CITIC Securities released a research report stating that in the past two weeks, stock ETFs have seen net subscriptions against the trend, with continued popularity of the A50 ETF, bringing continuous incremental funds to leading A-share companies with high ROE and high FCF. The Third Plenary Session will be held in July, and when more positive policies or reform signals are announced, foreign capital may further accelerate its influx, becoming an important force in pushing the index steadily higher. In terms of style, the leading style of high ROE and high free cash flow is expected to make a comeback. CITIC Securities' main points are as follows: Recent structural changes in ETFs and foreign capital. Although overall ETF net subscriptions have narrowed in May, in the past two weeks ETFs have seen net subscriptions against the trend. Structurally, among broad-based index ETFs, the A50 ETF has seen continued net subscriptions, with a cumulative net subscription of 6 billion shares, corresponding to a net inflow of 6.4 billion yuan. Looking at the recent structural changes in northbound capital, with the RMB to USD exchange rate relatively stable recently, northbound capital managed by foreign securities firms, which are sensitive to exchange rates, continue to maintain a small net inflow, while northbound capital managed by foreign banks for longer-term investments has seen a marginal net outflow to some extent. The Third Plenary Session will be held in July, and when more positive policies or reform signals are announced, foreign capital may further accelerate its influx, becoming an important force in pushing the index steadily higher. At the same time, the structural net inflow of the A50 ETF is expected to bring continuous incremental funds to leading A-share companies with high ROE and high FCF, thereby strengthening the leading style of high ROE and high free cash flow. Monetary policy and interest rates: The People's Bank of China injected a net of 604 billion yuan into the open market last week (5/27-5/31), and there will be 614 billion yuan of reverse repurchase coming due in the next week. The money market interest rates have risen, short-term government bond yields have risen, long-term government bond yields have fallen, the issuance scale of interbank certificates of deposit has decreased, and the issuance rates have varied. As of May 31, R007 rose by 4.3 basis points, DR007 rose by 4.4 basis points, the 1-year government bond yield rose by 0.7 basis points, the 10-year government bond yield fell by 2.1 basis points, the issuance scale of interbank certificates of deposit decreased by 596.5 billion yuan, and the 1M/6M interbank certificate deposit rate rose, while the 3M interbank certificate deposit rate fell. Supply and demand of funds: The secondary market has seen a shift from net inflows to small net outflows in tracked funds. Northbound capital has seen a net outflow of 5.66 billion yuan; margin balance has decreased with a net selling of 3.77 billion yuan; ETFs have seen a net inflow of 44.6 billion yuan; new equity-based mutual fund shares have increased. The scale of net reduction by major shareholders has increased, while the announced planned reduction scale has decreased. Market sentiment: Last week, the trading activity of margin funds weakened, and the equity risk premium increased. Styles and major industry sectors that saw relatively higher attention last week were mainly focused on the ChiNext 50 Index. The VIX index rose, indicating a decrease in risk appetite in overseas markets. Market preferences: In terms of industry preferences, the electronics, utilities, and agriculture sectors received relatively high net inflows of funds. In terms of race preferences, northbound capital has seen net inflows in industrial internet, domestic substitutes for semiconductors, and metaverse, while margin funds have increased positions in liquor, smart driving, and domestic substitutes for semiconductors. The application and redemption of broad-based ETFs are mixed, with more subscriptions for the ChiNext (including the ChiNext 50) ETF and more redemptions for the Sci-Tech 50 ETF; industry-specific ETFs are mainly subscribed, with more subscriptions for pharmaceutical ETFs and more redemptions for military industry ETFs. The highest net subscription was for Huaxia ChiNext ETF; the highest net redemption was for Huaxia SSE STAR Market 50 ETF. Overseas changes: The US core PCE data remained weak with a flat personal consumption expenditure unexpectedly decreasing, while initial jobless claims slightly increased. The US core PCE matched expectations on a year-over-year basis for April and fell below expectations on a month-over-month basis. The initial jobless claims in the US for the week ending May 25 were 219,000, slightly higher than the expected 218,000 and higher than the previous value of 215,000. Risk warning: Economic data falling short of expectations; overseas policies tightening more than expected.