China Securities Co., Ltd.: Buying into A shares when they are low, avoiding speculation on small-cap stocks.

China Securities Co., Ltd. issued a research report stating that although the short-term market is still trending in a volatile manner, the market is expected to stabilize and begin a year-end rally as the US dollar, US treasury bonds, and exchange rates stabilize and approach the December policy meeting. It is advisable to position oneself at a low level. At present, there is marginal adjustment in risk preference at high levels, slow recovery in economic policy expectations, and the market style is changing marginally. Funds are shifting from small and micro cap stocks and thematic stocks to ETFs, as well as towards heavy-weight stocks and mid-cap stocks. Focus is on expanding domestic demand, new quality production, and optimizing supply expectations such as debt conversion and asset revaluation, "two heavy and two new". Key focus on A500 index and market value management, mergers and acquisitions, and other themes. China Securities Co., Ltd.'s main points are as follows: Last week, the market experienced a certain amount of volatility and correction, and market divergences also began to rise. From the perspective of the domestic fundamentals, October economic data is gradually being released. Although under a series of policy deployments, real estate and even consumption have shown initial improvements, the market remains cautious about the economic recovery and expects more substantial policies to boost domestic demand. On the other hand, external concerns are fermenting, and the market continues to worry about whether the impact of tariffs can be timely and effectively hedged, as well as the escalating challenges in US-China relations. At the same time, the strong dollar and high US bond yields are causing fluctuations in the RMB exchange rate and widening expectations. Finally, the market is paying attention to speculative trends driven by hot money, but these trends are showing signs of being regulated. Peripheral factors are secondary contradictions in A shares, especially as the specific impact of the policies of the new US administration led by President Biden awaits evaluation after the policies are officially implemented. If necessary, there is still considerable room for domestic policies to effectively hedge against external influences. Although the recent decline in speculative trends has weakened the local profit effect in the market surface, the policy tone is still accommodative. The official version of the "Listed Company Supervision Guidelines No. 10 - Market Value Management" was launched this week, increasing the flexibility in handling abnormal stock price movements of listed companies. In the medium term, this is also favorable for investors to further lean towards rational value investment. Since the logic of the medium-term bull market has not been disrupted, the risk preference, even if it falls marginally, is expected to continue at a high level. In addition, financial data such as October M2 exceeded expectations and the expectations of rate cuts and reserve requirement reductions are still present, liquidity is expected to remain abundant; signs of improvement have already appeared in the fundamentals and are expected to continue to recover slowly. Moreover, there are still incremental expectations for subsequent policies, even though policy implementation may lag behind the confirmation of the fundamentals, the market often leads the fundamentals. According to public statements by relevant government departments, in addition to the previous debt conversion arrangements, the important meetings in December are expected to further clarify support for real estate, capital markets, "two heavy and two new", technological innovation, and livelihoods. Therefore, although the short-term market may need some consolidation and volatility, the overall trend of the market remains upward in the medium term. Combined with the catalytic timing of the policy meeting and the liquidity environment, the market is expected to interpret a year-end rally. In the short term, institutions generally focus on when the RMB exchange rate to the US dollar will stabilize, and then the focus will shift to expectations for the December policy deployment. Investors can position themselves at a low level, prepare for the year-end rally, and wait for stabilization and potential recovery when the US dollar, US bonds, and exchange rates stabilize, especially approaching the December policy meeting. Currently, as market risk preferences adjust marginally at high levels and with slow recovery of economic and policy expectations, the market style will also exhibit marginal changes. Investment preferences will shift from thematic investments in small and micro caps to value and growth, with funds shifting from small and micro cap stocks and thematic stocks to ETFs, as well as towards heavy-weight stocks and mid-cap stocks. In the medium term, focus on directions that benefit from policy efforts, still have room for improvement in valuation and profit expectations, including: debt conversion and asset revaluation (real estate, construction, environmental protection and related chains, city commercial banks, non-bank financial institutions, etc.), "two heavy and two new" directions (consumer electronics, machinery, automotive, domestic medical equipment, etc.), new quality production directions (Intelligent transportation, low-altitude economy, autonomous controllable, etc.), supply optimization expectations (steel, building materials, photovoltaics, etc.) Key index to focus on: A500 index; Key themes to focus on: market value management, mergers and acquisitions.