Huatai Securities: Financial, midstream manufacturing, and TMT sectors improved in July.

Huatai Securities pointed out that in July, the overall industry and all non-financial industries saw an increase in business confidence index. Among different sectors, major financials, midstream manufacturing, and TMT industries showed improvement in business conditions. It is reiterated that under the policy support against overwork culture, the visibility of ROE stabilization and recovery has increased. It is recommended to focus on the following areas: 1) varieties against overwork culture reaching the bottom or starting to recover, such as industrial metals, energy metals, steel, some chemical products, wind power, automobiles, breeding, logistics, etc.; 2) Overseas AI capital expenditure continued to rise in Q2, and the AI industry-driven components such as storage, software, games showed improved business conditions or maintained high levels; 3) Independent business cycle driven sectors such as minor metals, defense industry, general automation, pharmaceuticals, insurance, etc. In terms of allocation, tactically explore sectors with improving business conditions and logical catch-up potential, pay attention to storage, software, general automation, chemicals, insurance, coal, etc.; strategically, continue to be overweight in major financials, defense industry, pharmaceuticals, etc., with the pharmaceutical sector possibly expanding from innovative drugs to medical equipment.