China Galaxy Securities (CGS) has released a research report stating that the medium-term upward trend in the A-share market remains intact. The recent surge of the ChiNext Index to new highs is primarily driven by a dual engine of favorable industry cycles and strong earnings delivery. The defining characteristic of this market phase is the materialization of high growth, underpinned by robust fundamentals. Currently, capital in the A-share market is consistently shifting from low-growth, mature sectors like finance, real estate, and traditional cyclical industries towards high-growth, high-tech tracks characterized by substantial R&D investment and competitive barriers. Supported by continuous profit growth, steady valuation increases, and ongoing capital inflows, the medium-term uptrend is expected to persist, reinforcing the focus on key thematic opportunities.
In the short term, however, external market uncertainties cannot be ignored. The transition of the Federal Reserve Chairmanship has entered a critical stage, and the future path of overseas monetary policy adjustments remains uncertain. Compounded by persistently high oil prices and rising inflation expectations, the continued high volatility of the US dollar index coupled with climbing US Treasury yields is creating a combined effect. These factors are temporarily constraining the valuation recovery of risk assets globally due to shifts in capital flows. Following the A-share market's volatile rise and the ChiNext Index hitting record highs, there is a possibility of some profit-taking and increased investor divergence. The short-term market is likely to shift to a new rhythm characterized by "volatile consolidation, slow bullish advancement, and a structural bull market."
CGS's key views for the week are as follows: Market Performance This Week: (1) During the week (May 11-15), the A-share market experienced a pattern of rising and then falling back, with major broad-based indices showing divergent performance. The All-Share Index fell by 0.74%. The ChiNext Index and the STAR 50 Index rose by 3.50% and 3.40% respectively, while other major indices recorded declines, with the BSE 50 Index dropping by 4.04%. (2) In terms of market style, large-cap stocks performed relatively better this week, with the CSI 300 Index (-0.25%) outperforming the CSI 1000 Index (-0.67%). Among the five major style indices, most declined, with only the growth style recording gains. (3) At the sector level, most primary sectors declined. The top three gainers were Communications, Electronics, and Machinery & Equipment. Nonferrous Metals, Steel, and Beauty & Personal Care were among the biggest decliners.
Capital Flows This Week: (1) Trading activity in the A-share market continued to increase. The average daily trading volume for the week was 3,371.5 billion yuan, an increase of 208.015 billion yuan from the previous week. The average daily turnover rate was 2.2207%, up 0.1 percentage points from the previous week. (2) As of Thursday, the balance of margin trading and securities lending reached 2,882.744 billion yuan, an increase of 80.246 billion yuan from the previous week. (3) From May 7 to 13, global funds recorded a net outflow of $10.159 billion from A-shares (previous: $4.447 billion outflow). Within this, overseas funds recorded a net inflow of $434 million (previous: $433 million outflow).
Valuation Changes This Week: The PE (TTM) valuation of the All-Share Index decreased by 0.68% from the previous week to 24.29x, placing it at the 96.45th percentile since 2010. The PB (LF) valuation fell by 0.49% this week to 1.93x, at the 57.64th percentile since 2010. The equity risk premium for the All-Share Index is 2.3507%, currently near -1.79 standard deviations from the 3-year rolling average (3.3054%), at the 40.62nd percentile level since 2010.
Investment Opportunities: Focus Area 1: Maintain focus on the core high-tech growth theme. TMT and midstream manufacturing are the primary drivers of the recovery. Sectors such as semiconductors, other electronics, communication equipment, marine equipment, and batteries have shown strong performance. However, it is important to note that as some high-flying segments experience divergence, rotational dynamics within the theme may emerge. Relatively underperforming areas like commercial aerospace and humanoid robotics are attracting investor attention. Focus Area 2: The recovery momentum is extending to resource products and some consumer services. This includes sectors like basic chemicals, nonferrous metals, building materials, and steel, which benefit from the rebound in PPI and price increase trends. Simultaneously, certain consumer segments are benefiting from improving business conditions and policy support. Additionally, the defensive value of portfolio anchors should not be overlooked. Sectors like coal, finance, and utilities warrant attention.
Risk Warnings: External uncertainty risks; risks of policies falling short of expectations; risks associated with unstable market sentiment and ongoing liquidity adjustments.
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