Core view: Major broad-based A-share indices generally pulled back this week, with small caps relatively outperforming. At the sector level, real estate, coal, and beauty care led gains, while nonferrous metals, telecommunications, and power equipment led declines.
On fundamentals, electronics, agriculture, forestry, animal husbandry and fishery, building materials, pharmaceutical and biological products, and media saw the largest upward revisions to earnings forecasts.
In terms of industry prosperity, coal prices rebounded, industrial metals rose broadly, Brent crude fell back, chemical products recovered, midstream materials remained weak, and storage prices moved higher.
On valuations, electronics, telecommunications, and machinery equipment were relatively high, while beauty care, food and beverage, and non-bank financials were relatively low.
On capital flows, telecommunications, electronics, and machinery equipment led net margin inflows.
In terms of trading, TMT continued to heat up, while pharmaceutical and biological products and real estate also saw rising activity.
On sector allocation, ahead of the National Day long holiday, short-term risk appetite is under pressure and defensive positioning is favored; over the medium term, focusing on prosperity and capital flow clues, attention should be paid to growth directions such as electronics, telecommunications, and computers, as well as industries with improving prosperity such as biological products, industrial metals, and chemical raw materials.
Weekly market review: Major broad-based indices generally declined this week. The Shanghai Composite Index and East Money All-A fell 0.60% and 0.92%, respectively, while the CSI 300 fell 1.51%; the ChiNext Index fell 2.48%, and the STAR 50 fell 1.86%. Among large caps, the SSE 50 edged down 0.63%; among small and mid-caps, the CSI 500 fell 2.25%, the CSI 1000 fell 1.53%, and the CSI 2000 rose 0.55%, with small caps performing relatively better.
At the industry level, 9 of the 31 Shenwan first-level industries recorded positive returns this week. Real estate, coal, and beauty care performed well, rising 2.3%, 2.1%, and 1.7%, respectively; nonferrous metals, telecommunications, and power equipment led declines, falling 4.2%, 3.0%, and 2.5%, respectively.
Sector comparison fundamentals: In terms of earnings forecasts, the industries with the largest upward revisions to profit growth forecasts this week were electronics, agriculture, forestry, animal husbandry and fishery, building materials, pharmaceutical and biological products, and media; the industries with the largest marginal improvement in expected profit growth revisions were electronics, agriculture, forestry, animal husbandry and fishery, building materials, power equipment, and textiles and apparel.
Among second-level industries, biological products, airports, cement, medical devices, and glass and fiberglass saw relatively large marginal improvements in expected profit growth revisions.
In terms of industry prosperity, coal prices rebounded, while steel and building materials were generally weak; industrial metal prices rose broadly, with copper and tin leading gains; Brent crude fell 4.2%, chemical product prices recovered, shipping indices diverged, and agricultural products and baijiu prices fell back; midstream material prices were generally weak, while rubber futures rose 5.0% against the trend; storage prices moved higher; market activity slightly declined.
Valuation: Valuations pulled back overall. Some major valuation indicators for electronics, telecommunications, machinery equipment, coal, and banking were at relatively high percentiles over the past five years, while beauty care, food and beverage, and non-bank financials were relatively low; among second-level industries, components, electronic chemicals, communication equipment, and glass and fiberglass had relatively high valuations, while some indicators for industrial metals, airports, securities, insurance, and cosmetics were at relatively low percentiles.
Capital flows: Margin financing saw relatively large outflows this week. As of Thursday, the industries with the largest margin financing balances were electronics, non-bank financials, power equipment, pharmaceutical and biological products, and nonferrous metals. Telecommunications, electronics, and machinery equipment led net margin inflows, while basic chemicals, utilities, and agriculture, forestry, animal husbandry and fishery led net margin outflows; among second-level industries, components, communication equipment, and photovoltaic equipment saw relatively large net inflows.
Trading activity: The trading heat of the TMT sector continued to rise this week, while trading heat in pharmaceutical and biological products and real estate also increased noticeably. Among second-level industries, turnover percentile rankings rose significantly for computer equipment, cement, biological products, and real estate development, while trading heat also improved in chemical products and medical services; components, glass and fiberglass, and medical services all had two trading heat indicators at relatively high percentiles.
Sector allocation: The approach of the National Day long holiday may impose some constraint on risk appetite, with only three trading days left before the holiday, so short-term attention should be paid to pressure on risk appetite before the break; over the medium term, focusing on industry prosperity, earnings improvement, and capital inflow clues, attention should be paid to growth directions such as electronics, telecommunications, and computers, as well as improving prosperity directions such as biological products, medical devices, industrial metals, and chemical raw materials.
Risk warnings: Risks of statistical data errors; risks of domestic and overseas economic fluctuations; market liquidity risks; and risks of intensifying overseas geopolitical conflicts.
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