CITIC Securities has proposed four allocation frameworks to help investors navigate the present market environment.
The first is a steady-return strategy, centered on industries with high dividend yields or potential for supply clearing, focusing on supply-side changes when demand signals remain murky. The second is an expectation-driven strategy, similar to "aviation and hotels in 2022," identifying sectors where the market holds uniformly bearish views on fundamentals and institutional holdings are extremely low, then cashing out when final policy changes materialize, purely playing the valuation-repair trade. The third is an overseas interest rate decline strategy, taking North American AI investment and financing expectation corrections and corresponding declines in long-end overseas rates as the macro premise, waiting for the market to revise EPS expectations before assessing whether non-AI manufacturing exporters and resource stocks can emerge from short-term demand suppression. The fourth is a sector heat plus chip clearing strategy, akin to finding "residential energy storage and inverters in 2022," using super-expectation demand explosions in new areas as the timing to bottom-fish technology, seeking areas where institutions and active capital can resonate rather than simply betting on "inorganic" themes. All four strategies have the potential to capture relative returns and suit capital with different return-risk preferences, with market liquidity pressure determining which strategy dominates at any given stage.
Steady-return strategy: Seeking stable high-dividend and supply-clearing potential industries
Whenever the A-share market sees demand-driven logic loosen and momentum strategies reverse, steady-return strategies represented by PB-ROE typically achieve clear relative advantages. For example, during the momentum uptrend from February 2019 to August 2021, the momentum long portfolio gained 149.3% cumulatively, while the PB-ROE residual method and distressed reversal strategy rose 33.6% and 123.1% respectively. During the momentum adjustment period from September 2021 to January 2024, the momentum long portfolio fell 60.3% cumulatively, while the two PB-ROE strategies rose 20.7% and 12.1% respectively, significantly outperforming. The steady-return strategy can select industries along two paths: one combines high dividends with steady growth, focusing on white goods, textiles and apparel, food seasonings, and thermal/nuclear power; the other seeks profit recovery opportunities from slowing supply expansion and improving competitive landscapes, focusing on energy chemicals, oil shipping, highways, logistics, white goods, pharmacies, insurance, export-oriented brokers, and financially sound real estate leaders. The PB-ROE steady-return strategy differs from low-volatility dividend strategies in that it lacks simple quantifiable index replication tools and requires subjective judgment on ROE stability and changes, avoiding allocation at cyclical stock peaks. It is closer to a bottom-up constructed strategy rather than an industry-biased strategy, with clear diversification characteristics. This type of strategy is more suitable for allocation-oriented capital with longer liability duration that values cash returns and income stability.
Expectation-driven strategy: Finding "aviation and hotels of 2022"
From the three dimensions of contrarian positioning, expectation evolution, and chip clearing, domestic demand consumption can currently serve as an independent strategy. Travel consumption in 2022 provides a reference. Despite ongoing operational challenges, the hotel and catering and aviation and airport sectors in CITIC's secondary industry classification rose 21.9% and 11.2% respectively for the full year of 2022, ranking second and third among 106 valid industries. The stock price gains were mainly driven by recovery expectations after travel restrictions were lifted, not by concurrent earnings improvement. As policy expectations gradually materialized, related industries began to diverge. After the "Ten New Measures" were announced on December 7, the CITIC tertiary industry aviation index peaked in December 2022; after "Class B management" was implemented on January 8, 2023, the catering and hotel indices peaked in January and March of that year respectively. By the end of 2023, the aviation, catering, and hotel indices had fallen 30.0%, 28.4%, and 47.5% from their respective peaks. In a long-only market like A-shares, as long as expectations are sufficiently uniformly pessimistic and institutional holdings sufficiently low, expectation trading opportunities can emerge far ahead of fundamental improvement. When policy expectations materialize and expectation gaps converge, positions should be reassessed and exit timing decisively determined. This strategy only plays expectation evolution and valuation repair, and whether policy is sufficient to drive demand recovery is not the core. Currently positioning in domestic demand consumption is likewise trading on the expectation that the economy's domestic demand shortfall will receive policy support in the future, given that AI, exports, and resources—the three external demand themes with the strongest prosperity over the past few years—are currently facing challenges. In terms of capital attributes, the expectation-driven strategy is more suitable for absolute-return capital without rigid liability pressures that can bear waiting costs. Industries to watch include catering supply chains, airport duty-free, health supplements, medical devices, and leading liquor brands.
Overseas interest rate decline strategy: Can non-AI exporters and resources emerge from short-term demand suppression?
