CITIC Construction Investment: The A-share market may recover in October, continue to attack and defend, and have a balanced allocation

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that the decline in A-shares before the holiday season was driven by the concentrated resonance of several short-term factors, and the post-holiday market is expected to recover after the short-term factors have been digested. The future market looks at profit in the short term: A-shares will enter a performance verification period in October; medium-term policy expectations: a new round of policy strength may arrive; long-term focus on liquidity: the probability of interest rate hikes in October has declined, but interest rates on 30-year US Treasury bonds are still high. The bank expects that after recovering the market after the holiday season, the overall pattern of A-shares will continue to fluctuate, and continue to have a balanced balance between offense and defense. Offensive side: AI computing power (PCB, CCL, electronic distribution, etc.) and innovative drugs are the core. Defense side: Use dividend sectors such as banks, non-banks, coal, and utilities as bottom positions.

CITIC Construction Investment's main views are as follows:

A-shares fluctuated and declined in September, and may recover in October

The pre-holiday decline in A-shares was driven by the concentrated resonance of a number of short-term factors. The post-holiday market is expected to recover after the short-term factors have been digested. The bank still maintains the “top, bottom” shock pattern judgment. After a short-term rapid decline in the market, it should not panic, but can actively seek opportunities for the bottom to step in and increase positions. As the general market index approaches the point in late July, the bank believes that the possibility of medium- to long-term capital entering the market to provide liquidity is also increasing.

From the perspective of A-share market sentiment, the sentiment index fell again after rising to around 52 on September 22. It failed to break through 55. It even quickly fell below 50, and fell below 38 again by the end of the month. Looking at the short term, the obvious contraction of the market before the National Day and the decline in sentiment are in line with seasonal effects. Post-holiday sentiment is expected to pick up and the market is being repaired. Looking at the long-term, compared to the August sentiment index, which failed to break through 60, the September sentiment index did not even break through 55 and immediately began to decline, leading to a further decline in the high point of the sentiment index. In the future, we need to be wary of the incremental capital stock game. We can observe whether the post-holiday sentiment index can break through 55 and rise back to the 60-65 range.

A-share future market outlook: short-term profit, medium-term policy expectations, long-term focus on liquidity

Looking at profit in the short term: In October, A-shares entered the performance verification period. The bank expects A-shares to enter the performance verification period in October, and industry sectors with high certainty in performance growth are expected to be favored by capital. The bank expects the technology sector to maintain high growth, midstream manufacturing will improve marginally, and the upstream cycle will decline somewhat due to the high base. The industry segment boom is further concentrated on technological hardware, upstream resources, and overseas manufacturing. The increase in profit expectations is focused on AI hardware, biological products, and some financial pharmaceuticals.

Medium-term policy expectations: A new round of policy strength may come. In the third quarter of this year, the market's expectations for introducing policies to boost the economy were low. This suppressed the market's risk appetite to a certain extent. The bank believes that with economic data, especially indicators related to domestic demand and consumption, continuing to decline, and the introduction of a series of policy combinations at the end of September, a new round of policy strength may arrive.

Long-term focus on liquidity: The probability of interest rate hikes in October has declined, but interest rates on 30-year US Treasury bonds are still high. Although the probability of the Fed's interest rate hike in October declined, the yield on US 30-year Treasury bonds is still rising rapidly, which will continue to suppress the A-share market. In the future, we need to pay close attention to the yield trend of US 30-year Treasury bonds. This may be the core indicator for equity investment in the coming year.

Industry allocation ideas: adhere to balanced allocation, short-term technology or welcome market recovery

The bank expects that after recovering the market after the holiday season, the overall pattern of A-shares will continue to fluctuate, and continue to have a balanced balance between offense and defense. Offensive side: AI computing power (PCB, CCL, electronic distribution, etc.) and innovative drugs are the core. Defense side: Use dividend sectors such as banks, non-banks, coal, and utilities as bottom positions.

Risk Alerts

(1) The effect of the domestic demand support policy was lower than expected. If subsequent domestic real estate sales and investment data are slow to recover, inflation continues to be sluggish, consumption is not clearly boosted, corporate profit growth continues to decline, and economic recovery is ultimately falsified, then the overall market trend will be under pressure, and overly optimistic pricing expectations will face correction.

(2) Risk of deterioration of the geographical situation in the Middle East. Be wary of the further escalation of the US-Iran conflict. The upward trend in international oil prices will increase global inflationary pressure, and limit the monetary easing space for domestic and foreign central banks. If inflation is viciously interpreted, it may drag down aggregate economic demand, increase the risk of global economic recession, and have an impact on the equity market.

(3) The fluctuations in the US stock market exceeded expectations. If the US economy deteriorates beyond expectations, or if the Federal Reserve's easing falls short of expectations, it may cause large fluctuations in the US stock market, which will also have a spillover effect on domestic market sentiment and risk appetite.