Haitong International released a research report stating that the market experienced a consolidation phase this week with reduced trading volume. However, the rebound is expected to continue next week amid rising policy expectations. The strength of the rebound will depend on the implementation of policies and whether the Federal Reserve cuts interest rates. Investors should also remain cautious about profit-taking risks if the market has already priced in potential policy benefits.
The report maintains an optimistic outlook on the tech sector's rebound opportunities, particularly highlighting oversold stocks in the Hang Seng Tech Index and potential rotation opportunities in the STAR Market, driven by upcoming IPOs such as Changxin. In terms of policy direction, the brokerage sector is poised for a rebound after significant declines, while further policy support is anticipated for the real estate and domestic consumption sectors, which have been underperforming.
Key takeaways from Haitong International’s analysis include: 1. **Market Rebound and Tech Recovery**: Following last week’s consolidation, the market is expected to extend its rebound, with further upside potential in tech stocks. This week, both Hong Kong and A-shares saw a late-week rally amid growing anticipation of policy easing. Non-ferrous metals outperformed due to surging global commodity prices, while AI and computing-related tech stocks remained active.
2. **Upcoming Key Events**: Next week’s market focus will center on three major events—the Politburo meeting, the Central Economic Work Conference, and the Fed’s rate decision—which may increase volatility. On Friday, markets began pricing in expectations of accommodative monetary and fiscal policy signals from the Politburo meeting.
3. **Policy Support for Long-Term Capital**: Sentiment improved after regulators lowered risk factors for insurance businesses, while CSRC Chairman Wu Qing emphasized four key missions for brokerages under market reforms, including expanding capital and leverage limits. Proposed mutual fund reforms, such as requiring executives to buy back 30% of fund shares, also boosted confidence.
4. **Non-Bank Financials as Market Stabilizers**: Haitong International previously noted that non-bank financials could replace banks as market stabilizers. While banks have rebounded since October, signs of stagnation are emerging. Insurers, benefiting from improved asset-liability dynamics, have outperformed, while brokerages—despite negative YTD returns—show potential for a rebound given strong earnings growth.
5. **Global Market Dynamics**: The probability of a December Fed rate cut remains at 86%, with the USD index falling below 99. The PBOC has kept the yuan midpoint above 7.07, limiting further appreciation. Meanwhile, the U.S. unveiled a new national security strategy, shifting focus to the Western Hemisphere and emphasizing reciprocal economic ties with China, which could support market sentiment.
6. **Rising Japanese Bond Yields**: The Bank of Japan hinted at a possible December rate hike, pushing 10-year JGB yields to 1.93%, a 17-year high. This lifted U.S. Treasury yields to 4.13%, pressuring global equity valuations.
7. **Market Liquidity and Flows**: Trading volumes declined further, with A-share daily turnover dropping below RMB 1.7 trillion and Hong Kong turnover hitting a four-month low at HKD 190 billion. Stock ETFs saw flat inflows, while margin financing rose by RMB 10 billion. Bond markets weakened as long-term yields climbed, with 30-year Chinese government bond futures hitting yearly lows. Southbound flows slowed to HKD 11.3 billion, with notable outflows from Tencent (00700) and SMIC (00981), while Xiaomi (01810) saw increased inflows.
**Risks**: Delays in policy implementation, weaker-than-expected economic recovery, and external uncertainties.
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