A-share market review | Market bottoms and rebounds, military stocks continue to be strong. Can the "slow bull" market continue?

Market hits bottom and rebounds, with trading volume decreasing compared to last Friday. By the close, the Shanghai Composite Index rose 0.05%, the Shenzhen Component Index rose 0.37%, and the Growth Enterprise Board Index rose 0.31%. Most stocks in the market rose, with over 4200 stocks seeing an increase. In response to the recent market adjustments, Soochow pointed out that this round of corrections is a result of the combined effect of external factors and internal pressures: First, under global liquidity tightening, A-shares are finding it difficult to stand alone. Second, overseas anxieties about the "AI bubble" and declines in the technology sector have affected A-shares. With the pace of capital expenditure in AI by major North American companies becoming more aggressive, and the full impact of AI on the economy and corporate profits yet to be fully realized, the market is becoming more cautious in evaluating the transmission of capital expenditure to EPS, starting to focus on the risk of the "AI bubble." On the market, there is a benign rotation of hotspots, with individual stocks showing a general upward trend. Military industry, China Shipbuilding, and others are strengthening once again. Companies like Hubei Jiuzhiyang Infrared System and Cssc Offshore & Marine Engineering hit the limit up. The commercial aerospace concept collectively rose, with companies like Shanghai Geoharbour Construction Group Co., Ltd. and Shaanxi Aerospace Power Hi-tech hitting the limit up. The AI application end erupted, with Guangdong Advertising Group experiencing multiple limit up scenarios. Real estate stocks rose again, with Shenzhen Worldunion Group Incorporated hitting the limit up. In addition, sectors like consumer goods, quantum technology, and wind power all showed some performance. In terms of declines, the Hainan Free Trade Zone sector fluctuated and declined, with Haima Automobile hitting the limit down at one point. Lithium resources, energy metals, and other sectors continued to decline, with companies like Chengxin Lithium Group and Guocheng Mining hitting the limit down. Stocks related to algorithmic hardware such as light modules also experienced fluctuations and declines, with Foxconn Industrial Internet hitting the limit down and reaching a new low for the past two months. Other popular stocks like Cowealth Medical China and Zhongfu Straits also hit the limit down for two consecutive days. Looking ahead, Zheshang believes that with the "rebalancing" of market styles in the fourth quarter, some broad-based indices have already undergone sufficient corrections, and there is no need to panic and sell blindly at the current levels. Looking at a longer period, the systematic "slow" bull market is not over yet and is expected to enter a "second phase" after the adjustment. Popular Sectors 1. Wind power equipment sector strengthens The wind power equipment sector is active, with Finework (Hunan) New Energy Technology rising nearly 11% and Dajin Heavy Industry rising over 6%. Analysis: China's wind power installation targets have been raised significantly, with an average annual increase of new wind power installations by 140%. Citic Securities pointed out that they are optimistic about the progress of the wind power equipment "going global" strategy at this point in time, as capacity going abroad is expected to help wind power equipment companies gain a higher market share overseas. 2. China Shipbuilding sector strengthens The China Shipbuilding sector has seen significant gains, with Hubei Jiuzhiyang Infrared System and Cssc Offshore & Marine Engineering hitting the limit up. Analysis: Recently, the incident of high markets over the Taiwan Strait has continued to escalate. Zhongtai stated that Japanese provocations have increased geopolitical uncertainties and may become a major hidden threat to "promote the reunification of the motherland." In the face of external threats to China's core interests, defense spending is expected to increase, and planning goals are expected to accelerate, further promoting the high-quality development of China's defense industry. 3. Commercial aerospace concept re-emerges The commercial aerospace concept is active once again, with multiple stocks hitting the limit up like Fujian Tendering and Hunan Aerospace Huanyu Communication Technology. Analysis: Recently, the National Defense Science and Industry Bureau's official website announced the recruitment of civil servants for the position of "commercial aerospace regulatory officer" in the 2026 examination and employment announcement. This indicates that the key functional agency of commercial aerospace has been officially established. In addition, China's reusable rocket "Zhuque III" is expected to make its first flight in mid to late November, potentially becoming China's first operational reusable transport rocket. Institutional Views 1. CITIC SEC: Early release of risk provides an opportunity to increase A-share/H-share allocation and layout for 2026 The surface volatility of global risk assets is a liquidity issue, but fundamentally, it is the result of risk assets relying too heavily on a single AI narrative. When industrial development speed (especially commercialization) fails to keep pace with the secondary market's rhythm, a proper valuation correction is a way to alleviate risk. Prior to this, for A-shares, the continuous influx of absolute return-oriented funds into the market enhances the market's inherent stability. With more and more incremental funds coming from the left-oriented stabilizing funds, A-shares/H-shares may follow the "sharp drop, slow rise" pattern seen in US stocks. For investors who need to increase equity allocation, the early release of risk provides an opportunity to increase A-share/H-share allocation at the end of the year and layout for 2026. In terms of allocation, more attention should be paid to opportunities in resource/traditional manufacturing industries. Key industries to focus on include chemical industry, non-ferrous metals, and new energy. 