Shenwan Hongyuan Group: Transitioning from a style of "buying high and selling low" in A shares, but with different offensive and defensive strategies.

1. The style switch of "high to low" is being interpreted, but there is a difference in offense and defense. This week's market has proven that the cyclical and value sectors are temporarily unable to lead the overall index to climb higher, with the overall market continuing the consolidation phase since early September. At the end of the year and the beginning of the year, the key catalytic timing for the cyclical sectors has not arrived, while the trend catalysis of the technology growth industry remains more concentrated. Effective breakthroughs in A-shares ultimately still depend on technology leadership. In terms of cost-effectiveness, the overall profit effect of A-shares has declined to a medium-low level, and the adjustment phase is nearing completion; meanwhile, the divergence index of the ChiNext board relative to the CSI 300 has fallen to a low level, and the short-term cost-effectiveness of the "high to low" market is not high. The discussion on the style switch in the fourth quarter has significantly increased. The short-term style switch of "high to low" is indeed being interpreted, but we would like to point out that there is a difference between offense and defense. The "high to low" market this week has defensive characteristics, and within the cyclical and value sectors, there is also an intensification of the game of offensive assets (such as metals and chemicals), with defensive assets providing absolute returns. This week's market experiment clearly shows that the "high to low" market cannot propel the overall index higher, and the overall profit effect is declining. On the other hand, the rebound in technology, with a high to low market within the technology sector, is more profitable. The core reason behind these market characteristics is that the key catalytic timing for cyclical sectors has not arrived, while the trend catalysis of the technology growth industry is more anticipated. For the cyclical sectors, demand-side improvement needs to wait for the "policy bottom" to be revalidated, with the critical window likely to be after the spring of 2026. Supply-side natural clearance is also a key window in 2026, with a high probability that the effects of policies against internal competition will only be seen after 2026. At present, the cyclical sectors lack offensive logic. As for technology growth, we highlight three medium-term positive factors: 1. Overseas AI capital expenditure is still increasing; 2. The domestic AI industry trend is also progressing; 3. 2025 marks a turning point for first and second-tier markets, and as time goes by, new emerging industry highlights will come into focus in the capital markets. Therefore, at the end of the year and the beginning of the year, an effective breakthrough in A-shares is ultimately dependent on technology leadership. We continue to emphasize that, whether in terms of the overall market or technology growth, the adjustment phase did not start in October, but has been ongoing since early September. In terms of short-term cost-effectiveness, the overall profit effect of A-shares has declined to a medium-low level, indicating that the adjustment phase is nearing completion. Furthermore, the divergence index of the ChiNext board relative to the CSI 300 has fallen to a low level, indicating that the "high to low" market is actually a low-cost-effective transaction. 2. The overseas environment has begun to ease. The fermentation of credit risks in US regional banks also poses a short-term disruption factor to risk appetite. Currently, the risks still fall under the category of individual events, and the VIX index has already peaked and fallen on Friday. Trump's stance is tending towards moderation, and the TACO trade is fully verified. Overseas disturbances are the main source of the downward trend in short-term risk appetite. This week, issues with loan fraud and bad debts in US regional banks have raised concerns among investors about more widespread credit risks. There was a rise in the VIX index this week, with US bank stocks falling sharply, leading to an overall market decline and global risk appetite waning. This demonstrates a typical impact of risk appetite. As of now, the risks still fall under the category of individual events, and the VIX index has already peaked and fallen by Friday. Additionally, Trump's stance towards China has softened, with the TACO trade fully validated, which has also helped boost risk appetite. The phase with the highest overseas pressure may have already passed. 3. The medium-term market judgment remains the same: before the spring of 2026, the trend of catalysis in the technology industry will be significantly more pronounced than that of the cyclical sectors. In the current stage, the long-term cost-effectiveness of technology is low, but the short-term cost-effectiveness issues have been fully digested. By accumulating industry catalysis, a new round of technology trend can be interpreted. The spring of 2026 may be a phase high point (a structural high point), at which point the A-share market may face challenges from three issues: 1. The critical validation period for demand is approaching, and after the supply growth rate returns to a low level, the supply-demand pattern may improve, but if demand remains weak, it could delay the supply-demand inflection point and delay the emergence of a new phase market. We suggest that the improvement in supply and demand in 2026 will not be "falsified," only delayed; the global loose environment will further strengthen in 2026, and the effectiveness of the framework of "policy bottom, market bottom, and economic bottom" in A-shares will return. The moment of increased domestic loosening in 2026 may be the start of a new market phase. 2. At that time, new structural highlights may still need to wait: the decisive catalysis of the domestic technology industry trend and the verification period of the anti-internal competition effect will take time, and the spring of 2026 may still lack a new main theme. 3. At that time, the long-term cost-effectiveness of the technology industry trend market may reach an extremely low point, similar to the ChiNext at the end of 2013 and the food and beverage sector at the end of 2019; the market may thus enter a medium-term consolidation phase. After a short-term adjustment, we believe that there is still a technology-led market in the fourth quarter of 2025. The spring of 2026 may be a phase high point, but it is unlikely to be the high point for the whole year of 2026, let alone the high point of this current bull market. The bull market still has depth, and as time goes by, the conditions for the full bull market will become increasingly sufficient. 4. In the short term, cyclicals with offensive logic (such as metals and chemicals) have not performed well, with assets leaning more towards defensive and hedging properties (such as banks and food and beverage). We continue to emphasize that the outlook for 2026 is better than that of 2025, and there are opportunities in the fourth quarter of 2025, with a focus on: overseas compute power still on the rise, advanced manufacturing represented by new energy, and national defense and military industry. Short-term adjustments in the Hong Kong stock market are more sufficient than in the A-share market, with a high elasticity trend in the rebound phase of the Hang Seng technology. In the short term, there is a style switch with offensive and defensive characteristics being interpreted, but assets with offensive logic in the cyclical sectors (such as metals and chemicals) are similarly intensifying, with the profit effect not being good. Assets leaning more towards defensive and hedging properties (such as banks and food and beverage) are noticeably favorable. We believe that the adjustment phase may be nearing completion, and it is gradually time to start positioning towards assets with offensive characteristics. We continue to highlight that the outlook for 2026 is better than that of 2025, and there are opportunities in the fourth quarter of 2025, with a focus on: overseas compute power still on the rise, advanced manufacturing represented by new energy, and national defense and military industry. Short-term adjustments in the Hong Kong stock market are more sufficient than in the A-share market, with a high elasticity trend in the rebound phase of Hang Seng technology. The medium-term structural outlook remains the same, with the anti-internal competition being a key structural transition from a medium-term structural bull market to a full-scale bull market. We continue to emphasize that the final target for anti-internal competition should focus on the solar and chemical industries with high global market share, promoting price alliances through M&A and industry consolidation to maintain prices. Risk Warning: Overseas economic recession surpasses expectations, domestic economic recovery falls short of expectations This article is sourced from the WeChat public account "Shenwan Hongyuan Group Strategy," edited by GMTEight: Chen Qiuda