Risk factors are diminishing while positive signals are accumulating, and A-shares staged a clear rebound yesterday.
On November 4, the A-share market saw a broad-based rally, with the Shanghai Composite Index, ChiNext Index, and STAR 50 rising 2.16%, 6.40%, and 9.92% respectively. More than 4,600 companies across the market advanced, and trading volume expanded significantly, with total A-share turnover reaching 2.05 trillion yuan, an increase of approximately 336.8 billion yuan from the previous day, marking the return of turnover above the 2 trillion yuan level since late September.
In terms of sectors, electronics, telecommunications, and non-ferrous metals, which had experienced deeper corrections earlier, led the gains with increases of 9.74%, 7.05%, and 5.34% respectively, while food and beverage, coal, and petroleum and petrochemicals underperformed.
Earlier external input risks and challenges led to an overshoot in the A-share market. Specifically, the previous lackluster performance of A-shares was influenced by several factors: 1) Recurring geopolitical risks and periodic spikes in oil prices. Rising uncertainty in the Middle East pushed Brent crude above $110 per barrel at one point, disrupting global inflation and risk appetite. 2) Elevated US Treasury yields and lingering expectations of US rate hikes. The Federal Reserve kept rates unchanged at its October meeting, but whether it will hike in December remains undecided. According to CME interest rate futures pricing on November 4, the probability of a 25 basis point hike in December remained around 80%, and the overseas high-rate environment persists. 3) Event-driven disruptions from the US midterm elections. Historical experience shows that event-related factors increase noticeably about two months before US midterm elections, and this time was no exception. On the eve of the elections, control of the US Congress remained unclear, creating uncertainty around subsequent geopolitical developments, fiscal and trade policies, and the direction of AI regulation. Some trade and industry narratives related to China affected domestic investor risk appetite. 4) The global AI technology supply chain faced earnings expectation pressure around late October. In the third quarter, some financial metrics or earnings guidance from companies such as Google, Amazon, and Intel fell short of market expectations, pressuring their share prices after earnings releases; although Meta and SanDisk reported strong results, their share prices still declined after earnings due to concerns about the sustainability of AI capital expenditures and future profit realization. Meanwhile, CoreWeave's credit risk and Anthropic's financing progress drew market attention to the sustainability of financing and return on investment in the AI supply chain.
This week is one with a relatively high concentration of event-driven factors, but we believe it is also a week in which external uncertainty declines. 1) The results of the US midterm elections are gradually becoming clear, with Democrats retaking both the Senate and the House. On one hand, enhanced congressional checks and balances may reduce the risk of further escalation in US-Iran conflicts, while limited room for US fiscal expansion helps ease upward pressure on oil prices and US Treasury yields. On the other hand, although uncertainty around AI regulation has increased somewhat, related constraints are mainly concentrated in data center construction at the state and local government levels, and the possibility of comprehensively restricting AI development is low. For A-shares, the conclusion of the US midterm elections means reduced uncertainty, and subsequent developments in geopolitics and AI may to some extent turn out better than investors previously expected. 2) Disturbances from overseas AI earnings expectations are gradually being digested, and the medium- to long-term industry trend is still expected to continue. As overseas technology companies' earnings and guidance are successively released, the previously concentrated concerns about capital expenditures, financing, and profit realization are entering a phase of gradual digestion. Although some segments face earnings pressure, AI demand remains relatively strong, and technological progress and industrial applications continue to advance. We believe the medium- to long-term technology industry trend has not ended, and the related impact on A-share technology sectors is also expected to ease in the short term.
At the same time, A-share market stabilization mechanisms continue to intensify, with positive signals notably increasing. On October 30, the CSRC emphasized full efforts to stabilize the market and expectations, deepen comprehensive investment and financing reform, improve the full-chain regulatory system, and continuously enhance the resilience and confidence of the capital market[1]. On November 2, the People's Bank of China, the National Financial Regulatory Administration, and the CSRC coordinated to make full and effective use of two structural monetary policy tools: the third batch of swap facilities for securities, fund, and insurance companies saw 31 securities and fund companies apply to participate, with quotas exceeding 100 billion yuan; and the relending for stock buybacks and increases in holdings was converted from a phased arrangement to a long-term institutional arrangement. The CSRC also proposed optimizing rules for market-supportive buybacks, studying adjustments to margin financing and securities lending risk control indicators, and encouraging the first batch of 18 active ETFs to accelerate position building; as of November 2, the first batch of active ETFs had raised over 35 billion yuan in total[2]. On November 4, the central bank officially lowered the relending rate for stock buybacks and increases in holdings by 0.25 percentage points to 1%, and made clear it would provide sufficient quota guarantees. After the November 2 symposium, new quota applications submitted by banks had exceeded 200 billion yuan[3].
