Recently, the A-share market, which had been on an upward trajectory, has paused its offensive and entered a relatively low price range in the recent trading sessions. In response, several industry insiders have pointed out that the bull market of A-shares has entered its second phase. So, how should one position themselves in the second phase of a bull market?
"A-shares 'Enter the Second Phase of a Bull Market'"
Since hitting a phase high on October 8th, the three major A-share indices have continued to consolidate with significant fluctuations. Among them, the Shanghai Composite Index fell from a high of 3674 to close near the 3200 point mark on October 11th, with a drop of nearly 400 points. Currently, the Shanghai Composite Index is operating in the range of 3200-3300 points, while the Shenzhen Component Index and the ChiNext Index are fluctuating around 10000 and 2100 points, respectively.
In this regard, Guohai Securities noted that, taking the September 24th press conference held by the State Council Information Office as the starting point of the A-share market's rise, it has experienced a significant increase of 35% by October 8th, and the A-share market has already seen a considerable pullback. However, the overall market sentiment remains high. At the same time, the current stock market still offers value for money, with the Wind All A and CSI 300 equity risk premiums near one standard deviation, the historical valuation percentile of All A at 52%, and the ChiNext Index and CSI 500 valuations at relatively low historical levels.
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Furthermore, Guohai Securities further pointed out that the positive stance taken at the fiscal press conference on October 12th indicates that there is still anticipation for incremental policies. The A-share market is likely to continue its volatile trend, and whether it can continue to break through upwards depends on the specific extent of future fiscal stimulus. "After the market has cooled down from its euphoric phase, it has entered the second phase of a bull market," Guohai Securities stated.
Many research institutions also hold similar views. For example, Xi'an Securities stated that the fiscal press conference stabilized expectations, with a focus on debt resolution as a key measure, addressing concerns about local debt, the constraints of capital on financing and credit, and the tail risks of real estate. "Credit and real estate are core indicators of the equity market. Under such policy expectations, we have reason to believe that the market's short-term adjustment is nearing an end and is expected to gradually enter the second phase of bottom reversal."
Huatai Securities also stated, "The revaluation of Chinese assets driven by the '9ยท24' policy combination has entered the second phase of policy verification." Tianfeng Securities directly pointed out that the first phase was too hot, and the cooling down into the second phase of high-position intense seesawing provides investors with ample time to switch hands and industries.
In terms of short-term focus, the real estate industry has almost become a consensus among securities firms.
Open Source Securities pointed out that there are many highlights in the fiscal press conference, among which the use of special bonds for land reserves and the acquisition of existing commercial housing has clarified the financial source of real estate measures, significantly broadening compared to the previous period. "We believe that under the gradually intensified policy, the policy requirement proposed at the important meeting on September 26th, 'to promote the real estate market to stop falling and stabilize,' will be achieved."On October 17th, during a press conference held by the State Council Information Office, the "combination punch" for the real estate market was once again clarified, including "four cancellations," "four reductions," and "two increases." The four cancellations mainly involve the removal of purchase restrictions, sales restrictions, price limits, and the standards for ordinary and non-ordinary residential properties. Prior to this, at a press conference by the State Council Information Office, the real estate market also welcomed a number of significant policies, including the reduction of existing mortgage interest rates and the unification of the minimum down payment ratio for mortgages. According to Dongguan Securities, the regulatory authorities have recently issued a series of significant policies for the real estate industry, with an unprecedented intensity that has exceeded market expectations and boosted market sentiment. The central government, through real estate and fiscal policies, is determined to support the development of the industry and promote the stabilization of the real estate market.
Furthermore, Dongguan Securities pointed out that during the National Day holiday, the number of house viewings and visits reflecting the intention to purchase increased significantly, with sales volumes in various regions showing different degrees of growth, and market confidence has been restored to some extent. "It is expected that the fundamentals of the real estate industry will gradually bottom out and stabilize, providing certain support for the performance of real estate stocks."
According to statistics, the current period is entering a dense phase of disclosure for the third-quarter reports and forecasts of listed companies. However, as of now, none of the 112 constituent stocks of the Shenwan Real Estate industry have disclosed their performance for the first three quarters of this year. The first company to announce its third-quarter report is Zhongtian Services, which is expected to officially disclose it on October 22nd. Combining the operational situation of the first half of the year, the performance of many real estate companies has achieved a significant increase against the trend, with companies such as Nanguo Real Estate, Xinhualian, and Shenzhen Housing A, among ten others, doubling their performance.
What does historical experience reveal?
In addition to the real estate industry backed by policies, combining historical experience, there are also some industries worth paying close attention to. As Guohai Securities pointed out, since the current fiscal details have not been announced, it is possible to look at the historical bull market routes such as the "5.19" in 1999, November 2008, and the end of 2014. Historically, the market after the (second stage) surge mainly unfolds along two lines of thought: First, to layout industries with smaller gains in the first stage of the bull market, such as pharmaceuticals in 1999 and 2008, and TMT at the beginning of 2015. Following this line of thought, Guohai Securities believes that the home appliance, transportation, non-ferrous metals, and financial industries have a certain demand for catch-up gains.
Statistics show that as of October 14th, the latest gain list indicates that since September 24th, the Shenwan industries with the lowest gains are public utilities, petroleum and petrochemicals, coal, transportation, and banking.
The second line of thought is to lay out the main industries of the third stage of the bull market in advance. Guohai Securities stated that according to historical situations, the main industries of the third stage need to be supported by three major factors: macroeconomic recovery, industry cycle, and incremental funds. It is best to have two of these factors, such as the strong cycle and optional consumption in 2009, TMT in the first half of 2015, and consumption in 2020. Following this line of thought, Guohai Securities believes that this can mainly be laid out from two aspects: first, core assets under the background of the general deficit rate and the restart of the credit cycle, and second, the dual innovation along the direction of AI+ new industry cycle and new quality productivity.
"Growth technology such as AI and new quality productivity may still be the direction of breakthrough for new drivers, and dividend assets may also perform well under the background of low interest rates and long-term capital entering the market. If the risk of real estate and urban investment is cleared and expectations are reversed under the fiscal effort, core assets are expected to usher in a valuation repair." Guohai Securities stated.