Sino-Thai Strategy: How to view the recent highs in the financial sector?

Zhongtai released a research report stating that last week, the financial sector drove the A-share index higher, becoming the focus of the market's attention. The bank believes that the macro background of this round of index increases is more related to the significant September 3rd military parade this year. Therefore, although the major financial sectors benefited in the short term from the boost in sentiment, it is not appropriate to blindly chase the high at this time. The current index is still in a range-bound pattern, and the market trend has not formed a clear breakthrough. In this context, the financial sector has rebounded in stages, and the current position does not have the cost-effectiveness for further chasing the high. In terms of asset allocation, the "dumbbell strategy" proposed earlier is being maintained. The summary of the report is as follows: 1. How to view the recent rise in the financial sector? The financial sector led the A-share index higher last week, becoming the focus of the market's attention. Firstly, this round of market activity is not the so-called "Fourth Plenary Session market expectation" commonly interpreted by the market. In fact, referring to the meeting of the Political Bureau of the CPC Central Committee held on June 30 this year, which proposed the establishment of a "decision-making and coordination institution of the Party Central Committee," this indicates that the focus of the Fourth Plenary Session may be further strengthening the centralized and unified leadership of the Party, rather than introducing large-scale stimulus policies. Secondly, last week, we cautioned against market expectations regarding policies like "restarting shantytown renovation," and the Central Urban Work Conference held on the 14th and 15th of this week confirmed our previous judgment. The conference proposed "accelerating the construction of a new model for real estate development, steadily advancing urban village and dilapidated house renovations," without mentioning measures like speeding up land supply, relaxing home purchase restrictions, or supporting real estate through shantytown monetization. In conclusion, we believe that the macro background of this round of index increases is more related to the significant September 3rd military parade this year. Therefore, although the major financial sectors benefited in the short term from the boost in sentiment, it is not appropriate to blindly chase the high at this time. The positioning and market impact of the "anti-involution" policy can be compared to the two rounds of market trends derived from the "scrappage" policy. Currently, the market is closely focused on the progress of the "anti-involution" policy. From multiple perspectives, this policy is positioned at a level within the current policy system that is higher than a single ministry document but has not yet reached the top-level design of the central system, led by the State Council, playing a guiding role in the real economy for a certain phase, and more inclined towards the "expectation management" function of the capital market. Referring to the "scrappage" policy, the current market trend under the "anti-involution" policy might have the following characteristics. Firstly, the asset price elasticity related to the "anti-involution" policy is greater than the profitability elasticity of related enterprises, which is then greater than the overall elasticity. From the "scrappage" trend last year, it can be seen that the market's response to asset prices in the areas covered by the policy (such as the stock prices of the home appliance and automotive sectors) is much greater than the improvement in the fundamentals of related companies, which in turn is greater than the overall changes at the macroeconomic level. Secondly, the market trend driven by the "anti-involution" policy may exhibit characteristics of a "two-stage" market. This round of market trend centered on "anti-involution" (represented by photovoltaics and polysilicon) may also evolve along this path: the current stage is a "policy expectation stage," while the next stage may usher in a new catalyst with the revision and implementation of the "Anti-Unfair Competition Law" (scheduled to be officially implemented on October 15th). The article signed by Jin Guanping on July 9th, "Let the market return to the source of fair competition," will lay the foundation for the second wave of policy implementation. Finally, the fundamentals supporting the market trend driven by the "anti-involution" policy are weaker than last year's "scrappage" trend. It is worth noting that unlike the strong resilience of the home appliance sector last year due to high export demand and strong enterprise profitability, industries like photovoltaics and polysilicon face more severe global overcapacity issues, and domestic market demand in the second half of the year will also enter the traditional off-season. Therefore, although the "anti-involution" policy may provide temporary support, the constraints of industry fundamentals are stronger, and market volatility may be significantly higher than the market performance during the "scrappage" period last year. 2. Investment recommendations We believe that the current index is still within a range-bound pattern, and the market trend has not formed a clear breakthrough. In this context, the financial sector has rebounded in stages, and the current position does not have the cost-effectiveness for further chasing the high. In terms of asset allocation, we are maintaining the previously proposed "dumbbell strategy." 1) AI, computing power, and other directions may become one of the main themes in the market before September. 2) Under the current "anti-involution" policy, profits of some cyclical sectors may continue to rebound from the bottom. Risk Warning: Unexpected tightening of global liquidity, complexity exceeding expectations in market speculation, complexity in the pace of policy changes exceeding expectations, etc.