci-Tech Innovation Board following the upcoming World Artificial Intelligence Conference.

Water Buffalo Market 5 Questions