CMSC: After the market rebound, what is the outlook for the future?

CMSC released a research report stating that in terms of external factors, Trump's hardline stance on Iran once again led to a TACO, combined with unexpectedly weak U.S. employment data suppressing rate hike expectations, resulting in a recovery of global risk appetite. Additionally, the U.S. has once again imposed restrictions on Chinese technology products, which in the long run, will have limited impact; stock prices will ultimately revert to fundamentals, and sustained profit growth is the fundamental path to digest risk premiums. In terms of internal factors, last week saw an increase in the activity of financing funds, while stock ETFs experienced net outflows after market improvement, indicating a transition from ETF support to financing relay, with continued hopes for net inflows in financing funds. In terms of allocation, it is recommended to maintain a balanced layout along three lines: technological innovation + enterprise overseas expansion + traditional undervaluation, with a focus on electronics, electrical equipment, chemical pharmaceuticals, non-ferrous metals, coal, and non-bank financials. CMSC's main points are as follows: Market Outlook and Analysis After the market rebound, what is the outlook? In terms of external factors, Trump's hardline stance on Iran has led to another TACO, combined with unexpectedly weak U.S. employment data suppressing rate hike expectations, resulting in a recovery of global risk appetite. Since 2018, the U.S. has imposed restrictions on Chinese or non-American technology products multiple times. From the historical trading rhythm of previous disputes, they generally unfold in three stages: "short-term risks concentrated release" "both parties contesting, oscillating to establish a base" "return to fundamental pricing." Long-term stock prices will ultimately revert to fundamentals, and sustained profit growth is the fundamental path to digest risk premiums. In terms of internal factors, the activity of financing funds rebounded last week, with a recovery in collateral ratios and marginal net inflows of leveraged funds; however, stock ETFs switched to net outflows after market improvement, indicating a reverse switch near an inflection point. Looking ahead, market sentiment is expected to gradually warm up and regain an upward trend, with the activity of financing funds expected to continue to rise. Overall, after the rapid adjustment in July, the rebound window for A-shares has opened. In terms of style, it is recommended to focus on growth indices such as the ChiNext Index, the STAR Market 50, and the CSI 1000; areas of focus should be overseas computing power, domestic computing power, and gold recovery; industries should be balanced along the lines of technological innovation + enterprise overseas expansion + traditional undervaluation, with a focus on electronics, electrical equipment, chemical pharmaceuticals, non-ferrous metals, coal, and non-bank financials. Review and Internal Reflection: Last week, the A-share market experienced a bottoming rebound primarily due to: (1) the alleviation of previous crowded trading in the tech sector and reduced leverage pressure, attracting funds back to some oversold quality assets; (2) transaction volumes stabilized and rebounded, with increased willingness from funds to participate; (3) the expectations for listed companies' mid-year report performances gradually became a focus of market attention, boosting market confidence in sectors such as technology, resources, and biomedicine. Macro Overview: In July, the year-on-year growth rate of integrated circuit exports narrowed, while metal prices mostly rose. Key areas showing improvement last week included: 1) in resource products, coal and most metals saw price increases; 2) the TMT sector continued its high prosperity, with DDRM prices rising continuously and the year-on-year growth rates of integrated circuit imports and exports expanding over three months in July; 3) prices of broiler chicks and national cinema ticket prices showed signs of recovery. Funding Dynamics: Net redemptions from ETFs hedge against net inflows from financing, and fund issuance has declined. Over the first four trading days, financing funds recorded a net inflow of 26.48 billion yuan; 42.2 million shares of new equity public funds were established, a decrease of 1.57 billion shares compared to the previous period; ETF net redemptions corresponded to a net outflow of 74.44 billion yuan. Net purchases of financing funds were made in electronics, non-ferrous metals, and electrical equipment. The scale of net reductions by major shareholders has expanded, while the planned reduction scale has decreased. Thematic Trends: Domestic semiconductor equipment is moving towards a breakthrough. Semiconductor equipment is one of the core links in the semiconductor industry chain with the highest technological barriers, strongest strategic attributes, and clearest space for domestic substitution. External technology restrictions and supply chain security demands are prompting domestic wafer fabs to accelerate the verification of local equipment, while domestic equipment manufacturers are entering a new stage of category expansion, customer introduction, and platform development after initial breakthroughs. Data & Valuation: Last week, the overall valuation level of A-shares rose compared to the previous week, with the WIND All A Index PE (TTM) at 18.1, up 0.6 from last week, standing at the 72.1 percentile of historical valuation levels. Last week, the valuation of indices showed a mixed performance, with electronics, building materials, and machinery seeing the largest gains, while steel, food and beverage, and beauty care faced the largest declines. Risk Warning: Economic data may fall short of expectations, policy interpretations may be incomplete, and overseas policies may tighten more than expected.