Ping An Securities: The inflection point of the Fed's rate cut is approaching, and A-share liquidity is expected to improve marginally.

Ping An Securities released a research report stating that the current A-share market has incorporated a lot of pessimistic expectations. The valuations of main market indices are at historically low levels below the 20th percentile. With the prospects of the upcoming elections becoming clearer, the Fed nearing a rate cut turning point, and further opening up of domestic easing space, the liquidity environment faced by A-shares is expected to marginally improve, increasing structural market opportunities. It is suggested to focus on positioning around performance vitality and policy support, and pay attention to investment opportunities in new quality productivity (TMT/electric power equipment/defense industry/mechanical equipment, etc.), high-end manufacturing, and state-owned enterprise reform-related sectors. Last week, A-shares generally experienced a correction The Shanghai Composite Index fell by 2.7% for the week, with dividend performance relatively resisting the fall, as the Shanghai Dividend and CSI Dividend Indices respectively rose by 1.0% and 1.4%. The ChiNext Index, STAR 50 Index, and BSE 50 Index fell by 2%-6%. The average daily turnover of the entire A-share market fell to 586.8 billion yuan for the week; stock ETFs saw a total net inflow of 5.48 billion yuan for the week, with a focus on large-cap ETFs such as the CSI 300. In terms of industries, the automotive industry rose by 0.9% for the week, while the adjustment ranges for the petroleum and petrochemicals, electronics, construction, non-ferrous metals, and coal industries were between 5%-6%. Domestically, there was an acceleration in local government bond issuance in August, as policies expanded high-level opening to the outside world and the activity of state-owned enterprise mergers and reorganization increased. From a fundamental perspective, the issuance of local government bonds in August significantly accelerated. Nearly 1.2 trillion yuan in local government bonds were issued nationwide in August, an increase of nearly 490 billion yuan from July; the net financing scale was nearly 820 billion yuan, an increase of nearly 630 billion yuan from July, which may support the rapid growth of infrastructure investment. On the policy front, there was an expansion of high-level opening to the outside world to cultivate new momentum for the development of trade in services. On September 2, the State Council issued the "Opinions on Promoting High-Level Opening for High-Quality Development of Trade in Services", fully implementing a negative list for cross-border trade in services; promoting the import of high-quality life services such as medical care and culture and entertainment; optimizing export credit and intensifying support for enterprises in exploring international service trade markets. On September 5, the Ministry of Finance and four other departments issued the "Notice on the Zero Tariff Policy for Medicine and Medical Devices in the Hainan Free Trade Port". In addition, some listed central SOEs released merger and reorganization plans last week, with an increase in merger and reorganization activity. Internationally, the trend of rate cuts continued, with attention on the second round of presidential debates in the US next week. From a fundamental perspective, US manufacturing activity and the job market continued to cool off in August. The US August ISM Manufacturing PMI recorded 47.2, marking the fifth consecutive month below the boom-bust line. The new orders index dropped from a previous value of 47.4 to 44.6; the output index dropped from 45.9 to 44.8, the lowest since May 2020. In terms of employment, the US added 142,000 non-farm jobs in August, downgraded from the previous 114,000 to 89,000; the unemployment rate fell slightly from 4.3% in July to 4.2%. In terms of liquidity, the focus this week was still on rate-cut trading as the main overseas trading clue. The 10-year US Treasury yield fell by nearly 20 basis points to 0.7%, while the US dollar index simultaneously fell by 0.5% to 101.2 and the three major US stock indices dropped by 2%-6%. In terms of exchange rates, the offshore RMB exchange rate slightly appreciated by 0.1%, with the US dollar against the offshore RMB exchange rate closing at 7.09. In terms of commodities, COMEX gold fell slightly by 0.1% this week; under the concerns of a slowing US economy and shrinking demand, WTI crude oil fell by 8.0% this week. Furthermore, attention should be paid to the second round of TV debates on September 10. The current situation of the US presidential election remains tense, with as of 4th September 2024, Harris and Trump's polling support rates are 48.3% and 46.5% respectively. This debate may become a key indicator for this year's election.