Shanghai Securities: The Market May Continue to Break New Ground in Late August

Sources close to Shanghai Securities have released a research report stating that, looking ahead to August, the market may present an index of volatility in early August, followed by a return to its previous upward trend in late August and possibly continuing to break new ground. In early August, after a significant market upswing, companies' earnings reports will be released, with some stocks experiencing a correction before the release, while others will see their performance improve. By late August, companies' mid-year reports will have been released, leading to a period of stability and calm in the market.

In early August, concerns about the intensification of US-China tariffs may still be recurring, but after August 12, new tariff events are likely to unfold, followed by the People's Congress and the Central Committee meeting, which could lead to a recovery in risk appetite. From a mid-term perspective, half-year reports are expected to confirm that listed companies' overall free cash flow has improved, reinforcing the logic of re-estimating A-shares; meanwhile, the market's current resistance level will be tested by accumulating profit effects and continuous inflows of external funds, ultimately leading to A-shares potentially breaking new ground in late August.

The main views of Shanghai Securities are as follows:

Macro Analysis and Key Logic: Looking ahead to August, the market may present an index of volatility in early August, followed by a return to its previous upward trend in late August and possibly continuing to break new ground. From the current macroeconomic trends, we see that the overall demand has continued to rise, with government spending still driving economic growth, exports stable, and real estate and investment under pressure. The 7th Politburo meeting's key tone was optimistic, focusing on long-term deployments, with limited information but consistent with expectations. Based on the current economic situation, we expect that listed companies' mid-year reports will continue to show improvements in operating cash flow margins, while capital is expected to decline and further confirm the trend of improving free cash flow for leading listed companies (represented by Shanghai and Shenzhen 300 non-financial stocks).

From a short-term perspective, we need to pay attention to whether US-China tariffs will escalate further and what the timeline will be after August 12. In late August, the market may form new expectations around the 15th Five-Year Plan discussion at the People's Congress. From a cash flow and external funds perspective, we still recommend quality growth + thematic portfolios with high ROE, free cash flow levels, and improving performance (300 or 500 quality growth stocks), as well as sector-focused ETFs, such as AI applications, AI hardware, non-bank finance, national defense, and new consumer goods.

Style and Sector Configuration: Shanghai Securities believes that the market's volatility will increase in August, with a focus on mainstream styles. Specifically, in this economic environment where demand is weak or stable, liquidity-driven factors are still dominant in the stock market. The second quarter's Politburo meeting emphasized policy continuity, stability, flexibility, and predictability, while monetary policy remains unchanged. The third quarter saw a surprise drop in US non-farm employment data, leading to increased expectations of Fed rate cuts, which could lead to a further increase in market volatility. Fourthly, the market's transaction and external funds dynamics are still driven by the dominant inflows from financing institutions, private equity funds, and thematic ETFs, which will continue to favor smaller-cap stocks before other types of external funds enter the market.

Based on these factors, Shanghai Securities believes that the market's volatility will increase in August, with a focus on quality growth + thematic portfolios, especially those with high ROE, free cash flow levels, and improving performance (300 or 500 quality growth stocks), as well as sector-focused ETFs such as TMT, manufacturing, and consumer goods.

Flow and Funds Supply: In August, external funds may continue to net inflows, while financing institutions, private equity funds, and thematic ETFs will remain active. From a macroeconomic perspective, the People's Bank of China continued to maintain liquidity, with overall macroeconomic conditions remaining loose. The US non-farm employment data dropped, leading to increased expectations of Fed rate cuts, which could lead to further increases in market volatility. The second quarter saw a surprise drop in US non-farm employment data, leading to increased expectations of Fed rate cuts, which could lead to further increases in market volatility.

From a funds supply perspective, new IPOs and secondary offerings will continue to drive demand for external funds. We expect that the market's current resistance level will be tested by accumulating profit effects and continuous inflows of external funds, ultimately leading to A-shares potentially breaking new ground in late August.

Mid-term Outlook and Sector Recommendations: Focus on sectors with improving mid-year reports and high growth expectations. From a profitability perspective, we expect that listed companies' overall free cash flow will continue to improve, while some sectors will see their performance recover. We recommend focusing on sectors with strong growth potential, such as TMT, manufacturing, consumer goods, and national defense, which have the potential to break new ground in late August.

AI Applications and Industry Trends Investment: The 2025 World AI Conference is expected to open in Shanghai, with a focus on AI commercialization and application development. The 2025 World AI Conference will be held from July 26th to 28th at the Shanghai Expo Center, Shanghai Exhibition Hall, and Xuhui West Bank. This event will feature a theme of "Intelligent Era: Harmony and Coexistence" and core characteristics including model applications, embodied intelligence, and smart hardware. The exhibition area will exceed 70,000 square meters, attracting over 800 companies, including Huawei, Tencent, Alibaba, SMIC, and 3000+ leading exhibits from around the world.

Risk Warning: Economic data may not meet expectations, policy understanding may be incomplete, and overseas policies may tighten further.