At the market level, broad-based ETFs saw net inflows of approximately 370 billion yuan against the trend since October, with net inflows on November 2 and 3 exceeding 50 billion yuan and 80 billion yuan respectively. The single-day net inflow on November 3 was second only to April 8, 2025 and October 8, 2024. Meanwhile, since October, more than 200 A-share companies have disclosed buyback plans, with total proposed buyback amounts of approximately 32 billion yuan. Policy support and the market's endogenous stabilizing forces are working together, sending positive signals to investors about maintaining the stable operation of the capital market.
Can the rebound continue?
We believe that ultra-short-term fluctuations cannot be ruled out, but the market's stage lows may be passing, and A-shares are expected to enjoy a recovery rally from now through December. Yesterday's A-share rebound came as risk factors eased in stages while positive factors continued to accumulate. At present, disturbances from the US midterm elections and overseas AI earnings expectations have been digested to a certain extent. In the future, ultra-short-term volatility after the recent sharp gains cannot be ruled out, and external factors such as geopolitics and expectations of a December US rate hike may still have an impact. However, the period of greatest disturbance may be passing, and with domestic market stabilization mechanisms clearly gaining strength, we believe the market's stage lows may already be behind us. Looking ahead, considering the lower base in the fourth quarter of last year, the year-on-year growth rate of A-share listed companies' fourth-quarter earnings may pick up from the third quarter. Also, as the year-end approaches, investor attention to important policies and meetings such as the Central Economic Work Conference is expected to increase. We believe A-shares are likely to show a volatile recovery trend from now through December. Moreover, judging from current A-share valuation levels, in our earlier report "Where Have Valuations Adjusted To," we argued that after rapid adjustments, overall A-share valuations have fallen below historical averages, offering good investment appeal on both horizontal and vertical comparisons. The forward price-to-earnings ratio and forward price-to-book ratio of the CSI 300 fell to as low as 11.8x and 1.1x respectively, below the historical averages of the past decade (12.1x and 1.2x), while the equity risk premium rose to as high as 6.2%, more than one standard deviation above the historical average (a level corresponding to many historical low points for A-shares). As of November 3, the 2027 forecast PE for the ChiNext Index and STAR 50 had fallen to 14.7x and 38.6x respectively, compressed by about half from previous highs of 27.3x and 83.0x. The valuation and trading crowding of the technology sector have already been digested to some extent, and the valuation conditions for a market recovery have improved.
Allocation: A "barbell portfolio" of technology plus dividends.
In our October 12 report "Returning to a Barbell Structure?", we argued that in an environment characterized by limited aggregate growth elasticity, coexisting structural high prosperity, and increased volatility in market risk appetite, a "technology plus dividend" barbell structure is expected to become an allocation choice that balances earnings growth elasticity, shareholder cash returns, and portfolio stability. When risk appetite is relatively low, dividend assets with stable cash flow and sustainable payouts may be relatively favored; as risk appetite gradually recovers, technology growth sectors are expected to show greater relative performance elasticity. Specific areas to watch: 1) Technology growth: AI hardware demand and earnings remain in relatively high growth, but differentiation is beginning within the supply chain. Areas with high demand certainty and short-term capacity bottlenecks that are difficult to alleviate are still expected to benefit, and we suggest focusing on optical communications, semiconductor equipment, and industries related to upstream power bottlenecks; beyond the AI supply chain, innovative drugs (especially CXO) and other sectors with relatively high overall prosperity. 2) High-dividend assets: With domestic long-end interest rates at historical lows and listed companies generally maintaining dividend yields and payout scales, the relative attractiveness of stocks versus bonds is rising. High-dividend sectors with stable cash flow, sustainable dividends, and reasonable valuations are expected to become an important choice for fund allocation. In addition, from the perspective of the capacity cycle, investors can pay attention to chemicals, petrochemicals, construction machinery, and other areas where supply-demand conditions are improving.
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