China Securities Co., Ltd.: A shares continue to "go up the stairs", pay attention to mid-year report and "anti-insulation"

China Securities Co., Ltd. released a research report stating that A shares have risen for three consecutive weeks, but overall systemic risk is not high. The equity risk premium indicator shows that it is still near opportunity levels, and the "step-up" market is expected to continue. If there is a short-term adjustment, it would be a good opportunity for positioning. The performance of the banking sector continues to be strong this year, with fiscal injections and debt conversions expected to bring about valuation repairs. Insurance funds also provide effective funding support, and although funding support in the second half of the year may slow down marginally, the probability of large funds withdrawing trend is low. In the current low interest rate environment, the value of the banking sector's allocation is further highlighted when considering OCI accounts for long-term assessment. China Securities Co., Ltd.'s main views are as follows: How to view the strong performance of the banking sector and its sustainability? The performance of the banking sector continues to be strong this year. From a long-term perspective, with fiscal injections and debt conversions, banks are expected to see valuation repairs. Another important reason is that insurance funds provide effective funding support. After two consecutive years of high growth, insurance premiums continued to grow by 3.8% from January to May this year, and the balance of insurance funds increased by 167.32 billion yuan in Q1 2025. Looking ahead to the second half of the year, the marginal slowdown of insurance funds' funding support for the banking sector may occur, but the probability of large fund withdrawals is low. In the current low interest rate environment, the allocation value of the banking sector is further highlighted when considering OCI accounts for long-term assessment. The "step-up" market is expected to continue. Abundant liquidity combined with rising market sentiment is driving A shares higher. The external environment is also favorable, with positive sentiment spreading to A shares. Looking ahead, we continue to maintain a strategically optimistic view, as positive signals are present in the macro environment, market risk appetite, and the structure of new sectors. It is expected that the market will further "step-up". In the short term, after three weeks of sharp market gains, the pressure for a temporary correction in A shares is increasing, but overall systemic risk is not high, and the equity risk premium indicator shows that it is still near opportunity levels. Therefore, we remain optimistic about the market outlook, maintaining a relatively high position overall, and seeing any short-term market corrections as good opportunities for positioning. In terms of allocation, focus on mid-year performance reports and the theme of combating "inward collapse." 1) The mid-year performance reports of A-share companies are gradually being disclosed, with both new and old sectors performing well. As of July 11, nearly 500 listed companies have disclosed their mid-year performance forecasts, with a forecast rate of close to 10%, and overall, most of the forecasts are positive. Industries with higher improvement rates include: beauty and skincare, nonferrous metals, non-bank finance, agriculture, forestry, animal husbandry, fisheries, household appliances, machinery and equipment, pharmaceuticals, and electronics. 2) "Anti-inward collapse" is currently more of a short-term market theme triggered by the reflection of "supply-side reform," with policy efforts not yet sufficient to change long-term industry trends. Most sector trends are expected to return to fundamentals after the conceptual heat dissipates, and after more substantive policy measures are implemented, "anti-inward collapse" across multiple policy constraints and execution paths will become a focus of investor attention, with specific policies from various ministries likely to be announced around September this year. Considering the four core indicators of the production capacity cycle - capacity utilization, gross profit margin, capacity expansion level, and revenue growth rate - investment opportunities in the combination of "reverse dilemma" and "capacity expansion" are expected in the future.