China Securities Co., Ltd.: W-shaped bottom established, how long can the A-share rebound last?

China Securities Co., Ltd. has released a research report stating that the current market has formed a "W-shaped bottom," with previous concerns significantly alleviated, and the recovery trend is unfolding as expected. Historical analysis shows that the overall rebound in A-shares has been relatively short, with the degree of recovery being about half of the historical average. The recovery trend is expected to continue in August. The technology growth style, which had a substantial decline previously, still has a low recovery degree and considerable space for further improvement. The small and mid-cap style has benefited from improved liquidity, resulting in significant gains during this rebound, but the recovery process is basically in line with the overall A-shares. Sector allocation continues to focus on oversold recoveries and improving economic conditions. Key areas of attention include AI computing power (PCB/CCL, semiconductor equipment/materials, advanced packaging, etc.), innovative drugs (CRO/CDMO), non-ferrous metals (industrial metals, precious metals, strategic minor metals, etc.), and machinery equipment. The main points from China Securities Co., Ltd. are as follows: W-shaped bottom confirmed, market enters recovery phase This week, the market has commenced the recovery trend as anticipated, with the current market having formed a "W-shaped bottom," signaling the beginning of a new round of upward momentum. Previous core market concerns have also been significantly alleviated. Firstly, regarding the leverage risks in South Korea, the scale of a single stock leveraged ETF fund in South Korea had been reduced by 86%, indicating that the most intense phase of deleveraging may have passed. Secondly, financing funds have continuously flowed out, but since last Tuesday, there has been a consistent net inflow of financing funds, clearly alleviating the deleveraging risks in A-shares. Thirdly, concerns about international oil prices, U.S. inflation, and the Federal Reserve's interest rate hikes: these external risks have recently shown significant resolution, including the easing of tensions in the Strait of Hormuz, a drop in international oil prices, U.S. non-farm payroll data coming in significantly below expectations, and a considerable reduction in the probability of a Fed rate hike in September. The investor sentiment index we constructed and continuously track also verifies the alleviation of current market concerns and supports the view that the market is likely to recover in August. How sustainable is this round of rebound? The institution analyzes the historical patterns of short-term sharp declines followed by index rebound recoveries in A-shares, making judgments based on historical statistical reviews. The results indicate that the overall rebound in A-shares has been relatively short, with the degree of recovery being about half of the historical average, and August is expected to continue the recovery trend. Among them, the Growth Enterprise Market (GEM) index, which represents the technology growth style, experienced a significant decline previously, and its current recovery degree remains low, leaving substantial room for further recovery. The small and mid-cap style, represented by the CSI 1000, has gained significantly in this round of rebound due to improved liquidity, but the recovery process is essentially on par with the overall A-shares. Sector allocation approach: Continuing to focus on recovery and economic improvement layouts AI computing power: Continue to focus on the two main lines of the global AI supply chain and domestic semiconductor equipment, concentrating on scarce materials in the upstream segment, and pay attention to high-end PCBs, high-speed copper connections, optical modules, as well as etching, deposition, testing, and bonding equipment; power supplies, liquid cooling systems, semiconductor materials, and equipment components can serve as directions for future diffusion. Innovative drugs/CXO: Under the resonance recovery of both domestic and external demand, the signing of new orders and performance in the domestic CRO/CDMO industry in 2026 will accelerate growth, driving the CXO industrial chain into a new round of development phase. Non-ferrous metals: With the strengthening of supply constraints and confirmation of interest rate cuts, we maintain a bullish outlook on industrial metals such as copper, aluminum, and tin; precious metals and strategic minor metals face new opportunities. Machinery equipment: The "super prosperity" of semiconductor equipment is still in the early stages; the commercialization of humanoid Siasun Robot & Automation is entering a critical landing window; engineering machinery is seeing simultaneous improvement in domestic and foreign sales, leading to low-level recovery.