Recent market turbulence has seen global risk assets, including A-shares and Hong Kong stocks, adjust in sync with U.S. equities amid fading Fed rate-cut expectations and "AI bubble" concerns. However, Industrial Securities Co.,Ltd. argues that Chinese assets have now priced in these external shocks, presenting a valuation opportunity as sentiment stabilizes.
**Key Drivers for Recovery** 1. **Fed Policy Shift**: Following dovish remarks by the Fed chair, market expectations for a December rate cut surged from 30% to 71%, easing liquidity concerns that previously pressured global risk appetite. 2. **AI Optimism**: With tech giants like Google rolling out advanced AI applications (e.g., Gemini 3), fears of an "AI bubble" are receding as capital expenditures translate into tangible productivity gains.
**Valuation Opportunities** - **A-Shares**: The CSI All Share Index has dipped below its 60-day moving average, a historically reliable signal of limited downside and impending rebound. - **Hong Kong Stocks**: Heavy short-selling and depressed valuations in the Hang Seng Tech Index (near "tariff-equivalent" levels) suggest upside potential as external pressures abate.
**China’s Unique Strengths** Unlike global peers, Chinese assets are underpinned by domestic catalysts: - Enhanced industrial competitiveness - Policy clarity post-year-end economic meetings - Stable macroeconomic fundamentals
**Sector Recommendations** 1. **Tech & Growth**: Focus on AI hardware/software (semiconductors, IT services), innovation-driven sectors (biotech, robotics), and undervalued Hong Kong internet stocks. 2. **Cyclicals**: Target "anti-involution" sectors (chemicals, steel) and consumption recovery plays (leisure foods, tourism) with sustainable earnings momentum.
The report emphasizes a "China-first" strategy, prioritizing industries poised for 2026 profit growth above 30%, spanning AI, advanced manufacturing, and selective consumer segments.
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