China Securities Co., Ltd.: The Shanghai Stock Exchange breaks through 4000 points, how to respond at the year end?

China Securities Co., Ltd. released a research report stating that, after the previous upward momentum in the A-share market was exhausted and three major positive factors were realized at the end of October, the market is facing pressure from falling sentiment, a window of positive factors, and demand for consolidation after a pullback. It is expected that the market will face a new round of sideways adjustment in November, and it is advised that investors temporarily refrain from increasing positions. The focus of allocation is on three main directions: "clues of economic prosperity, end-of-year adjustments, and short-term switching," with a focus on: coal, petroleum and petrochemical, new energy (energy storage, solid-state batteries, etc.), non-bank financial institutions (securities firms, insurance), utilities, media, food and beverage, transportation, etc. Main points from China Securities Co., Ltd.: Three major positive factors concentrated by the end of the month, the market completed a new upward surge Since September, the pullback in tech stocks is nearing completion, combined with the anticipation of the "14th Five-Year Plan" rollout, expectations for China-US economic and trade negotiations and leader summits, and positive performance of key industries in the third quarter, the market sentiment has surged again, with the Shanghai Composite Index breaking through 4000 points to reach a new high in nearly a decade. The outcome of the China-US and Malaysia economic and trade negotiations and the Busan Summit was satisfactory. However, as the expectation of a deal between China and the US had been playing out in the market for some time, the market did not experience a significant surge following the summit but rather saw some adjustment after positive factors were realized. The third quarter reports show that the overall performance of A-shares is showing signs of positive recovery, with major sectors showing strong growth momentum and signs of recovery, demonstrating a clear trend of marginal improvement. Traditional cyclical industries and the tech sector are growing together, the steel industry has achieved significant profit recovery under strong policy support; the electronics and computer industries have achieved high growth in net profit attributable to shareholders driven by themes such as AI and domestic substitution; nonferrous metals and media are leading in net profit growth, and the new energy industry is showing clear improvement; the real estate chain is still at the "bottoming out" stage; within the financial sector, non-bank financial institutions saw a quarter-on-quarter increase in net profit of 112.23%. November outlook: A-shares may enter a new round of sideways adjustment, focusing on themes and styles switching With high market sentiment and three major positive factors realized by the end of October, A-shares are already at a relatively high level and may face a period of positive factors being absent, leading to a new round of sideways adjustment in the market. It is recommended that investors temporarily refrain from increasing positions. Themes and styles within A-shares may also undergo a switch. The third quarter reports from funds show that the allocation ratio for the electronics industry exceeds 25%, the innovation and entrepreneurship sector exceeds 40%, and the growth style exceeds 60%, all reaching their highest levels since 2010, which may trigger structural adjustments. Additionally, from a seasonal perspective, profit taking tends to occur at the end of the year, favoring value styles in the broader market. In November, three major themes are favored: 1) prosperity clues: a focus on new energy (energy storage, solid-state batteries, etc.) and non-bank financial institutions (securities firms, insurance); 2) end-of-year rotation: paying attention to industries and sectors with the smallest gains in the first 10 months, and low fund allocation ratios, such as coal, petroleum and petrochemicals, utilities, food and beverage, transportation, etc.; 3) short-term switching: focusing on sectors that saw the largest decline in October, with limited annual gains and low fund allocation ratios, such as media, beauty and personal care, automobiles, etc. Key industries to focus on include: coal, petroleum and petrochemical, new energy (energy storage, solid-state batteries, etc.), non-bank financial institutions (securities firms, insurance), utilities, media, food and beverage, transportation, etc. Risk warnings (1) Domestic demand support policies fall short of expectations. If subsequent domestic data such as property sales and investments fail to recover, inflation remains low, and consumption does not pick up significantly, it could impact the overall market trend, with overly optimistic pricing expectations requiring corrections. (2) Risk of the US imposing higher tariffs on China. If the US imposes tariffs on China beyond market expectations, and uses various sanctions and threats to prevent Chinese products from entering the US market through channels such as transit trade, it could have a significant negative impact on Chinese exports and economic growth, as well as affecting the fundamental outlook of A-shares and investor risk preferences. (3) Unexpected volatility in the US stock market. If the US economy deteriorates beyond expectations, or if the Federal Reserve's easing measures fall short of expectations, it could lead to significant volatility in the US stock market, which would also have a spill-over effect on domestic market sentiment and risk preferences.