Livelihood strategy: the tailwind of physical assets is the opportunity that should be seized now.

Guosen Securities released a stock market strategy report stating that last week the market as a whole showed a certain "universal rise" characteristic. After experiencing "headwinds" and "contracting circles", the resilience of domestic physical consumption has been confirmed again, and the Fed's interest rate cut will further drive the tailwind of physical consumption. It is expected that the "lost ground" in the resources and dividend sectors will gradually be "reclaimed". Three investment themes are recommended: first, upstream resource assets: energy (coal, oil), non-ferrous metals (copper, gold, aluminum), shipping (oil transportation, shipbuilding, bulk cargo); second, advantageous industries in Chinese manufacturing, with expectations of stability in external demand, home furnishings and appliances undergoing capacity clearance, intermediate goods (special steel) driven by emerging market production and capital goods (instruments and equipment, general equipment) restarting investment; third, relatively advantageous assets with declining capital returns, showing cost-effectiveness after adjustment, recommending banks, railways, gas, and ports. At present, there seems to be similarity between the current A-share market and February of this year, but the differences should be paid more attention to. Looking ahead, there seems to be a similarity between the current A-share market and February of this year, but the differences should be paid more attention to. Fundamentally, the current global economic environment is weaker than in February, and the future depends on the extent of demand improvement after the Fed's rate cut; on the trading level, the market at the beginning of the year was impacted by snowballs, quantification, margin trading, etc., showing an enlarged characteristic of market volatility and trading enthusiasm at the same time. Participants have gone through a process of major participants including northbound Chinese capital + ETF being the main participants to various participants significantly replenishing their positions. The potential areas of disturbance in the current market may mainly be in margin trading and equity pledge fields, but with the continuous support of ETFs, the overall market volatility and trading enthusiasm continue to remain at a lower level. At present, participants rely more on the buying pressure of ETFs, while other participants including northbound funds and margin trading have weaker replenishment efforts. The current trading level more reflects a signal of stability, giving investors the opportunity to focus on the main themes. Exchange rate recovery should not be the reason for the universal rise: trading factors dominate, and the decline in profit center still needs to be considered for investment. Historically, since December 2016, the appreciation of the Renminbi often corresponds to the rise of A-shares. However, since August of this year, the Renminbi has significantly appreciated, while A-shares have adjusted significantly. Through reviewing history, we found that the combination of Renminbi appreciation and A-share rise often occurs during a period of sustained profit recovery, or a period of profit expectations rebound driven by policy, and the former lasts longer, which means that the historical combination of Renminbi appreciation and A-share rise may be driven by the same variable: for A-shares, it is the recovery of profits, and for cross-border capital, it is the improvement of investment returns. Considering that the ROE and ROIC of all A-shares are still in a period of decline, the deviation between A-shares and Renminbi exchange rates at present may actually be driven by trend behavior at the trading level: that is, increasing exchange/settlement during Renminbi appreciation. It is worth noting that the optimism in the Renminbi options market reached a phase high in August, and historically, this indicator often leads or synchronizes with the Renminbi exchange rate. Combining our previous discussions, compared to focusing on the phase appreciation of the Renminbi, whether A-shares' profits can continue to stabilize and rebound is a more important variable for A-shares. With the resilience of domestic physical consumption and the combination of the Fed's interest rate cut, physical assets may once again welcome tailwinds. In August, the total social electricity consumption increased significantly year-on-year, while physical consumption still maintained its resilience. It is worth noting that historically, in the combination of rapid growth in social electricity consumption and a decline in the 10-year Treasury bond yield, the dividend sector will have better average returns and a higher proportion of increases in the next 3 months, which means that dividend assets (related to physical consumption) are expected to gradually "regain lost ground" after experiencing "contracting circles". On the overseas front, with the official implementation of the Fed's interest rate cut in September, future demand improvement is worth noting. We believe that interest rate-sensitive sectors will be the first to benefit, which is expected to further drive physical assets and our country's export chain, mainly from: the repair of investment in emerging markets; improvement in the United States real estate chain in the interest-sensitive + big election consensus sectors; and the repair of U.S. manufacturing, etc. It is worth noting that whether it is major developed countries (such as the United States and Japan) or emerging markets (such as India), the manufacturing inventory is still at a low level, providing elasticity for the improvement of demand after this round of interest rate cuts. From the perspective of fundamental driving, there is a certain similarity between the current market and the February market. Embrace the main theme of physical assets The market rebounded as expected, and compared to the historical experience of reversing trading levels or the phase appreciation of the Renminbi, the tailwind of physical assets is the opportunity that should be seized at present: after experiencing "headwinds" and "contracting circles", the resilience of domestic physical consumption has been confirmed again, and the Fed's interest rate cut will further drive the tailwind of physical consumption. It is expected that the "lost ground" in the resources and dividend sectors will gradually be "reclaimed". We recommend: first, upstream resource assets: energy (coal, oil), non-ferrous metals (copper, gold, aluminum), shipping (oil transportation, shipbuilding, bulk cargo); second, after the expectation of overseas recession swings back, Chinese manufacturing is still an advantageous industry, with expectations of stability in external demand, home furnishings and appliances undergoing capacity clearance, intermediate goods (special steel) driven by emerging market production, and capital goods (instruments and equipment, general equipment) restarting investment; third, relatively advantageous assets with declining capital returns, showing cost-effectiveness after adjustment, recommending banks, railways, gas, and ports.