Last week, major market indices all rose, with small and mid-cap stocks outperforming. Among Shenwan's primary industry sectors, electronics, non-ferrous metals, and machinery equipment performed well, while banking, food and beverage, and home appliances were relatively weaker.

Macro Analysis: China's July CPI rose moderately, while PPI year-on-year growth eased. Domestically, due to international input factors, July CPI fell 0.1% month-on-month but rose 0.5% year-on-year. Core CPI, excluding food and energy prices, increased 0.3% month-on-month and 0.9% year-on-year, showing overall moderate inflation. Demand in some domestic industries increased, but due to input and seasonal factors, July PPI fell 0.7% month-on-month and rose 3.5% year-on-year, with the growth rate narrowing by 0.6 percentage points from the previous month. Overall, July CPI maintained moderate growth, while PPI year-on-year growth eased. The month-on-month data for August CPI and PPI is expected to rebound. Due to base effects, PPI may face a higher downside risk after October.

Additionally, the General Administration of Customs released July China's foreign trade data. In US dollar terms, July exports grew 23.9% (previous 27.0%), and imports grew 27.5% (previous 36.0%), with both growth rates slowing. The trade surplus in July narrowed slightly to $112.5 billion (previous $125.6 billion). The month-on-month growth rate of exports in July was -3.5%, slightly below seasonal norms. By country, the growth rate of exports to the US rebounded, mainly due to the low base effect from the tariff policy adjustment in July 2024. AI products, which contributed the most to export elasticity, continued to grow strongly, with integrated circuit exports growing over 100% for the third consecutive month. The peak of the full-year export growth rate may have already appeared, and a moderate easing trend is expected to continue. The full-year export growth rate is expected to reach around 15%, with attention on the potential new round of "front-loading exports" effect from the US 301 tariffs.

Overseas, US employment cooled in July but did not stall, and concerns about a September rate hike eased. The US Department of Labor reported that July non-farm payrolls increased by -23,000, missing the expected 80,000, mainly due to weak employment in the government and private service sectors, while goods production employment remained resilient. The unemployment rate fell further as the labor force participation rate declined. Looking ahead, two inflation data releases before the September FOMC meeting will be key to influencing the Fed's decisions and market sentiment. If inflationary pressures remain moderate, market concerns about a Fed rate hike may further ease.

Investment Strategy: Focus on technology, manufacturing, and finance. The current market has entered a phase of "improving growth expectations, reduced risk premiums, and repairing trading structures." First, the extreme negative feedback of capital positions has largely ended, with high-risk appetite leveraged funds phased out and the problem of high trading concentration significantly alleviated. Second, the high business growth and substantial forward orders of North American CSP vendors may partially dispel market doubts about the sustainability of US investment. Third, the stabilizing force in the Chinese stock market has continuously and effectively interrupted risk contagion and injected liquidity at key points, including technology stocks in its buying range, which helps dispel concerns about uncontrolled negative feedback. The market's micro trading structure may gradually stabilize, restoring the market's price discovery function.

In terms of direction, investment opportunities are expected to become more diverse, with a focus on leading companies in technology and manufacturing. Specifically: (1) Emerging technology: The overall adjustment space has been sufficient, overseas investment expectations remain strong, and domestic investment expectations are being revised upward. The recovery phase should focus on true leaders, including electronics, communications, media, high-end equipment, and non-ferrous metals. (2) Advantageous manufacturing: Chinese companies with industrial competitive advantages are going global and are expected to accelerate market share expansion amid geopolitical shocks. Focus on innovative drugs, CXO, power equipment and new energy, and machinery equipment. (3) Large financials and high dividends: These sectors have the characteristics of low expectations, low holdings, and low valuations, and serve as important stabilizers during turbulent periods. Focus on brokerages and banks.

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