According to latest research from Bank of America Securities and Goldman Sachs, investors need to closely monitor three key signals: changes in interbank liquidity (affecting bond market demand); sustainability of equity market wealth effects (determining asset allocation switches by fund managers); and central bank policy statements (trigger conditions for bond purchases or not). Behind the stock-bond rotation lies the migration of capital risk appetite, which also reflects the "structural optimization" of China's capital markets. Under the resonance of policy support and market forces, whether it's the "stability" of the bond market or the "innovation" of the stock market, both are outlining a more vibrant market landscape — this may be the most valuable "certainty" to grasp in the current market.

Recently, the Shenzhen Component Index climbed to a decade high, with A-shares' relative strength attracting significant capital attention. Meanwhile, the bond market showed adjustment signals, making stock-bond rotation the core logic for interpreting current market conditions. Latest research from Bank of America Securities and Goldman Sachs, from the dimensions of bond market demand structure and equity market investment opportunities respectively, outlines a clear trajectory of market capital flows.

**I. Bond Market: The "Stability" and "Change" in Demand Patterns**

As the "ballast stone" of China's capital markets, changes in government bond demand reflect capital's risk appetite. Government bond net supply in 2025 is nearly 14 trillion yuan (up 23% year-over-year), with front-loaded issuance schedule (64% of net supply completed by end-July). The behavioral differences among four major players — commercial banks, insurance companies, asset management companies, and offshore investors — determine the bond market's short-term direction:

1. **Commercial Banks: "Largest Buyers" Continue Strong Performance** Against the backdrop of "weak loan growth + loose interbank funding environment," commercial banks have become the most stable demand source for the bond market. In the first seven months of 2025, banks' holdings of Chinese government bonds surged by 2.9 trillion yuan (far exceeding the full-year 2024 increase of 2.2 trillion yuan), absorbing 84% of government bond net supply. Ample liquidity and asset shortage pressure drive banks to continuously increase their holdings of government bonds.

2. **Insurance Companies: "Asset Allocation" Resilience Remains** Although insurance companies increased their allocation to high-dividend stocks this year (such as southbound Stock Connect net inflows), their demand for bonds remains resilient. Over the past 5 years (except 2022), insurance funds increased government bond holdings by 400-600 billion yuan annually. More notably, the guaranteed rate for traditional savings products was reduced from 2.5% to 2.0%, lowering insurance funds' threshold for bond yields. If rates rebound further, insurance funds may accelerate "buying on rallies" (as seen in February, March, and July 2025).

3. **Asset Management Companies: Weak Demand Under "Equity Market Siphoning"** Asset management companies' behavior is highly correlated with equity market performance. While they cumulatively increased government bond holdings by 1.24 trillion yuan in the first seven months, they net sold 120 billion yuan of government bonds in July alone — driven by "fixed-income product redemption pressure" from A-share rebounds. If equity market strength continues, asset management institutions may further reduce duration exposure, subjecting bond market demand to periodic tests.

4. **Offshore Investors: Mainly "Certificate of Deposit Reduction," Limited Government Bond Outflows** Affected by rising USD/CNY forward points, offshore investors recently became net sellers in the bond market. However, the magnitude of Chinese government bond outflows may be relatively controllable. On one hand, foreign central banks, sovereign funds and other long-term investors hold relatively high proportions; on the other hand, funds tracking bond indices already have low allocations to Chinese government bonds, with limited room for further reduction (certificates of deposit may be the main reduction target).

5. **Central Bank Direction: Observing Signals, Timely "Action"** Bank of America emphasizes that if the bond market experiences "insufficient demand + selling volatility caused by equity market spillover effects," the possibility of the central bank restarting bond purchases will significantly increase (the Q1 2025 monetary policy report clearly stated "assess bond market conditions and operate in a timely manner"). This "potential backstop" signal also provides policy buffer for the bond market.

**II. Equity Market: Anti-Involution and Structural Opportunities**

Corresponding to the bond market's "differentiated demand," the equity market shows strong vitality under the dual drive of "bond-to-equity rotation + anti-involution logic." Goldman Sachs research reveals the deep logic behind A-shares' strength:

1. **Bond-to-Equity Drive: Capital "Migration" Accelerates** Goldman Sachs points out that A-share domestic participation continues to surge, with margin financing balances hitting new highs since 2015, directly triggering "bond-to-equity rotation." The 10-30 year government bond spread widened (bond fund redemptions forced capital toward equities). More notably, major holders of 30-year government bonds (rural commercial banks, cross-asset investors) began reducing long-bond holdings to invest in equities due to equity market strength, further amplifying this trend.

2. **Anti-Involution Logic: "Light of Hope" for Earnings Recovery** Goldman Sachs team notes that while baseline earnings forecasts for MSCI China remain unchanged, earnings in "anti-involution" stressed industries may recover beyond expectations. If these industries (such as solar, steel, consumer goods) restore net margins to 5-year average levels, MSCI China Index EPS growth for 2025-2027 would increase from 10% to 12% (contributing an additional 2 percentage points), with earnings elasticity reaching 14%.

3. **Screening Framework: The "Alpha Code" of 20 Targets** Based on "valuation expansion + fundamental improvement," Goldman Sachs built an anti-involution target screening system. From dimensions including "state-owned enterprise proportion, historical return sensitivity to PPI, industry concentration," Goldman Sachs screened 20 advantaged companies (14 A-shares including CATL, Midea Group, Gree Electric, and 6 Hong Kong stocks including NONGFU SPRING (09633), FUYAO GLASS (03606), CONCH CEMENT (00914), MENGNIU DAIRY (02319), TINGYI (00322), CHINA FEIHE (06186)), all rated "Buy."

Data shows these companies have averaged 8% gains since the mid-July Central Financial Work Conference, with market consensus expecting 17% compound annual growth in net profits over the next two years, and profit margins in the low-to-medium range (with recovery potential).

4. **Capital Signals: Foreign Capital and Hedge Funds "Adding Positions"** Goldman Sachs PB data shows hedge funds recently net bought Chinese stocks at the fastest pace in 7 weeks. Driven by both long and short positions, China became the "largest net buying market globally" in August. This capital flow echoes the strong performance of A-share "anti-involution" targets.

**III. Stock-Bond Interaction: Trends and Outlook**

The core contradiction in current markets is the intersection of "differentiated demand in bond markets" and "structural opportunities in equity markets":

**Bond Market:** "Stable demand" from banks and insurance coexists with "volatile behavior" from asset management and offshore investors, with potential central bank bond purchases providing market support.

**Equity Market:** Bond-to-equity rotation continues, with anti-involution targets becoming the core of structural opportunities through "earnings recovery expectations + capital favor."