CITIC Securities: The market has recently interpreted the characteristics of relatively typical buffaloes and suggests adding Hengke and Kechuang

The Zhitong Finance App learned that CITIC Securities released a strategic research report saying that the market has recently shown typical buffalo characteristics. As the money-making effects of the market begin to accumulate, the inflow of retail investors is also accelerating, and market popularity heats up and anti-domestic narrative logic strengthens, and some conservative funds may also be passively adjusting positions. Whether this round of the buffalo market can evolve into an overall bull market that lasts for a longer period of time needs to be observed for subsequent fundamental (even structural) improvements. The bank believes that the 2025 World Artificial Intelligence Conference is expected to catalyze various segments. At the same time, as the Science and Technology Innovation Board's “1+6” policy and policies related to financial support for science and technology innovation continue to advance, the Science and Technology Innovation Board, which has clearly stagnated since April this year, is expected to pick up the market. The bank proposed adding Hengke and adding science and innovation, while the industry level continues to rotate around non-ferrous, communications, innovative pharmaceuticals, military industry, and games.

CITIC Securities's main views are as follows:

Where did the recent incremental funding come from?

1) There was a broad and widespread net inflow of institutional funding. The inflow of institutional capital did not suddenly explode; it is gradually picking up. Earlier, the bank mentioned in the report “A-share Strategy Focus - Now the Time to Balance Hong Kong's A Ratio (20250713)” that the scale of new public offering active products in June exceeded the estimated net redemption. Although active equity products are still not popular, as the industry continues to exceed the relative benchmark, industry recovery should still be the general trend. In July, the sales volume of the two products alone exceeded 2 billion yuan, and the overall issuance scale also exceeded the average monthly level since 2024. The private equity filing scale exceeded 30 billion yuan in June, +125% over the same period; channel research on CITIC Securities showed that the sample active private equity positions reached 82% in the week ending July 18, and continued to be at a high level. Driven by policies, insurance capital continues to maintain the trend of allocating additional benefits. In July, there were two more listing cases. Since this year, the total number of listings has reached 21, more than the whole of 2024, and more than the sum of 2021 to 2023. The net inflow of northbound capital in the second quarter was 60 billion yuan, maintaining a net inflow for 2 consecutive quarters; according to Refinitiv data, there was a net inflow of foreign passive products for three consecutive weeks in July.

2) As the money-making effects of the market begin to accumulate, the inflow of retail investors is also accelerating. As of July 25, the transaction loss index constructed by the bank was at the quantile level of 88.1% since 2015, the highest level since the second quarter. Since this year, the total cumulative value of “(weekly closing price - average weekly transaction price) × weekly turnover” of individual stocks in the entire market has reached 276.3 billion yuan, and the probability of frequent transactions recording profits is increasing. According to the bank's understanding of the CITIC Securities channel, the retail deposit balance also surpassed the high of October 9 last year. The recent rise in financing balances has also been relatively steady. As of July 25, it reached 1928.3 billion yuan, which is close to the highest level in 2024. However, the net increase in a single week has been steady, and there has been no surge after the “924 market” last year. The recent net outflow of broad-based ETFs shows that some conservative institutions have settled profits. The cumulative net outflows of the Shanghai and Shenzhen 300 ETF and the Shanghai Stock Exchange 50 ETF have reached 17.8 billion yuan and 4.3 billion yuan respectively in the past four weeks; however, the net inflows of thematic ETFs have reached 12.5 billion yuan, 6.8 billion yuan, and 7.7 billion yuan respectively in the past four weeks, which may be related to the accelerated entry of retail investors; the industry distribution of financing purchases also has similar characteristics. The industries with the top three financial purchases this week reached 46 billion yuan, respectively. 100 million yuan, 4.5 billion yuan, and 4 billion yuan, accounting for about one-third of the total net purchase amount of total financing in the entire market.

3) Market popularity is heating up, anti-domestic narrative logic is being strengthened, and some conservative funds may also be passively adjusting positions. Due to bond market adjustments, TL contracts have broken ground and declined in the past two weeks, probably because the market's expectations about the future path of price signals have begun to fluctuate as anti-domestic market expectations have heated up. For fixed income+ products and bank financial management, if this trend continues, it may bring some pressure to redeem or passively adjust positions in the future. Since July, conservative transactional capital may also have begun to adjust positions. The banking sector clearly outperformed the entire market, but the dividend sector as a whole recorded good performance. In July, the Hang Seng Mainland High Dividend Index rose 7.24%, outperforming the Hang Seng Index by 1.77 percentage points and outperforming the Hong Kong Stock Bank by 3.45 percentage points; the A-share dividend index rose 4.13% cumulatively, outperforming the Shanghai and Shenzhen 300 Index by 0.72 percentage points, but outperforming A-share banks by 3.62 percentage points. This indicates that allocation-type funds may continue to increase dividends, but transactional funds hidden in the banking sector may have been forced to start adjusting positions.

How long does a buffalo with a phased divergence between fundamentals and liquidity generally last?

