CICC: Active outflow of foreign capital from A-shares and offshore Chinese stocks expands, while passive foreign capital underweighting China slightly decreases.

Zhongjin released a research report stating that active foreign funds continued to flow out of A-shares, expanding to $0.7 billion (compared to $0.3 billion outflow last week), while overseas Chinese stocks also saw an increase in outflow, reaching $2.4 billion (compared to $0.75 billion outflow last week). Passive foreign funds continued to flow in, with $20.7 billion flowing into overseas Chinese stocks (compared to $30.7 billion inflow last week) and $10.5 billion flowing into A-shares (compared to $10 billion inflow last week). As of August, the allocation ratio of active foreign funds to China increased from 6.4% in July to 6.7%, while passive fund allocation increased to 8%, with the degree of under-allocation decreasing from 1.45ppt in July to 1.35ppt, but still lower than 1.31ppt in June, indicating that active funds are increasing their positions slowly. The main points from Zhongjin are as follows: Active foreign funds continued to flow out of A-shares, expanding to $0.7 billion (compared to $0.3 billion outflow last week), while overseas Chinese stocks also saw an increase in outflow, reaching $2.4 billion (compared to $0.75 billion outflow last week). Passive foreign funds continued to flow in, with $20.7 billion flowing into overseas Chinese stocks (compared to $30.7 billion inflow last week) and $10.5 billion flowing into A-shares (compared to $10 billion inflow last week). As of August, the allocation ratio of active foreign funds to China increased from 6.4% in July to 6.7%, while passive fund allocation increased to 8%, with the degree of under-allocation decreasing from 1.45ppt in July to 1.35ppt, but still lower than 1.31ppt in June, indicating that active funds are increasing their positions slowly. Southbound inflows accelerated, with $43.96 billion Hong Kong dollars flowing in this week (compared to $36.85 billion last week), averaging $8.79 billion Hong Kong dollars daily (compared to $7.37 billion last week). The stocks with the most net increase in holdings were Alibaba (09988) and Meituan (03690), while reductions were seen in Hua Hong, CSPC PHARMA and China Telecom Corporation. Previously, it was expected that the overall market would see high volatility, with a focus on a strong structural outlook, but fluctuations are inevitable due to: 1) the domestic fundamentals weakening, 2) macro liquidity reaching a turning point, 3) overseas liquidity improving but expectations have already been factored in, 4) sentiment and technical indicators nearing extremes, with the optimistic scenario of the Hang Seng Index reaching 26,000 points already surpassed, 5) yet micro liquidity remains active. Last week, the market experienced significant volatility under internal and external catalysts, with clear structural differentiation, in line with previous suggestions. On Wednesday, the Hang Seng Index surged led by Alibaba, but retraced some gains on Friday. Last week's upward revisions in the US GDP and strong durable goods orders drove the US dollar and long-term bond yields higher, in line with previous expectations, indicating that interest rate cuts should not be directly linked to declines in US bond yields and the US dollar. Post preemptive rate cuts, the market may gradually shift from "easy trading" to "recovery trading", pushing the US dollar and bond yields to bottom or even rise. In operations, it is still advised to choose the direction of "possible short-term losses but not losing out in the long run", such as internet stocks in June and banks/dividends currently. Conversely, for the correct long-term direction, if short-term crowding is too high, it may also be advisable to take profits moderately. At present, the intersection of prosperity (expectations), event catalysts, and crowding is as follows: Prosperity: 1) Expectations for AI-related hardware and applications are still strong, 2) Continued focus on the direction of China-US relations; Events: 1) Disruptions in copper supply and progress in AI; 2) Trade tensions still affecting sentiment in some industries (such as innovative drugs, home furnishings, etc.); Crowding: 1) E-commerce is relatively high, while internet stocks are still relatively low, 2) Innovative drugs have fallen but not to a very low level yet, 3) New consumption is hovering at relatively low levels, 4) Banks and insurance have been at low levels over the past year. Recently, internet and bank trades have seen slight increases, and it is not ruled out that some funds have begun to seek "buy high, sell low" opportunities in terms of crowding, while the low positions in cyclical and consumer sectors still require policy support and fundamental cooperation.