CITIC Securities: There are some misunderstandings in the market regarding the new regulations for public funds and the discussion on returning to benchmark industry allocations.

CITIC Securities research report believes that there are some misunderstandings in the market regarding the assessment of public funds and the discussion of returning to benchmark industry allocations. From overseas experience, the return to benchmark is achieved through the evolution of fund holdings allocation towards benchmark industry ratios, rather than the other way around. The shift of product investment strategies towards customer profitability orientation is consistent with pursuing rankings and absolute returns in the long term, rather than contradictory. The punishment mechanism for underperforming the benchmark ultimately results in funds reducing speculative positions, and the greatest long-term impact is the decrease in the proportion of active positions. How to effectively set benchmarks is the most critical issue for achieving customer benefits, winning competition, and avoiding being replaced by passive products in the long term. For actively managed equity products, the Shanghai and Shenzhen 300, the CSI 800, and the A500 all have significant limitations as market-wide fund benchmarks. A reasonable benchmark for Chinese assets that can reflect new productivity and new economic trends should be a balanced allocation of Hong Kong A shares, with the proportion of Hong Kong broad-based stocks in the total benchmark being the primary consideration. Additionally, looking ahead, if foreign capital gradually returns in the future, the market ecosystem will undergo significant changes compared to the past three years. Industry allocations should not be viewed with a static perspective through the rearview mirror, and the differences between good and bad companies will far exceed those between so-called "good industries" and "bad industries."