Markets experienced a surge and subsequent retreat throughout the trading session yesterday, with the three major indices all declining over 2%. The Shanghai Composite Index fell below the 4100-point level. The STAR 50 Index dropped more than 3%, despite having risen over 3% earlier in the day. Combined turnover on the Shanghai and Shenzhen exchanges reached 3.48 trillion yuan, an increase of 527.9 billion yuan from the previous session. By sector, the glass substrate concept showed resilience against the broader market trend. The smart driving concept also performed actively, while the humanoid robot concept saw volatile gains. The banking sector strengthened amid fluctuations, with China Construction Bank rising over 2% to reach a new historical high in its share price. At the close, the Shanghai Composite Index was down 2.04%, the Shenzhen Component Index fell 2.07%, and the ChiNext Index declined 2.35%.

In today's morning briefings, CITIC SEC emphasized that the easing of macro liquidity and the inflation cycle will be crucial themes for major asset allocation in the second half of the year. China Securities Co., Ltd. noted that semiconductor equipment parts are poised to contribute greater elasticity under dual domestic replacement trends. Tianfeng Securities Co.,Ltd. believes the global Solid Oxide Fuel Cell (SOFC) sector is entering a phase of accelerated capacity expansion.

**China Securities Co., Ltd.: Semiconductor Equipment Parts to Offer Greater Resilience Amid Dual Domestic Replacement Trends** Under dual domestic replacement trends, semiconductor equipment parts are expected to provide higher elasticity. Trend One: The localization rate of domestic semiconductor equipment has increased rapidly since 2021. The domestic semiconductor equipment localization rate in China has risen from 4.91% in 2018 to 18.02% in 2024, showing a continuous upward trend. The pace of increase has accelerated significantly since 2021, indicating that equipment localization has entered an accelerated phase. China Securities Co., Ltd. anticipates the semiconductor equipment localization rate will continue to rise. Trend Two: The localization level of upstream parts urgently needs improvement. The localization rate of semiconductor equipment parts in mainland China is improving but remains low overall. As external sanctions gradually extend from complete equipment to upstream parts, enhancing parts localization has become imperative. Against the backdrop of these overlapping dual domestic replacement trends, China Securities Co., Ltd. believes the elasticity from the scaling up of domestic parts production will be higher than that for complete equipment.

**CITIC SEC: Easing Macro Liquidity and Inflation Cycle to Be Key Allocation Themes for H2** Research indicates that shifts in the macro cycle determine the direction of asset allocation. The easing of macro liquidity, coupled with upward cycles in inflation and corporate profits, will form the most important allocation themes for major assets in the second half of the year. Mapping the macro cycle to major asset classes, allocations should avoid assets overly reliant on expectations of loose liquidity and focus instead on the high certainty offered by profits and inflation. Base metals, crude oil, and equity assets in both China and the US are likely to be relatively certain directions in the second half. The Chinese bond market also presents allocation opportunities, though the proportion allocated to bonds depends on an investor's risk preference and expected returns. US Treasuries are expected to face pressure in an environment of high inflation and limited scope for significant Federal Reserve easing.

**Tianfeng Securities Co.,Ltd.: Global SOFC Sector Enters Accelerated Capacity Expansion Phase** As data center scale continues to expand, efficient and reliable power supply solutions are becoming increasingly critical. Tianfeng Securities Co.,Ltd. believes Solid Oxide Fuel Cells (SOFC) demonstrate unique advantages in adapting to data center power supply needs, and related companies are accelerating capacity expansion. SOFC costs are projected to maintain an annual double-digit reduction, with economic efficiency potentially surpassing that of gas turbines. SOFC costs have declined at a double-digit rate for over a decade, and this cost reduction trend is expected to continue. Future levelized cost of electricity for SOFC may achieve parity with gas turbines. Currently, Bloom Energy's SOFC solutions are competitive with grid power in most US markets and also competitive against various off-grid alternatives. Bloom Energy's existing capacity is 1GW, with plans to expand to 2GW by the end of 2026. Ceres Power collaborates with manufacturers like Weichai, Doosan, Delta, Denso, and Thermax through technology licensing. Doosan has built 50MW of capacity, Delta's capacity is expected to commence production by the end of 2026, and Weichai also has expansion plans. The global SOFC sector is entering a phase of accelerated capacity expansion.