Huatai A-share Strategy: Style Switch Underway

Huatai Securities research report points out: First, the A-share earnings short cycle may come under pressure starting from the 2026 annual reports, but misalignments in medium- and long-term cycles such as real estate, technology, and capacity will still allow structural opportunities to emerge; the medium-term upward trend in ROE for non-financial corporates remains unchanged, and sectors such as domestic-demand consumption and cyclicals have bottom-reversal potential. Second, the current valuation discount of A-shares relative to overseas markets has been adjusted fairly fully, but absolute valuations and positioning in some industries may not yet be fully digested; considering the evolution of the dollar and credit cycles, opportunities may emerge in the second half of next year. Third, style rotation is underway, and three style factors point to large-cap stocks and low-ROE-recovery names within value as likely to outperform in 1H27. Fourth, focus on investment themes such as ROE improvement, the second half of the AI investment cycle, the "six networks," the U.S. midterm elections, and the second derivative of reflation.