Huajin Securities: A-share short-term rebound is coming, suggesting allocation to technology growth and high dividend directions

According to the Wisdom Financial APP, Huajin Securities released a research report stating that policy support for economic recovery expectations, maintaining loose liquidity, and restrictions on quantitative trading have led to a rebound in A-shares. Looking ahead, the short-term rebound may continue. In the short term, technology and dividends may still be the preferred investment direction. Historically, during bottom rebounds, industries with high prosperity have a relative advantage. Since the first interest rate cut by the Federal Reserve in 2000, technology growth has benefited. Currently, with a high probability of a rate cut by the Federal Reserve in September, technology growth may be strong. Dividends remain a medium to long-term investment opportunity. When economic and profit expectations are weak, undervalued dividend stocks have a relative advantage, and the macro environment in the medium to long term remains unchanged.

Policy support for economic recovery expectations, maintaining loose liquidity, and restrictions on quantitative trading have led to a rebound in A-shares. (1) The Third Plenum and the Political Bureau meeting have set a positive policy tone, improving short-term economic recovery expectations. The Third Plenum focuses on China's modernization and emphasizes the development of new productive forces. The July Political Bureau meeting emphasized stimulating consumption, increasing efforts to promote equipment upgrades, replacing old with new, and supporting the acquisition of existing commercial housing for affordable housing. The positive policy tone may improve short-term economic recovery expectations. (2) Short-term liquidity expectations are relatively loose. Firstly, the slowdown in U.S. inflation and employment has led to an increase in market expectations of a rate cut in September, and the short-term appreciation of the Renminbi has reduced domestic monetary constraints. Secondly, the policy tone set at the Political Bureau meeting and the introduction of 300 billion yuan for equipment upgrades indicate that fiscal policy may be strengthened. With a supportive monetary policy tone, short-term liquidity is relatively loose. (3) Regulatory restrictions on quantitative trading and margin financing have boosted short-term market sentiment. The China Securities Regulatory Commission has lawfully approved the suspension of margin financing business and is seeking opinions on raising high-frequency quantitative trading fees. Recently, the proportion of rising stocks in the A-share market has increased, leading to a recovery in market sentiment.

Looking ahead, the short-term rebound may continue. (1) From the perspective of the alignment between stock prices and fundamentals, the adjustment in A-shares has been sufficient in the short term. Historically, during A-share corrections, the manufacturing PMI, commodity housing sales, social retail, exports, and industrial enterprise profit growth rates will experience a certain degree of decline. Currently, both real estate sales and export growth rates have rebounded since May 20, and the fundamentals have not shown significant weakness, while stock prices have adjusted significantly ahead of fundamentals. (2) From a long-term profit credit framework perspective, A-shares are in a period of volatility in the second half of the year, currently in the bottom area, but still in a volatile market. Looking at profit and inventory cycles, credit cycles, and the driving forces of medium and long-term loans, A-shares are likely in a period of profit recovery and credit decline in the second half of the year. Historically, during periods of profit growth and credit decline, A-shares have been in a volatile trend, with profit growth supporting a decline in valuations. Therefore, based on historical experience, A-shares are still in a volatile trend in the second half of the year, currently in the bottom area, but valuation growth may be constrained. (3) From a short-term DDM framework perspective, the short-term rebound in A-shares may continue. Short-term economic and profit recovery expectations may continue to improve: firstly, the July manufacturing PMI was slightly higher than market expectations, and with the implementation of policies such as equipment upgrades, replacing old with new, stimulating consumption, and relaxing real estate, subsequent investment and consumption data may marginally improve; secondly, the profit growth rate of industrial enterprises turned positive in June, and with the announcement of interim performance results in A-shares, short-term expectations for improved corporate profits may continue Second, the expectation of loose liquidity may continue in the short term: Firstly, a high probability of a rate cut by the Federal Reserve in September; Secondly, domestic currency may further loosen; Lastly, inflow of foreign capital and financing may improve. Third, limited geopolitical risks, rising policy expectations, and improved market risk appetite in the short term.

During the short-term rebound, technology and dividends may still be the preferred allocation directions. (1) Technology growth may be the main direction for allocation during the current rebound: Firstly, historically, during bottom rebounds, high-growth industries have a relative advantage, with the current high-growth industry pointing to technology growth. Secondly, since 2000, technology growth has benefited from the first rate cut by the Federal Reserve four times, and currently, with a high probability of a rate cut by the Federal Reserve in September, technology growth may be relatively strong. Thirdly, short-term industrial and policy catalysts continue: Firstly, the short-term release of new Apple products may catalyze expectations for AI smartphones; Secondly, both the Third Plenum and the July Political Bureau meeting have emphasized technology innovation, with TMT likely to benefit. (2) Dividends remain a medium to long-term allocation opportunity. Firstly, when economic and profit expectations are weak, undervalued dividend stocks have a relative advantage, and currently, the macro environment in the medium to long term remains unchanged. Secondly, industries with high dividend yields such as construction, textiles and apparel, banks, home appliances, and coking coal still have relatively high valuation cost-effectiveness. (3) Some cyclical and consumer sectors also present allocation opportunities. Firstly, based on interim earnings and changes in fund holdings in the second quarter, sectors such as non-ferrous metals, chemicals, social services, automobiles, defense, and food are worth paying attention to. Secondly, in terms of policy orientation, stimulating consumption-related mid-to-low-end consumption (food, goods, social services, textiles and apparel, etc.), machinery, automobiles, and new energy may also benefit