The bank has reviewed all the buffalo market with phased deviations in fundamentals and liquidity since 2010. The downward fundamental index can rise continuously, either when major macroeconomic policies are introduced, or when liquidity has ushered in an inflection point, and the duration usually does not exceed 4 months. Whether this round of the buffalo market evolves into an overall bull market that lasts for a longer period of time, we need to observe subsequent improvements in fundamentals (even structural). If the bank uses June of this year as the starting point for the current market shift from stock to incremental volume (characterized by different style sectors such as institutional tickets, quantitative tickets, and insurance vouchers no longer siphon each other but rising simultaneously), then the current buffalo market will only last less than 2 months, and the bank can still expect an incremental policy to further improve fundamental expectations in the future. Judging from the level of mood indicators, there is currently no state of excitement. Stock index futures rates have narrowed. IM and IC's annualized basis ratio (MA5) have declined since July, but the option volatility ratio measured by the China Stock Exchange 1000/Shanghai and Shenzhen 300 monthly flat rate IV has not risen sharply; recent strong stocks have shown weak performance, taking Tongdaxin's recent strong stock index as an example (sample screening criteria are >= 30% increase in the past 20 days, >0 in the past 3 days, not suspended, not ST, unopened). The cumulative increase since July was only 5.2%, far worse than January to February this year Performance for the period; based on search popularity, as of July 25, 2025 The Baidu Index's “stock market” search popularity is at 54.2% since 2024, far below the level during the implementation of US “equal tariffs” in April and September-October of last year.

What other low undervalued varieties can participate in the anti-domestic volume narrative?

The bank still believes that the current anti-domestic market policy is still unclear. The theme market, which is driven by expectations, chip games, and muscle memory, simply replicates the sustainability of upstream price increases in the 2021 game. If you look at it from the perspective of a high degree of “internal volume” and high potential for reversal, the industry is concentrated in construction materials (building decoration, special materials, structural materials), basic chemicals (chemical fibers, rubber products), steel (general steel, special materials), transportation (logistics), etc. If you look at the historical level of fund holdings, PS historical classification, estimated production expansion cycle, and estimated concentration, you can focus on two categories: 1) varieties that have received less attention, but may later increase due to “reverse internal volume”, mainly including leaders in segments such as polyurethane, LED, polyester, electronic component materials, titanium dioxide, synthetic resins, semiconductor precursors, aviation, etc.; 2) Other undervalued cycle varieties, mainly including aerial work vehicles, rubber, oil field services, paper packaging, containers, and lithium battery industry segments A leader in the field.

Will the Science and Technology Innovation Board make up for the rise after the Artificial Intelligence Conference?

Since April of this year, the Science and Technology Innovation Board has clearly stagnated. From April 1 to July 25, the cumulative yields of the Wande Micro Index, Beijing Stock Exchange 50, GEM Index, China Securities 2000, Wandequan A, Shanghai Stock Exchange Index, and Shanghai and Shenzhen 300 were 39.7%, 14.8%, 11.2%, 10.2%, 9.8%, 7.7%, and 6.2%, respectively. During the same period, the yield of Science and Technology Innovation 50 was only 3.1% (of which rose 2.1% in a single day on July 25). After the recent implementation of “stratification” on the Science and Technology Innovation Board, there are 557 non-growth companies, of which 187 are still “breaking out”, with a cumulative market value of 1274.1 billion yuan, accounting for 17%. The industry is concentrated in electronics, pharmaceuticals, and telecommunications. Under the new regulations on reducing holdings, the controlling shareholders of these companies are temporarily unable to reduce their holdings, which may become a target to make up for capital in the “buffalo” environment. The 2025 World Artificial Intelligence Conference is expected to catalyze many segments. At the same time, as the Science and Technology Innovation Board's “1+6” policy and policies related to financial support for science and technology innovation continue to advance, the Science and Technology Innovation Board, which has clearly stagnated since April this year, is expected to make up for the rise.

After breaking through 3,600 points, what is the bank's current strategic response plan?

First, it is still a good time to balance the ratio of Port A; it is recommended to add Hang Seng Technology. Second, the bank suggests focusing on opportunities to make up for gains in Science Innovation 50, Science Innovation Chips, and Science Innovation 100. Finally, until the end of the interim reporting season, the bank still suggests that A-shares rotate around the five industries of color, communications, innovative medicine, military, and gaming, while using thematic thinking to cut into some anti-domestic market categories; at the end of the mid-reporting season, if along with the stabilization of tariff war expectations, the bank believes that going overseas may re-form a sectorial market relay. These sectors, which had a relatively small increase in the early stages, are expected to benefit from the catalytic event of the Artificial Intelligence Conference and the policy catalyst for the 6th anniversary of the opening of the Science and Technology Innovation Board. August is often a month of frequent external disturbances. Sectors with large short-term gains may inevitably have some fluctuations, but considering that the overall market has slowly emerged from the stock pattern and changed to an incremental pattern, and market sentiment is not extremely excited, the bank currently advises investors to reduce macroeconomic disturbances, maintain industry focus, ensure stable shareholding, and avoid frequent high-risk transactions.

risk factors

Frictions in the fields of technology, trade, and finance between China and the US have intensified; domestic policy strength, implementation effects, or economic recovery have fallen short of expectations; macro-liquidity at home and abroad has tightened beyond expectations; conflicts between Russia, Ukraine, and the Middle East have further escalated; and China's real estate inventories have fallen short of expectations.