Morgan Stanley Fund: High probability of short-term style switch, focusing on opportunities such as the CSI 1000 index and equal weight basic machinery.

Morgan Stanley Fund stated in an article that looking ahead, in the layout of major asset classes, overseas investors can continue to focus on the general election year (the second presidential television debate on September 11), whether the U.S. economy can achieve a "soft landing", interest rate cuts by the Federal Reserve and changes in liquidity, and opportunities for going long in the U.S. dollar and oil assets. In terms of domestic investments, in the short term, there is a high probability that styles will continue to shift, with small-cap outperforming large-cap, growth outperforming value. Investors can focus on broad-based opportunities such as the CSI 1000 Index; in the medium to long term, it is still necessary to focus on developing new quality productivity through three major channels, and it is recommended to continue focusing on semiconductor, low-altitude economy, and artificial intelligence. In August, the overseas market switched from the "recession trade" to interest rate cuts and election trade, and the overall equity assets overseas showed a V-shaped rebound trend with significantly increased volatility. Market expectations for rate cuts by the Federal Reserve strengthened, U.S. bond yields declined, the U.S. dollar weakened, and interest rate-sensitive assets performed well. Morgan Stanley Fund believes that the current U.S. economy still has some resilience under high fiscal deficit, and the focus should be on the economy's "elasticity" after the start of the rate cut cycle. This relates to when the economy will achieve a "landing" and whether there is a risk of secondary inflation. In terms of data, the initial value of the U.S. August Markit Manufacturing PMI was 48, lower than the expected 49.5, a new low for the year, indicating a rapid cooling in manufacturing; however, the initial value of the Services PMI was 55.2, higher than the expected 54, remaining in the expansion zone for 19 consecutive months. In terms of monetary policy, Powell stated in a speech at the Jackson Hole Global Central Bankers Symposium that the time for policy adjustments has come, the future direction is clear, and the timing and pace of rate cuts will depend on data, prospects, and the balance of risks. Powell also emphasized growing confidence that inflation rates will sustainably return to the 2% target level. Additionally, after the release of lower-than-expected non-farm payroll data last Friday, a September rate cut by the Federal Reserve seems likely, the rate cut cycle may officially begin, but the extent of the rate cut remains uncertain. The market's short-term increase in rate cut expectations could lead to over-adjustment in U.S. bonds and the U.S. dollar. In Japan, the Bank of Japan's hawkish rate hike on July 31 was one of the catalysts for the recent significant market volatility. The Japanese economy has shown signs of recovery recently, with stable growth in private consumption and real wage increases. There is still uncertainty regarding future monetary policy, and the possibility of another rate hike by the Bank of Japan later this year is not ruled out. Morgan Stanley Fund points out that domestically, in terms of monetary policy, demand for stable growth is increasing, exchange rate constraints are easing, and the downward trend of long-term bond yields has temporarily slowed. It is expected that the space for monetary policy will further expand. In terms of fiscal policy, pressure on fiscal revenue limits the extent of fiscal expansion, with the annual economic growth target lowered. Government bond issuance accelerated in August, and it is expected that fiscal policy will further strengthen in the second half of the year. In the real estate sector, the market's response to real estate policies has slightly dulled, with the Ministry of Housing and Urban-Rural Development proposing to establish a housing inspection system, housing pension system, and housing insurance system to create a long-term mechanism for housing safety management throughout the lifecycle. In the medium to long term, it is still necessary to focus on the three key areas of developing new quality productivity: nurturing and strengthening emerging industries, proactively laying out future industries, and using advanced technology to empower the transformation and upgrading of traditional industries. It is recommended to continue focusing on semiconductor, low-altitude economy, and artificial intelligence.