1、 The main driving force for short-term rebound: "Fed rate hikes end trading" (stock market rebound, US bond yields fall, commodity highs fluctuate, and the probability of gold rising increases)+improvement in Sino US economic and trade relations. This week, the Federal Reserve stated that it will continue to maintain the threat of interest rate hikes. Next week is a critical validation period for China US relations, and it is reasonable that short-term market resistance has increased. We continue to remind that if substantial improvements are made in the economic and trade relations between China and the United States in the future, it will help to suppress inflation expectations, and the complete end of the Federal Reserve's interest rate hike is a high probability. So, there is still room for interpretation at the end of the year and the beginning of the year when the Fed raises interest rates to end trading.
Since late October, the A-share market has rebounded, and the core driving force is our continuous reminder of "the Federal Reserve raising interest rates to end trading" and the improvement of China US economic and trade relations. But after the rebound, the twists and turns began to appear. This week, the Federal Reserve stated that it will continue to threaten to raise interest rates. This reflects that US monetary policy is still struggling, and inflation risks have not yet been fully ruled out. In the short term, the November non farm employment data may reflect the impact of resuming work after the strike suspension, with an increase in new non farm employment and a rebound in salary growth. On November 17th, the US Treasury Provisional Appropriations Act passed at the end of September expired, and the United States once again faced the threat of a government shutdown, which was also a source of short-term disturbance. In this case, it is reasonable to see an increase in short-term rebound resistance.
The bullish direction at the end of the year and the beginning of the year remains unchanged. We continue to remind that the demand for the United States to fight inflation from the supply side and improve the supply and demand pattern of US bonds is the logical basis for the continuous improvement of Sino US relations. If the substantial improvement in the economic and trade relations between China and the United States is achieved in the future (the proportion of US imports from China stabilizes), it will help to confirm the exclusion of inflation risks, and the complete end of the Federal Reserve's interest rate hike is a high probability. So, there is still room for interpretation at the end of the year and the beginning of the year when the Fed raises interest rates to end trading.
2、 There has been an increase in discussions on the "high for low" policy in the short-term sector. An effective 'high for low' exchange may depend on the improvement of domestic economic expectations. The key to completing the layout of domestic stable growth policies is their implementation and policy effectiveness. The easing of overseas pressure and the weakening of domestic policy constraints are necessary conditions. An effective 'high for low' exchange may also be part of the 'Fed rate hike to end trading' at the beginning of the year.
There has been an increase in discussions on the "high for low" policy in the short-term sector. From the perspective of sector cost-effectiveness, the profit making effect of the ChiNext compared to the Shanghai and Shenzhen 300 has been restored to a high level. The profit making effect of industries benefiting from the improvement of the denominator end (electronics, medicine and biology, science and technology innovation board) has spread to high levels. The profit making effect of industries related to economic growth expectations (such as banking, real estate, steel, food and beverage, etc.) is relatively low, and there is indeed a foundation of "high for low" in terms of cost-effectiveness.
We understand that an effective 'high for low' exchange may depend on an improvement in domestic economic expectations. The direction of domestic stable growth policies has been determined, and the current key is the implementation and verification of policy effectiveness. We continue to remind that the specific arrangements for the renovation of urban villages (especially the source of funds) will be an important catalyst for the subsequent implementation, which may trigger a pulse in the pro cyclical sector. We suggest that the exchange rate constraints brought by overseas high pressure are an important reason why the effectiveness of domestic policy implementation cannot be effectively inferred. Therefore, easing overseas pressure may be a necessary condition for an effective "high for low" policy. The short-term "high for low" may only be a pulse like market, while the effective "high for low" will be a part of the market at the end of the year and the beginning of the year when the Federal Reserve raises interest rates and ends trading.
3、 In terms of structural selection, we suggest waiting for changes: improvement in China US economic and trade relations+downward trend in US bond yields, optimistic about new beta assets such as advanced manufacturing in the export chain+core consumption. Continue to remind that 23Q4 is a window with less resistance in the pharmaceutical market. Continue to be optimistic about Huawei's automotive chain and overseas mapping of AI applications in the medium term. In a broad sense, the emphasis on corporate governance and shareholder returns may be an important trend in the mid-term of A-shares.
The resistance to short-term rebound has increased, and the attention to "high for low" has increased. We are paying attention to the implementation of domestic stable growth policies (with a focus on the specific implementation of urban village renovation), bringing opportunities for pro cyclical pulses. The 'high to low' strategy can be used for tactical maneuvers, but for the configuration of the bottom silo, we suggest waiting for it to change. The improvement of economic and trade relations between China and the United States, coupled with a downward trend in US bond yields, has eased the pressure on the denominator end. At the same time, the molecular end has opened up space for domestic stable growth policies, and the expected fermentation of domestic and foreign demand improvement may be fully realized. We suggest that the market beta may have undergone changes. The new paradigm of China's economy focuses on the international competitiveness of advanced manufacturing in the external circulation, while the support of consumer services in the internal circulation. The economy is good, and the probability is that exports are good and consumption is good. So, new beta assets such as advanced manufacturing and core consumption in the short-term export chain are also experiencing a rebound window. Among them, pharmaceutical biology is the direction of the market's widespread concern for the reversal of difficulties in 2024, and 23Q4 is the window with less market resistance.
In the medium term, Huawei continues to be optimistic about innovation in the Huawei chain. Huawei's successful transfer of innovation capabilities in consumer electronics to electric vehicles may be an important direction for future prosperity. Continue to remind that AI applications will continue to increase in the future, and we are optimistic about investment opportunities for AI applications overseas.
China Special Appraisal may benefit from stable capital market expectations in the short term. In the medium term, the trend of strengthening corporate governance and enhancing shareholder returns represented by the broad sense of special valuation is forming. This may be an important clue for the spread of profit making effects and the improvement of sector valuations in the next 1-2 years.
Risk reminder: Overseas economic recession exceeds expectations, and domestic economic recovery is less than expected.