China Securities Co., Ltd.: The market in July is expected to trade around the mid-year reports, focusing on overseas computing power chains and other directions.

China Securities Co., Ltd. released a research report stating that the domestic macroeconomic situation is expected to be relatively stable in July, with overseas geopolitical conflicts gradually easing, renewed expectations of interest rate cuts by the Federal Reserve, and global liquidity expected to loosen again. Based on historical analysis, in the absence of major macroeconomic impacts, the market in July-August typically focuses on trading mid-year performance reports. Based on medium-term industry monthly tracking and analysis, the following sectors are expected to have good mid-year performance: overseas computing power chain (PCB, optical modules, etc.), AI at the end, innovative drugs (some BD landing, CXO continuing high growth), wind power, defense industry (with differentiation), non-ferrous metals (copper, aluminum, gold), new consumption, shipping, etc. The mid-year performance of the semiconductor and domestic computing power industry chains is expected to be flat, but a recovery is expected in the third quarter. Positive directions for the second half of the year include: AI/AI applications, semiconductors (advanced process), innovative drugs (major BD continued landing), new consumption, solid-state batteries, etc. Macro overview: Stable growth is expected in the second quarter, but most industries (traditional domestic demand) are showing signs of weakening. Exports and tariffs: From the second quarter to July-August, proactive exports are providing support, and there may be continued support from transit trade and the resilience of the US economy. Export data is not expected to sharply decline rapidly. Domestic demand: Consumer spending in May showed a notable increase, driven by factors such as low base numbers, quick implementation of fiscal subsidies, and recovery in service consumption, but attention should be paid to potential impacts of subsidy reductions. Investment-wise, infrastructure depends on fiscal efforts. Real estate is showing signs of decline again recently, making it difficult to stabilize quantity and price going into the second half of the year, and it remains the biggest drag on domestic demand and market expectations. However, real estate's share of the economy is further decreasing. Domestic policies: Economic growth in the first half of the year is supported by trillion-yuan incremental fiscal expenditure. As of May, public fiscal expenditure totaled 11.3 trillion yuan, an increase of about 400 billion yuan compared to last year. The pace of government fund expenditures has been faster, increasing by about 500 billion yuan in the first five months compared to last year, totaling an additional 900 billion yuan from the two sources. The pace of fiscal expenditure has not been significantly accelerated, and an additional 1.5 trillion yuan is expected in the second half of the year. Allocation recommendation: Considering the next round of US-China trade negotiations in August and the easing of tariff negotiations among various countries, it is expected that the domestic macro economy will remain stable in July, with trading expected to focus on mid-year performance reports: Technology: Overseas Nvidia supply chain performing better than expected, focus on domestic optical modules, PCB, etc.; expectations for higher performance growth in end-side AI; Consumption: Expect new consumption to maintain rapid growth, overall trend of innovative drugs showing an upward trajectory, attention to major companies landing major BDs; High-end manufacturing: Earnings in wind power and defense sectors are expected to be particularly impressive; Cyclical: Expect better mid-year performance in non-ferrous metals (copper, aluminum, gold), but there is still some uncertainty in the second half of the year; benefiting from rising freight rates, shipping industry performance growth is expected to be high. Considering the ongoing uncertainties abroad, such as July US bonds and geopolitical conflicts, it is recommended to continue to hedge with high dividend stocks, including operators, utilities, etc. If the situation abroad exceeds expectations (liquidity or tariff negotiations), it is expected that low-allocated industries such as insurers and securities firms may drive the index upwards, and it is advised to actively monitor insurance, securities, etc.