China Merchants Securities has released a research report stating that looking ahead to November, the firm believes the market will experience a mild bottoming before a rebound, requiring a defensive-first, offensive-later approach while waiting for opportunities to emerge. The primary principle currently governing the market is chip pressure, and before this pressure is resolved, the recommendation is to defend through dividend plays, domestic demand directions, and similar areas. However, after a rapid market correction, betting on a rebound is a high-odds trade, so once chip pressure is resolved and right-side opportunities appear, clear offensive opportunities will emerge. Additionally, from the perspective of important events, the resolution of major events such as the U.S. midterm elections and the APEC meeting will bring a window for a rebound. Translating this into allocation ideas, November is not suitable for betting on a single style; instead, a balanced allocation around oversold rebound, cyclical stability, and dividend optimization is recommended. The main views of China Merchants Securities are as follows:
Market Trend Assessment and Core Logic: Defend First, Attack Later, Wait for Opportunities
The core short-term contradiction in A-shares lies in chip pressure. In July it was TMT trading congestion, and currently public funds and fixed-income-plus products are forming negative feedback. Resolution may rely on ETF capital breaking the deadlock or waiting for selling pressure to naturally dissipate. After a sharp market decline, the odds of betting on a rebound are relatively high, with priority given to sectors that have fallen significantly but have solid medium-to-long-term profit logic. On the overseas front, U.S. equity leaders' earnings falling short of expectations stems from a mismatch between industry trends and valuation pricing, as earlier optimistic expectations were fully priced in with insufficient margin for error. Federal Reserve policy depends on inflation, and the evolution of the U.S.-Iran conflict will determine oil prices and the rate hike path. Key external events to track in November include the APEC meeting, U.S. midterm elections, and the U.S.-Iran situation. A-share third-quarter earnings showed divergence, with information technology and resource products leading, while pharmaceuticals, certain consumer segments, and TMT sub-sectors showed marginal improvement. Fourth-quarter earnings recovery has support, but overseas constraints remain. On allocation, a balanced approach is advised, centered on three main lines: oversold rebound, cyclical stability, and dividend optimization, with attention to electronics, chemical pharmaceuticals, industrial metals, petroleum and petrochemicals, food and beverages, and banking.
Style and Industry Allocation Approach: Balanced Allocation with Value Bias
On the style level, a balanced allocation with a value bias is recommended. Recommended index combinations include: CSI 300, STAR 50, CSI Dividend, Value 100, and CSI Medical. On industry allocation, betting on a single style is not advisable; a balanced allocation around the themes of "oversold rebound, cyclical stability, and dividend optimization" is recommended, with focus on the following directions: first, the oversold rebound direction, with typical industries such as semiconductors, industrial metals, and chemical pharmaceuticals; second, the cyclical stability direction, where industrial metals, petroleum and petrochemicals, and other cyclical resource products are still expected to benefit from continued supply-demand dynamics; third, the dividend optimization direction, with focus on banking, food and beverages, and other industries with relatively stable or improving profitability and sustained dividends. For November, key attention is recommended on electronics (semiconductors, components), chemical pharmaceuticals, industrial metals, petroleum and petrochemicals, food and beverages, and banking.
Liquidity and Capital Supply-Demand: November Incremental Capital Supply-Demand Expected to See Net Inflow, ETFs Likely to Remain the Main Incremental Force
On the external liquidity front, the Federal Reserve may still raise rates further in December, and the subsequent policy path will be highly dependent on inflation and employment data verification, with U.S. Treasury yields likely to continue oscillating at high levels. On the stock market capital supply-demand front, trackable capital in the stock market turned to net inflow in October, with ETF net inflows offsetting net financing outflows. On the capital supply side, new equity fund issuance declined compared to September; margin financing risk appetite weakened, with net outflows accelerating; ETF contrarian net inflows supported the market. On the capital demand side, major shareholders made net increases for the first time in nearly two years; IPO issuance scale decreased, refinancing scale declined, and capital demand scale fell. In terms of main incremental capital in October, ETFs became the market's primary incremental capital.
Mid-Level Fundamentals and Industry Recommendations: A-shares Entering Earnings Verification Period After Valuation Clearing
A-shares have entered a period of earnings verification after valuation clearing, with the market shifting from "valuation killing" to "repricing." On corporate earnings, third-quarter performance growth slowed under the influence of a high base, capital market volatility, and price increases. Information technology and resource products maintained leading growth rates, while low-base consumer sectors and pharmaceuticals showed marginal earnings improvement; financial real estate and mid-stream manufacturing continued to face earnings pressure. On fundamentals, sectors with relatively high prosperity in October were mainly concentrated in upstream resource products and certain information technology and consumer sectors. In the resource products sector, cement, crude oil, and most chemical product prices rose; in information technology, memory prices showed divergence; in mid-stream manufacturing, most new energy industry chain prices declined, and automobile production and sales year-on-year declines widened; in financial real estate, A-share trading activity declined, and property transactions remained weak; in consumer services, liquor and fresh milk prices rose; in utilities, natural gas prices rose. Overall, for November, allocation around "oversold rebound, cyclical stability, and dividend optimization" is recommended, with key attention on electronics (semiconductors, components), chemical pharmaceuticals, industrial metals, petroleum and petrochemicals, food and beverages, and banking.
Track and Industry Trend Investment: Overview of Overseas Tech Leaders' Financial Reports
High valuations and high growth expectations have reduced the market's tolerance for earnings volatility, and cash flow and financing capacity have become key to assessing the sustainability of AI investment. Although the market has somewhat anticipated free cash flow turning negative, when funding pressure actually materializes, higher valuations and crowded trades may still amplify stock price adjustments caused by localized metrics falling short of expectations. At the same time, the market's testing standards have expanded from revenue and profit to capital expenditure, free cash flow, and future guidance, placing greater emphasis on the funding cost of growth and the pace of return realization. The market both expects companies to continue increasing AI investment and achieving better-than-expected growth, and requires that the commercialization returns of AI businesses and the cash generation capacity of mature businesses support new investment. However, compared to single-quarter earnings volatility of certain individual stocks, what deserves more attention is whether financing constraints will substantively affect capital expenditure: if internal cash flow is insufficient and external financing is also constrained, causing AI infrastructure investment to slow, that may be the point at which a key impact on industry trends occurs.
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