BOC International: The technology sector has not yet entered the stage of bubble bursting, and value stocks have not yet formed a turning point.

BOC International released a research report, stating that the current market structure is as follows: expensive assets have not yet entered the stage of bubble bursting, and cheap assets have not yet reached a turning point. Low asset valuation can only indicate an improvement in odds, not a trend reversal, as they are still in the stage of "improving odds but insufficient winning rate". The main points of BOC International are as follows: Current core contradiction in the market. On one hand, tech stocks and broad-based indices supported by large-cap tech stocks are undoubtedly in overpriced positions. From trading congestion, valuation percentiles, and index structure, it is difficult to explain tech assets as "cheap". However, the real point of discussion is whether "expensive assets have entered the stage of bubble bursting". On the other hand, value stocks, traditional consumption, and some high dividend stocks are indeed in relatively cheap areas. From valuation, dividend yields, ERP, and relative returns over the past three years, these assets have clear odds in their favor. Expensive without bubble, cheap without turning point. We believe that at least for now, high-quality tech companies have not shown typical signs of a late bubble stage: industry trends have not been challenged, profit expectations still have room for verification, and there is still room for periodic adjustments, rather than prolonged one-way enthusiasm. Tech stocks are currently closer to a "period of digestion under high valuation" rather than a "systematic collapse after a bubble". Low valuation itself is not a turning point signal. Cheap only means an improvement in odds, not a trend reversal. A turning point requires additional signals: either policy signals, liquidation of assets, profit expectations recovery, or redistribution of risk preferences. The problem with value stocks is that although their valuations are low, there are still not enough signals driving a repricing. Therefore, the current market should not be simply understood as "selling high and buying low" or "style change". The real structure is: expensive assets have not yet burst the bubble, and cheap assets have not yet reached a turning point. This feature reflects not investors' responsibility but an issue with the pricing mechanism of A-shares itself. An important characteristic in the history of A-shares is that market rallies and collapses tend to move towards extremes. Cheap assets rarely remain cheap, often continuing to become very inexpensive; similarly, high-valued assets rarely remain high-valued, often rising to extremely high valuations. Before mean reversion, the market usually goes through an accelerated phase of deviation from the mean. In other words, A-shares are not good at automatically bottoming out at "undervalued" levels, nor at automatically peaking at "overvalued" levels. The more common path is to move from undervalued to severely undervalued, then to clear out through policy, liquidity adjustments, or crashes; or to move from overvalued to extremely overvalued, then to collapse following performance discrepancies, liquidity reversals, or structural breakdown in trading. Currently, the market is in this intermediate state: tech stocks are expensive, but have not yet entered the bubble bursting stage; value stocks are cheap, but lack a turning point. Two types of turning points for value stocks: The first is a "rapid decline clearing" turning point similar to January 2024. Its core is the disruption of internal liquidity balance in A-shares, characterized by a rapid increase in the slope of decline, deterioration in micro-trading structure, shift from active reduction to passive deleveraging, ultimately releasing risk through a sharp drop. The key variables to observe in such a market are not valuations themselves, but the slope of decline, trading structure, and the extent of selling pressure. Only when risk preferences hit their extremes in a short period, can undervalued assets possibly see equilibrium restoration after being "forced to clear out". The second type is a "downward adjustment in policy-facing decline" turning point similar to June to September 2024. Its core is not a collapse in liquidity in a single day, but a chronic decline in valuations due to the absence of policy expectations, downgrades in fundamentals, and continual outflow of funds. It is characterized by a slow decline, but lasting for a long time; valuations are already low, but there is a lack of active buying intent; the market may experience technical rebounds repeatedly, but these rebounds are easily suppressed. In such a market, the real turning point is not "becoming cheap" in itself, but a change in policy signals, credit signals, or capital signals, similar to when the market finally received a policy signal on September 26, 2024's political meeting. Currently, traditional value assets are closer to the second state: slightly undervalued, showing some signs of downward adjustment and a slight increase in slope, but without a clear overall collapse; at the same time, policy signals are not yet clear. Therefore, they are still in the stage of "improving odds but insufficient winning rate". This is why we judge that adding to value stocks on the downside is not a simple decision. The rebound of value stocks is not impossible, but it is more likely to be trading or short-term in nature, rather than a trend. Similar to experiences in 2023, many undervalued assets tend to have technical rebounds after a long period of decline, but as long as policies and profit expectations are not confirmed, these rebounds are easily "bounced once, hit once". For such assets, the real balanced signals to participate in are not "low valuations", but one of two signals: first, a rapid decline triggered by the disruption of liquidity balance, leading to chip clearance and extreme risk preference; the key is to look at the slope of decline and the extent of selling pressure. Second, assets continuously showing downward adjustment, waiting for clear policy signals, that is, a systematic revision in market expectations for future cash flow compound growth. Before these two conditions are met, the low valuation of value stocks is more about odds than a turning point. In conclusion, it is not advisable to make large-scale style switches too early. Value stocks are indeed cheap, but lack turning points; tech stocks are indeed expensive, but lack conditions for a bubble burst. Therefore, making judgments on large-scale style switches prematurely in the absence of sufficient signals can lead to falling into a trading trap. We provide two allocation recommendations: first, it is unwise to easily conclude that the tech trend is a bubble burst. Areas like AI chains, semiconductors, and domestic computing power have high valuations, but their industry trends have not been disproven, and any adjustments are more likely due to valuation digestion rather than the end of the trend. If there is a significant subsequent correction, it may actually provide a better opportunity for repositioning. Second, value stocks should not be systematically added to just because they are cheap. Traditional consumption and some high-dividend sectors have entered the odds range, but they still need to wait for policy signals or liquidity clearance signals. Until a clear turning point emerges, it is more suitable to keep them as observation pools and trading positions, rather than as major trend positions.