Industrial Securities released a research report stating that in a healthy bull market, structure is more important than timing. The market structure may gradually move away from the previous extreme differentiation and enter a phase of rotational expansion to seek opportunities. Fluctuations in timing can be addressed through structural rotational expansion. The firm believes that for the market rotation and expansion in the upcoming period, while continuing to adhere to strong industry trends, expansion should be anchored by prosperity and industry trends, balancing win rate and odds ratio, with focus on Hong Kong internet stocks, innovative drugs, new energy, new consumption, and prosperity cycles (metals and chemicals).
**Key Points from Industrial Securities:**
**I. "Healthy Bull Market": Prosperity-Anchored Expansion**
The firm emphasizes that structure is more important than timing. After recent fluctuations, the market structure may gradually move away from the previous extreme differentiation and "single standout" pattern toward rotational expansion and "multi-point flowering." Timing fluctuations can be addressed through structural rotational expansion.
This week, the market has gradually entered a phase of rotational expansion to seek opportunities. The firm's constructed industry rotation intensity indicator has begun to marginally recover from previous lows, indicating the market is seeking opportunities through rotational expansion. Looking ahead, this state of rotational expansion may continue.
First, after digestion and consolidation from previous volatility, many sectors now have crowding levels that have fallen to moderate or low positions, providing a structural foundation for rotational expansion. From a seasonal perspective, the market is also in a window where trends tend to expand.
From an annual perspective, industry rotation exhibits strong seasonal patterns, with August-September typically being a period of relatively intense industry rotation. Since August, market consensus has been strong, and industry rotation intensity has continued to decline counter-seasonally, reaching new lows since April last year. September is traditionally a window for rising industry rotation intensity, with markets tending toward expansion to seek opportunities while digesting previous strong consensus and providing opportunities to find new prosperity directions.
However, for the market's rotation and expansion in the upcoming period, the firm believes it should not simply seek low positions from a "high-to-low switch" perspective, but should expand anchored by prosperity and industry trends to improve win rates:
On one hand, from mid-to-late September to October is a phase where the effectiveness of prosperity investing gradually improves. Seasonally, as the Q3 earnings disclosure period approaches at the end of October, the correlation between stock prices and performance will gradually strengthen from mid-to-late September to October. Therefore, the current market style expansion is itself a process where, approaching the October earnings period, the market is actively seeking directions in more fields where prosperity is expected to improve, driving the market from previous strong consensus toward balance and further focus on high-performing directions.
More importantly, as the characteristics of this round's "institutional bull market" gradually emerge, market aesthetics are also gradually shifting toward prosperity and industry trends as core focus, with prosperity investing effectiveness significantly improving. From Shanghai Stock Exchange account opening data, institutional and large investors show stronger participation enthusiasm in this round compared to individual investors. Recently, the firm has observed that active public fund performance recovery is continuing to form positive feedback with the issuance side. Based on current issued scale calculations, September's monthly new active equity fund issuance scale may reach new highs since February 2022.
Therefore, this round significantly shows "smart money" dominated characteristics, with structural themes basically revolving around prosperity and industry trends, driving profound changes in market aesthetics. Consequently, while continuing to adhere to strong industry trends, expansion should be anchored by prosperity, balancing win rate and odds ratio, focusing on Hong Kong internet stocks, innovative drugs, new energy, new consumption, and prosperity cycles (metals and chemicals).
**II. Key Focus Areas: Hong Kong Internet, Innovative Drugs, New Energy, New Consumption, Prosperity Cycles (Metals, Chemicals)**
**(1) Hong Kong Internet: Interest Rate Cut Trading Combined with AI Expansion, Still Has Significant Catch-up Potential**
Hong Kong internet stocks have recently begun gradually reflecting catch-up logic. Currently, under the dual overlay of macroeconomic environment and industry trends, Hong Kong internet stocks still have significant catch-up potential relative to A-share TMT industry chains:
First, with the approaching US Federal Reserve meeting in September and the start of a new interest rate cut cycle, this benefits external liquidity-sensitive Hong Kong internet stocks that were previously suppressed.