2. Industrial: As the impact of overseas risks dissipates, Chinese assets are expected to undergo repair Since November, following reduced expectations of a Fed rate cut and AI bubble concerns, global risk assets have adjusted in sync with the US stock market, leading to increased volatility in A-shares and H-shares. However, looking ahead, after the impact of overseas shocks, Chinese assets have adjusted to a more cost-effective level, and with the gradual digestion of emotional impacts from overseas risks, Chinese assets are expected to undergo repair based on their independent logic. With a focus on "me first" layout for the repair market, business expectations are an important touchstone. According to consistent forecasts, highly prosperous industries next year can be categorized into four trends: AI industry trends, advanced manufacturing, "anti-insular" trends, and structural recovery in domestic demand. For the technology growth sector, there should be a focus on narrative changes and opportunities brought about by internal "high cuts and low", including AI-end and software applications (media, computers, humanoid Siasun Robot & Automation, H-share internet), innovative drugs, and defense industry. For pro-cyclical sectors, focusing on reasonable valuations, improving business expectations for next year, and sustainable valuation rehabilitation are crucial, including "anti-insular" & rising commodity resources (chemical industry, building materials, steel, energy metals, precious metals), agriculture, and new consumption & service consumption (leisure food, education, travel chains, etc.). 3. Zheshang: Avoid blindly selling off, focus on securities firms, and wait for elastic re-expansion Looking ahead, considering that mainstream indexes have only recently broken their trend lines and global capital markets are still volatile, Zheshang believes that there is a need for inertia-adjustments and gradual convergence in the short term. It should be noted that with the "rebalancing" of market styles in the fourth quarter, some broad-based indices have already undergone sufficient corrections, and there is no need for blind stop-loss at current levels. From a longer-term perspective, Zheshang believes that the systemic "slow" bull market is not over yet and is expected to enter a "second phase" after the adjustment. In terms of allocation, based on the judgment that "short-term adjustments still need time, some indices are moving towards the right place, and the slow bull market is still intact," Zheshang recommends: Timing-wise, avoid blindly following the trend and selling off, hold your position and wait for the adjustment to end, use the explosiveness of the securities sector at the current position above the annual line as a "signal flare" and increase allocation once the securities sector starts moving; For industry and individual stock allocation, distinctions should be made based on recent high-level targets that have just been broken. It is not advisable to get entangled in battles, but for relatively low-level sectors (such as securities, consumption, real estate, mid-cap infrastructure, etc.) above the annual line, continue to hold your positions. 4. Goldman Sachs: Chinese stocks will continue to rise, AI stocks still have room for upward movement Goldman Sachs' chief China stock strategist, Liu Jinjin, recently stated that the rise of Chinese stocks led by artificial intelligence (AI) is far from a bubble, as Chinese technology companies still have room to enhance their valuation and profitability through a focus on AI applications. Liu Jinjin stated in a recent interview that contrary to the US focus on computational power, China will allocate more funds to the AI application field, giving investors "reason to believe that at least in the short term, China's commercialization potential in AI may be stronger." At a time when concerns about the global AI bubble are escalating, the price surge and the frenzy of massive investments appear to have moved away from fundamental support. "From a valuation perspective, the rise of Chinese AI stocks has not yet formed a bubble," Liu Jinjin said. "The bull market in Chinese stocks will continue, and global investors are increasingly willing to explore investment opportunities in the Chinese market." Goldman Sachs predicts that Chinese corporate profitability will reach 12% to 13% next year, a significant increase from the expected 2% to 3% this year. Goldman Sachs also stated that after the MSCI China Index increased by 48% in terms of P/E ratio since the end of 2022, future revaluation may slow to around 5% to 10%. The bank also predicts that Chinese stocks are expected to rise by a further 30% by 2027. This article is reprinted from "Tencent Choose Stock", GMTEight Editor: Chen Xiaoyi.