On August 14th, Goldman Sachs made a significant statement after six months of silence, clearly expressing their position to "re-enter and go long China." Chinese markets have shown strong momentum recently, with both Hong Kong stocks and A-shares seeing multiple indices rising continuously, driven by the convergence of policy support, earnings performance, and capital flows. What are the current market highlights, and how should investors position themselves?

Both Hong Kong and mainland markets are surging, with multiple indices reaching strong momentum phases. Southbound capital is accelerating its flow into Hong Kong stocks. On August 15th, despite slight pullbacks in Hong Kong's three major indices, southbound capital recorded a net inflow of approximately HK$35.876 billion, setting a new record for single-day net inflows. Year-to-date cumulative net inflows have reached HK$938.921 billion, far exceeding last year's full-year total of HK$807.869 billion.

A-share markets saw volume-driven gains today, with the Shanghai Composite Index returning to near the 3,700 level. Trading volume exceeded 2.2 trillion yuan, making it the 29th trading day in A-share history to surpass 2 trillion yuan in turnover. Since early April, the CSI 300 Index has risen for four consecutive months, potentially creating the longest winning streak since 2020. Small-cap indices dominated by technology stocks have performed particularly well, with the CSI 1000 Index (excluding OFAC components) gaining over 12%.

More importantly, this rebound is not speculative "false fire" – A-share monthly average trading volume has grown for three consecutive months, with genuine trading activity supporting the market trend.

**Five Core Driving Forces Supporting Market Confidence**

**1. Policy Support: Dual Focus on Consumption and Industry** The government recently launched personal consumption loan interest subsidy programs, directly boosting consumer confidence. In the new energy sector, eight lithium battery companies reached a consensus to "suspend capacity expansion," with this "anti-involution" action driving industry valuation recovery and related stock prices surging. Policies both stimulate demand and stabilize supply, providing market reassurance.

**2. Technology Earnings Explosion: AI as the Biggest Catalyst** Technology earnings season has begun with leading companies showing impressive performance. Tencent's Q2 2025 revenue reached 752.906 billion yuan, with adjusted earnings per share of 27.52 yuan, both exceeding market expectations by 3%. Benefiting from AI-driven advertising efficiency improvements, Tencent's marketing services revenue grew 20% year-over-year, with video accounts and mini-program advertising both rising 50%, and WeChat search advertising up 60%. Gaming revenue increased 22% year-over-year, with classic IPs like "Delta Force" continuing to contribute. Fintech and enterprise services revenue grew 10%, with AI-related service demand surging.

Beyond Tencent, JD.com and NetEase also delivered solid results. JD Retail's core profit grew 38% year-over-year, while NetEase's gaming revenue and deferred revenue maintained double-digit growth, highlighting the "evergreen attributes" of established IPs.

**3. Strong Capital Flows: Retail-Led Without Overheating** In this market cycle, retail investors have become the main force. Margin trading balances broke through ten-year highs, reaching 202.035 billion yuan. However, Goldman Sachs' retail sentiment indicators show current levels remain moderate without excessive enthusiasm, suggesting further upside potential.

Notably, "national team" activity remains calm, indicating market gains rely more on "genuine demand" rather than short-term policy support, creating a more solid foundation.

**4. Rising Foreign Capital "Recovery" Expectations** Goldman Sachs data shows that in July, their Prime brokerage accounts recorded net outflows from Chinese markets, but current nominal and net market values are diverging. The firm believes that if global capital concentrates on recovery buying, it could further amplify upward momentum. Additionally, Hong Kong's most heavily shorted stock basket rose 2.7%, outperforming the Hang Seng Index, with short covering also supporting the rally.

**5. Liquidity Support** China's June liquidity supply grew 4.6% year-over-year, the largest increase in over two years. Abundant capital conditions not only offset potential profit-taking pressure but also provide sustained support for equity markets.

**Investment Strategy: Focus on These Directions**

Goldman Sachs' trading desk clearly states they still favor Hong Kong stocks and A-share small-cap indices (CSI 500/1000). For specific sectors, Goldman Sachs prefers:

**Technology and AI Supply Chain:** Companies like Tencent and JD.com have shown effective AI applications. Semiconductors (such as Ruijie Networks and Magic Software) and data centers (GDS Holdings and 21Vianet) benefit from exploding computing power demand, with segments like 800G switches showing remarkable growth.

**Consumption Recovery Chain:** Policy subsidies directly benefit consumption loan-related industries. Combined with improving fundamentals of retail companies (like JD Retail's profit growth), investors can focus on quality consumer leaders.

**"Anti-Involution" Industries:** Sectors like lithium batteries and solar that have reached capacity consensus show optimized competitive landscapes, with leading companies' profitability expected to recover.

**High-Growth Small Caps:** CSI 1000 Index components are mostly hidden champions in niche sectors, benefiting from loose liquidity and industrial upgrading, offering noteworthy elasticity.

The current Chinese market rebound results from the convergence of policy, earnings, and capital flows. Goldman Sachs' "bullish" signal may confirm this trend. For investors, grasping the main themes of technology upgrades, consumption recovery, and industrial optimization could help find opportunities in this market cycle.