GF SEC: Pessimism in A-shares fully priced in, oversold rebound may begin

GF SEC released a research report stating that A-share 2026 net profit attributable to parent is forecast to grow by more than 15%, but valuation contribution is -24%. The degree of valuation compression is rare in history, exceeding the average level of about -14% negative valuation contribution in the past, and also exceeding the valuation compression magnitude in years with double-digit profit growth (2013, 2017, 2021). As of October 16, the short-term sentiment indicators of major indices fell to the 0% historical freezing point. The ChiNext Index deviated downward from the 20-day moving average by more than 10% for the fifth time, historically corresponding to oversold rebounds. Regarding lock-up expirations, the historical impact of the December lock-up expiration peak in A-shares is limited, while Hong Kong stocks in Q4 may be affected by sentiment shocks from the lock-up expiration wave of large models, GPUs, etc. from end-2026 to early 2027. GF SEC's main views are as follows: 1. A-share 2026 net profit attributable to parent is forecast to grow by more than 15%, but valuation contribution is -24%. Comparison across multiple dimensions shows this is rare in history. In historical years of valuation compression, the average negative valuation contribution was about -14%, and this year significantly exceeds that; Referring to years with double-digit or higher profit contribution (2013, 2017, 2021), this year's valuation compression is already at the largest historical level; Even considering the continuous valuation expansion in 2024-2025, there have been multiple historical cases where valuation moved first and performance followed. After two consecutive years of A-share valuation expansion, if performance relay was achieved, the valuation compression in that year was also within 10% (for example, 2014-2015 valuation expansion first, 2016-2017 performance release + slight valuation decline; 2019-2020 valuation expansion first, 2021 performance release + slight valuation decline). In other words, considering this year's profit forecast, the market's pricing of non-performance factors (discount rate, risk appetite) and the short-term pessimistic sentiment have been fairly fully expressed. 2. The valuation expansion of the [AI industry chain] in 2024-2025 is also fully offset in 2026. As the chart below shows, in 2023-2025, A-share [key AI companies] were mainly driven by positive valuation contribution; in 2024-2025, performance contribution was also gradually released. The net profit growth of [key AI companies] in the 2026 interim report is about 76%, and the full-year expected growth rate rises further to 85%; however, calculated backward from stock price performance, the negative valuation contribution in 2026 is more than 40%. This indicates that the degree of valuation decline in the AI industry chain this year has already exceeded the magnitude of valuation expansion in 2024-2025, meaning that the stock price gains for three consecutive years from 2024 to 2026 were basically entirely contributed by performance, and the market did not re-rate valuations. This position also represents that the market's industry expectations for 2027-2028 have fallen to a very low level. 3. As of last Friday, October 16, the short-term sentiment indicators of major indices fell to the 0% percentile. As of last Friday (October 16), the short-term sentiment indicators of Wind All A, ChiNext Index, and STAR Market Index all fell to near the 0% historical freezing point. Historically, falling to the 0% low percentile corresponds to a higher win rate for short-term index rebounds. 4. Since the 2016 circuit breaker, this week the ChiNext Index deviated significantly downward from the 20-day moving average by -10% or more for the fifth time. Historically, after the four previous breaks below the moving average by -10%, all corresponded to short-term oversold rebounds: March 2021 rebounded for 94 days, up 27.6%; April 2022 rebounded for 48 days, up 32%; after the signal was triggered in April 2025, it continued to rise until October; July 2026 rebounded for 15 days, with a magnitude of 9.8%. 5. The above indicators show that the market's pessimistic sentiment has been expressed to a fairly extreme degree in the short term, and an oversold rebound is expected to begin next; how long the rebound lasts and how much it can rebound still depends on signal verification in November-December The impact of the U.S. midterm election situation on major asset classes, as well as global catalytic events in the AI industry chain and the U.S. stock earnings reporting window. Second, how will lock-up expiration pressure in A-shares and Hong Kong stocks affect the market? 1. For A-shares, there is a lock-up expiration peak in December 2026, but historically its impact on the stock market is limited. From A-share statistics since 2010, the transmission chain of [lock-up expiration reduction All A under pressure] is not obvious. High lock-up expiration often corresponds to high reductions; the correlation between the scale of lock-up expiration in the current month and net reductions in All A in the current/next month is relatively high; However, high lock-up expiration does not necessarily correspond to All A declines. High lock-up expiration in the current month has no correlation with the market's rise or fall in the current month, and has a weak negative correlation with market performance in the next month. If further screening for months with lock-up expiration > RMB 500 billion: All A performance in the current month is unaffected, and there is instead a 56% probability of rising; while the next month is affected to some extent, with a 38% win rate. 2. For Hong Kong stocks, Q4 Hong Kong stocks may be affected by sentiment shocks before large-scale lock-up expirations. (1) Large-scale lock-up expiration waves are correlated with Hong Kong stock declines. Prices usually fall the most before lock-up expiration; after expiration, they do not necessarily rebound, but will be at a phased bottom; dividend stocks are less affected by lock-up expiration. (2) The next lock-up expiration wave is at end-2026 to early 2027, concentrated in lock-up expirations of companies in large models, GPUs, optical modules, intelligent driving, etc., which may have a sentiment impact on Hong Kong stocks in Q4. Risk warnings: Geopolitical conflicts exceed expectations, causing upward pressure on global inflation to exceed expectations; overseas inflation and the resilience of the U.S. economy cause global liquidity to enter a tightening cycle faster; domestic growth stabilization efforts fall short of expectations, causing weak economic recovery and a decline in risk appetite, etc.