This year's export and resource sectors belong to the group that had very high expectations at the start of the year but ultimately saw enormous reality gaps, resulting in massive valuation corrections in what was otherwise a year of respectable earnings growth. Short-term demand for non-AI export sectors has been suppressed by multiple factors, including high oil prices, high interest rates, depreciation of non-US currencies, and high material costs. Meanwhile, the enormous foreign exchange losses from unexpected RMB appreciation and escalating China-Europe trade frictions have affected the market's forward valuation pricing of export sectors. But exports are not 2021's consumption—they have not suffered systemic damage to long-cycle demand logic, but rather have encountered short-term demand suppression and valuation suppression. Looking to next year, negative factors, even if not fully priced now, are at least fully recognized by the market (contrasting with the extremely optimistic market expectations at the start of the year). Whether it is oil prices, overseas interest rates, or high material costs, any marginal change could bring marginal demand improvement. Regarding the RMB exchange rate, the recent significant slowdown in appreciation against the dollar's central parity and deviation from offshore price movements indicate that excessively rapid unilateral appreciation is clearly approaching a concerning situation. Linear extrapolation of this year's appreciation process is unreasonable. If RMB appreciation slows or even shows two-way fluctuations, it would at least ease foreign exchange loss pressure. Regarding trade frictions, based on China-US experience, companies still respond to trade barriers through overseas expansion and global supply chain management in the long run. China is also orderly phasing out export tax rebates, which in the long term helps improve the competitive landscape of industries oriented toward overseas markets, though short-term pain may occur. For the resource sector, as North American AI investment slows, pressure on overseas bond markets will also ease. We believe that declining long-end overseas risk-free rates next year is a more likely scenario, and the sector most correlated with this is resources, though a round of EPS expectation downward revisions may still occur before bottoming. The export and resource sector strategy suits investors who can tolerate certain drawdowns and prefer bottom-up approaches. Before demand and valuation suppression factors reach an inflection point, pressure may persist. Key industries to watch include shipbuilding, diesel engines, two-wheelers, CXO, power tools, and power equipment.
Sector heat plus chip clearing strategy: Finding "residential energy storage and inverters of 2022"
Reviewing 2022, even during the accelerating market decline in April, some residential energy storage and inverter stocks had actually already bottomed ahead of the market and were very resilient. Truly offensive picks should be those where institutional capital actively enters against the trend, rather than simply avoiding institutions to bet on chips. This is the most important point to note when comparing the current situation to the 2022 new energy adjustment cycle. From the perspective of public fund heavy holdings, the average shareholding as a percentage of tradable shares for the "institutional resonance" portfolio rose from 6.2% in Q4 2021 to 16.9% in Q3 2022, higher than the 11.0% for the new energy core 15. The "theme-driven" portfolio's average shareholding as a percentage of tradable shares only rose from 3.1% in Q4 2021 to 5.7% in Q3 2022. In hindsight it was a rebound, but at the time, it was the Russia-Ukraine conflict creating new demand logic that drove offensive moves in sub-sectors within hot tracks, rather than a simple oversold bounce. The key to initiating the rally was the emergence of new demand, with old demand logic not significantly impaired, and then chip clearing. A period similar to the current North American AI investment cycle is China's real estate investment deceleration from 2011 to 2014, which similarly featured unmet demand, credit constraints, and high financing costs. When investment decelerated but maintained absolute growth, the most damaged were the strongest upstream segments of 2009-2010, while downstream segments, after experiencing a round of broad adjustment under high interest rates, embarked on sustained structural rallies. North American AI may gradually enter a similar path. Slowing investment growth will shorten the duration of supply-demand tightness in upstream hardware segments (supply capacity will eventually catch up, reversing the supply-demand balance), but the total AI application market pie continues to grow, with upstream segments' share of revenue and profit across the value chain bottoming and declining while downstream continues to rise. North American markets are already exhibiting similar logic. From June 22 to now, the strategy of going long applications (IGV index) and short hardware (SOX index) has achieved a return of 63.5%. However, similar strategies lack simple mapping in A-shares. Overall, in an environment where North American AI industry beta is cooling and the profit chain is migrating downstream, A-share technology sectors can no longer rely on aggregate narratives. Sustainable rallies require finding "residential energy storage and inverters of 2022"—names with both new demand explosions and earnings delivery that also align with institutional preferences. Edge AI, physical AI, AIDC new technologies, and domestic chain capacity breakthroughs are all possible directions. This strategy is best suited for institutional investors and active capital pursuing relative returns, requiring patience while waiting for demand explosions and chip clearing timing.
All four strategies have potential for relative returns; liquidity pressure determines which dominates at any stage
Market liquidity pressure and sentiment conditions determine which strategy dominates at any given stage. The steady-return strategy and expectation-driven strategy are essentially weak-reality, strong-expectation strategies built on pessimistic expectations about overseas demand, such as North American AI deceleration and non-US export pressures (overseas high rates, trade frictions, foreign exchange losses, etc.). The overseas interest rate decline strategy and sector heat plus chip clearing strategy are essentially strong-reality, weak-expectation strategies whose effectiveness is built on repeated verification of demand strength and expectation reversals. During periods of cooling market sentiment, the first category may clearly dominate; during periods of warming sentiment, the second category may stage outperform. Currently, the negative excess return of our tracked institutional heavy-holding portfolio relative to the institutional light-holding portfolio is still accumulating, indicating that institutional repositioning pressure has not been fully released. Therefore, based on current visibility, the steady-return strategy (corresponding industries include: white goods, textiles and apparel, food seasonings, thermal/nuclear power, energy chemicals, oil shipping, highways, logistics, white goods, pharmacies, insurance, export-oriented brokers, financially sound real estate leaders, etc.) and the expectation-driven strategy (corresponding industries include: catering supply chains, airport duty-free, health supplements, medical devices, leading liquor brands, etc.) may be more advantageous. Other strategies contain notably denser macro and industrial narrative preconditions and remain clearly on the left side before market liquidity pressure is cleared, with greater volatility in strategy effectiveness.
Risk factors
Escalating China-US frictions in technology, trade, and finance; North American AI computing power investment recovery falling short of expectations; domestic policy intensity, implementation effects, or economic recovery falling short of expectations; domestic and overseas macro liquidity tightening beyond expectations; further escalation of Russia-Ukraine and Middle East conflicts; China's real estate inventory digestion falling short of expectations.
Comments