Minsheng Securities: A-share market style switch may occur, focus on energy sector, etc.

Everbright Securities released a research report stating that historical experience shows that after A shares experience a rapid rise and peak in high volatility, there is often a switch in investment style. The domestic economic recovery has weakened the game of policy expectations and helped the market return to the fundamentals. After experiencing positive trading and the "Trump trade," entering the second phase will mainly have a negative impact on risk assets. Physical assets have also been suppressed by the aforementioned factors, but in the long term, the narrative of de-dollarization and global supply chain restructuring will ultimately be strengthened. Everbright Securities prioritizes physical assets. Main points of Everbright Securities: Historical experience shows that there may be a switch in investment style. This week, there has been a reversal in speculative trading styles in the A-share market, with trading volume declining and implied volatility falling. The phenomenon behind this is the change in investor structure: the proportion of turnover on the tiger list, which represents speculative forces, in the overall turnover of A shares has significantly decreased, and the net outflow of northbound funds has been over 40 billion yuan, while the proportion of margin buying in the total turnover has also decreased. Before this round of market boom, there were 4 times when the A-share market had a significant increase in high volatility in March-June 2015, October-November 2015, January-April 2019, and June-August 2020. During the peak phase of these four bull markets, there was a decrease in trading volume, implied volatility, and the fluctuation range driven by unit turnover returning to normal levels, showing a clear switch in investment style after the peak. Overseas: Strong USD and the second phase of the "Trump trade." After Trump's election victory, his strong stance on government nominations has shown that his unfriendly immigration policies and advocacy of cutting government spending may weaken the momentum of US economic growth. The "Trump trade" has entered its second phase, beginning to trade expectations of policy damage, which may continue until Trump's official inauguration in January 2025. The recent strength of the US dollar index is partly attributed to strong internal inflation in the US and hawkish statements made by the Federal Reserve; on the other hand, political instability in Germany, combined with Trump's tough governance attitude, has put significant downward pressure on the euro. In response to the rapid appreciation of the US dollar, the Chinese central bank has taken action: this week, the central bank resumed the countercyclical factor, and the forward points of the USD against the RMB have also declined. The central bank's attitude indicates that a strong US dollar may impose certain constraints on our country's future monetary policy space. The resilience of the domestic fundamentals has emerged, and the space for policy games has narrowed. In October, the year-on-year growth rates of M1 and M2 are rising, and the scissor difference is converging, the real estate sales are picking up, but the investment growth rate is still declining. The year-on-year growth rate of social retail sales near the terminal demand continues to improve, while the industrial value-added close to the midstream has not significantly expanded. This indicates that the continued transformation of the domestic economic structure, while there is still resilience in the total volume. The characteristics of a weak recovery are becoming apparent. The resilience shown by the domestic economic fundamentals, on the one hand, implies a reduced need for policy support beyond expectations from the policy side. The adjustment announcement of the export tax rebate policy this week also indicates the government's approach to potential overcapacity risks in certain industries, which is to cancel subsidies from the demand side and force capacity clearance through market mechanisms, rather than expanding demand and alleviating it through administrative production restrictions. On the other hand, it implies a restoration of fundamentals: when the fundamental trend is downward, it is more conducive to the reverse of policy expectations and theme speculation, and when there are signs of stability in the fundamentals, the relative advantages of high-performance targets will be reflected. The market may gradually move away from speculation and theme speculation. Physical assets: Addressing short-term suppressive factors and seeing the long-term drivers being strengthened. For physical assets, short-term pressures such as a strong dollar and the shift in focus to demand suppression due to the "Trump trade" may be real. However, what investors should pay more attention to is that the long-term environment that favors physical assets has not fundamentally changed. Firstly, the global trend of de-dollarization is still ongoing: the proportion of the US dollar in the official reserves of central banks worldwide has been decreasing over the past five years, and the share of the dollar in global trade financing has also declined. Secondly, global supply chain restructuring also means an increase in demand for physical assets: post-pandemic, greenfield investments have significantly increased globally, and under supply chain restructuring, factory construction and equipment procurement will increase global demand for physical assets. Trump's policy direction will not weaken the above logic, and may even strengthen it. Change in market trajectory. The A-share market is returning from speculative trading styles to normalization, and the domestic economic recovery has weakened the market's game of policy expectations, helping the market return to the fundamentals. Physical assets remain a priority for Everbright Securities, with optimism towards energy (crude oil, coal), non-ferrous metals (copper, aluminum, gold), shipping (dry bulk, shipbuilding, oil transportation). Secondly, under the theme of debt-to-equity conversion, focus on financial sectors (banks, insurance), construction; thirdly, focus on the return of dividend assets: highways, railways, ports, electricity; fourthly, there is room for trade conditions to turn around and benefit from China's overseas capital goods (machinery equipment, general equipment, specialized equipment, transportation equipment). Risk warning: 1) Domestic economic recovery falls short of expectations; 2) Significant downturn in the overseas economy.