Second, Alibaba's latest quarterly cloud revenue and capital expenditure both exceeded market expectations, combined with self-developed AI chip progress, expected to drive the sector gradually from "food delivery competition" narrative back to AI narrative and technology growth narrative.
Third, future AI trends are expected to expand toward downstream applications, with internet platforms having optimal social scenarios and ecosystems as directions that first benefit from application implementation, making expansion logic smoother.
**(2) Innovative Drugs: Sentiment Digestion Sufficient, BD and Commercialization Drive Revaluation**
After previous consolidation, current innovative drug industry chain crowding has fallen to moderate levels, representing a subdivision with sufficient sentiment digestion among current growth themes. Under the innovation mega-cycle, multiple innovative drug companies' products have received approval for market sales, with the industry chain gradually entering commercialization phase and leading company performance beginning to be released.
In H1 2025, innovative drug industry chain leaders represented by BEIGENE, WuXi AppTec, and Hengrui Medicine all showed impressive performance. Driven by new technology innovative drugs and potential blockbuster products, companies' years of investment are yielding returns, with the industry chain entering a new performance release cycle.
With intensive landing of blockbuster varieties, accelerated overseas expansion, overseas monetary easing, and friendly domestic policies, sector valuation reshaping is still halfway. On one hand, future innovative drug industry conferences provide intensive catalysts. Recent WCLC abstract releases showed excellent data from companies like Dizal Pharmaceutical and復宏汉霖. The September WCLC conference and ESMO abstract updates deserve attention. On the other hand, H2 medical insurance catalog adjustments and commercial insurance policy advancement are also important industry catalysts.
Simultaneously, this year's outbound licensing transactions continue to show progress. As of end-August, domestic innovative drugs have reached 83 license-out transactions (57% year-over-year growth, 92 for full year 2024), with disclosed total amount reaching $84.531 billion (185% year-over-year growth, $48.813 billion for full year 2024), with domestic pharmaceutical companies' global competitiveness continuously strengthening.
**(3) New Energy: Technology Breakthroughs and Anti-Competition Dual Drive, Providing New Elastic Directions**
New energy, as a sector with significant previous underperformance but strong recent marginal changes, may attract funds seeking elastic returns for "high-to-low switch" allocation, becoming a new direction providing elasticity. Moreover, with high policy attention to "anti-competition," clear bottom in inventory and capacity cycles, and thorough chip clearing, the industry is in a phase of desensitization to negative news and sensitivity to positive news.
Notably, this round of new energy market explosion did not simply begin with positive policy stimulus, but further overlaid logic of new technology breakthrough validation and industry cycle reversal:
First, new technology breakthroughs represented by solid-state batteries empower the industry to welcome a second growth pole, with accelerating industrialization helping the sector return to technology growth narrative. Especially some lithium battery equipment leaders' better-than-expected interim performance further validates that solid-state batteries are not simply driven by expectations and sentiment, but have begun to have performance logic with accelerating industrialization.
Second, signals of improved supply-demand patterns in new energy traditional main business are further strengthened, with fundamentals gradually emerging from bottom. After main business has safety margins, investment logic becomes smoother.
**(4) New Consumption: Higher Odds Ratio, Peak Season Catalysts and Prosperity Expectations Improve Win Rate**
Current odds ratio is high, with peak season catalysts and prosperity expectations improving win rate. Current new consumption crowding has fallen to low levels, with win rate improvement under consumption peak season catalysts like Mid-Autumn and National Day holidays, representing a direction expected to benefit from rotational catch-up.
**(5) Prosperity Cycles (Metals, Chemicals): Multiple Catalysts of "Overseas Easing + Anti-Competition + Subdivision Growth"**
"Overseas easing + anti-competition + subdivision growth" provide multiple catalysts. Overseas easing provides dual support for metals and chemicals prices and demand; "anti-competition" deep beneficiary directions, especially chemical leaders' valuations already have high safety margins; strategic minor metals and chemical new materials provide subdivision growth logic.
**Risk Warning:** Policy easing below expectations, Federal Reserve rate cuts falling short of expectations, etc.