China A-shares Equity Strategy: Onshore flows remain subdued, but AI still anchors the growth side of our barbell approach

Domestic liquidity in A-shares remains subdued, with velocity, margin financing and ETF flows at low levels, and we have yet to see signs of meaningful funding injection into the A-share market by central government-backed financial institutions. Under the prevailing style, we continue to favor a barbell approach, with high yielders on the defensive side, and AI and CXO/Innovative drugs on the growth side. We acknowledge that geopolitical concerns do weigh on AI valuations, and that momentum money participation in AI, though still at an elevated level on a cross-sector basis, has been declining. We see AI sub-sectors with reasonable valuations as a cushion against downside risks: Memory and Server/switch ODM/OEM (JPM top pick: Huaqin) are two verticals with fair FTM P/S and decent FTM sales y-y. China issued guidelines on developing new quality productive forces on 9 October, with a dedicated Article 10 elaborating on the "AI+" action, signalling a clear policy-priority setting for the