Zhongtai: Get through the dilemma period with balanced allocation, market style will refocus on technology.

Zhongtai released a research report stating that it is best to navigate through this period of indecision with a balanced allocation, patiently waiting for the focus on technology to return. This week, the market experienced a comprehensive decline with the technology sector experiencing the largest decrease. The market has accelerated its downturn to complete a style switch. High-frequency funds show that funds from broad-based ETFs are accelerating in net inflows, with balanced allocations of funds from both the Southbound and Northbound channels. The bank's previously recommended balanced allocation portfolio can navigate through this period of indecision by using industries that are weakly or negatively correlated with technology for hedging, such as: 1) Finance: for hedging against technology volatility; 2) Cyclical industries in the chemical sector; 3) Innovation drugs under the warming discourse between China and the United States. The market style will refocus on technology, possibly as early as within the year, and a significant adjustment will accelerate the arrival of this point in time. Key points from Zhongtai are as follows: The bank repeatedly emphasized in reports since mid-October the shift from defense to balanced allocation, navigating through this period of indecision with patience in anticipation of the renewed focus on technology. In the report "Tariff 2.0: Trend-driven structural adjustment" on October 12, it mentioned, "in the short term, trend-driven structural adjustment, focusing on finance (banking + insurance), technology may undergo rotation, and sectors that were strong previously may realize profits in the short term with deleveraging and adjustments". In the report "The Absence of Capital Relay" on November 3, cyclical industries in the chemical sector were added as a hedge for technology. In the report "After 4000 points: Absolute returns to the left, trading funds to the right" on November 8, it says, "from the perspective of absolute return investors such as insurance and pensions, they have increased equity allocations this year and the investment ratio in risk assets has gradually increased, behavior towards the end of the year is more inclined towards locking in gains, and the aesthetic preferences of new funds may also become more conservative". This week, the market experienced a comprehensive decline with a significant decrease in trading volume, with the technology sector experiencing the largest drop. The market used an accelerated decline to complete the style switch. In terms of high-frequency funds, funds from broad-based ETFs are accelerating in net inflows, with balanced allocations of funds from both the Southbound and Northbound channels. Leverage and main funds are accelerating in net outflows, with the trend of balanced allocations for both Northbound and Southbound channels further strengthening. 1) Leverage funds are receding, but the absolute levels remain relatively high. This week, leveraged trading activity has significantly decreased, falling below the "average +1 standard deviation", roughly equivalent to early August levels. Most popular stocks have seen deleveraging, with inflows into basic industries such as chemicals, electrical equipment, agriculture, forestry, animal husbandry, and fisheries; 2) Main funds are accelerating in net outflows. On Friday, both the Shanghai and Shenzhen 300, ChiNext, and Sci-Tech Innovation Board experienced significant net outflows from main funds, although the absolute amounts were lower than on October 30; 3) Northbound funds counter-cyclical in overweighting banks: Northbound trading volumes have slightly decreased, with overall top picks facing downward pressure, suggesting that funds are flowing out, except for banks that are rising against the trend; 4) Southbound funds continue with balanced allocations: daily net purchase amounts have decreased, with balanced allocations across industries, with significant net inflows into commercial trade, electronics, banking, and real estate. While funds are flowing out comprehensively, only ETFs are net buying. From Monday to Thursday, apart from the Innovation 50 ETF, all other broad-based ETFs saw daily average net inflows exceeding the previous week. On Friday, broad-based ETFs all experienced significant net inflows. The changes in fund flows are the underlying reasons for market adjustments, along with multiple direct factors that serve as catalysts. Firstly, concerns about liquidity were raised due to factors such as the U.S. government shutdown and downward revisions in interest rate expectations. As global stock markets uniformly declined, traditional safe-haven assets like gold and silver also experienced a decline, and the domestic stock market's adjustments did not result in clear benefits for bonds. Secondly, the AI bubble theory resurfaced, temporarily dampening risk appetite. Post-market on Wednesday, Nvidia's third-quarter report data exceeded expectations, but it was followed by questions about financial data and the AI bubble theory. As a result, Nvidia's stock price fell significantly on Thursday and Friday, leading to adjustments in the domestic technology sector. Thirdly, calendar effects and stock index futures delivery amplified market fluctuations. Given that market sentiment is typically cautious on Fridays, coupled with the shareholders of stock index futures and options expiring on November 21, market volatility was magnified. The year-end divergence in funds, combined with catalyzed events, has led to a comprehensive decline in sentiment indicators, with indicators such as the VIX index and the spread between domestic stock index futures showing a cooling in market risk appetite. The bank's previously recommended balanced allocation portfolio can navigate through this period of indecision by using industries that are weakly or negatively correlated with technology for hedging, such as: 1) Finance: for hedging against technology volatility; 2) Cyclical industries in the chemical sector; 3) Innovation drugs under the warming discourse between China and the United States. The market style will refocus on technology, possibly as early as within the year, and a significant adjustment will accelerate the arrival of this point in time. Risk warning: Estimation errors in data statistics, unexpected fluctuations in domestic and foreign macro factors, unexpected market fluctuations, delayed information updates, etc.