Huajin Securities: The A-shares may have begun a comprehensive slow bull trend. In the short term, it is recommended to continue to allocate technology growth and cyclical stocks on dips

According to the Zhitong Finance APP, Huajin Securities released a research report stating that, based on the historical experience of a comprehensive slow bull market in the US stock market, the current A-share market has met the conditions to initiate a comprehensive slow bull market. First, the economic and profit fundamentals in our country are continuously on a recovery trend. Second, the current scale of dividends and dividend rates in A-shares are continuously rising. Third, the current liquidity remains in a loose trend. The A-share market is expected to continue a strong slow bull trend in the short term, with adjustments providing opportunities for low-position layouts.

In terms of industry allocation, Huajin Securities suggests continuing to allocate technology growth and cyclical stocks on dips in the short term. (1) The excess returns from the short-term barbell strategy may be relatively limited. (2) In the short term, technology and cyclical stocks may be relatively dominant. First, looking back, during the comprehensive slow bull period in the US stock market, policy support and high-prosperity industries were relatively dominant. Second, currently, technology and cyclical stocks in A-shares may be relatively dominant. (3) In the short term, it is recommended to continue to allocate on dips: first, sectors with upward trends in policy and industry such as computers (AI applications), media (AI applications), communications (computing power), electronics (semiconductors), military industry, robotics, innovative drugs, etc.; second, industries benefiting from anti-involution policies and potentially improving expectations such as new energy, non-ferrous metals, express delivery, chemicals, etc.

The main points of Huajin Securities are as follows:

The sustained comprehensive slow bull market in the US stock market is mainly driven by strong fundamentals, high dividends, and loose liquidity. First, strong fundamentals are the basis for the comprehensive slow bull market in the US stock market: during the four phases of the comprehensive slow bull market, corporate profits consistently showed an upward trend; secondly, during the four phases of the comprehensive slow bull market, economic indicators such as US GDP growth rate, retail sales growth rate, and manufacturing PMI were all on the rise or at high levels. Second, high dividends are also a core driving factor for the long-term comprehensive slow bull market in the US stock market. Third, loose liquidity and low inflation are also factors driving the comprehensive slow bull market in the US stock market.

The core factors driving the A-share market to experience a comprehensive fast bull trend are low sentiment and valuation, the introduction of significant positive policies, and loose liquidity. First, market sentiment and low valuations are one of the conditions for the A-share market to initiate a comprehensive fast bull market. Second, the introduction of significant positive policies is a core factor driving the comprehensive fast bull market in A-shares, such as the promotion of the stock split reform policy in 2005, the implementation of the "4 trillion" stimulus policy in 2008, and the introduction of the "National Nine Articles" in 2014. Third, loose liquidity is also a core factor driving the comprehensive fast bull market in A-shares, such as the continuous reserve requirement ratio and interest rate cuts by the central bank in 2008 and 2014-2015.

The structural slow bull market in A-shares is mainly driven by weak economic and profit recovery, as well as loose policies and liquidity. First, weak fundamental recovery is one of the factors driving the structural slow bull market in A-shares. Second, positive policies and external events are core factors driving the structural slow bull market in A-shares, such as the supply-side reform in 2016, the release of new regulations on share reduction in May 2017, the conclusion of the first phase of the China-US trade agreement in 2019, the issuance of special anti-epidemic bonds in 2020, and the optimization of epidemic prevention policies at the end of 2022. Third, loose liquidity is also a core factor driving the structural slow bull market in A-shares.

Currently, it appears that the A-share market may have initiated a comprehensive slow bull trend. (1) Based on the historical experience of a comprehensive slow bull market in the US stock market, the current A-share market has met the conditions to initiate a comprehensive slow bull market. First, the economic and profit fundamentals in our country are continuously on a recovery trend. Second, the current scale of dividends and dividend rates in A-shares are continuously rising. Third, the current liquidity remains in a loose trend (2) In comparison to the conditions for forming a comprehensive bull market and a structural slow bull market in the A-shares, the current situation may not fully meet either: First, the sentiment and valuation of A-shares are already at a neutral level, and after the introduction of significant policies on 924, we are currently in a period of policy stability. Second, under the anti-involution policy, the economy and profits may be in a recovery cycle, with expectations for fundamentals improving compared to before, and with policies and liquidity remaining continuously loose, the structural slow bull may turn into a comprehensive slow bull.

A-shares are likely to continue a strong slow bull trend in the short term, with adjustments presenting opportunities for low-level positioning. (1) Short-term economic expectations have somewhat declined, but in the medium term, the economy and profits continue to be on a recovery trend. First, short-term economic expectations have somewhat declined; second, in the medium term, the economy and profits continue to be in a recovery cycle. (2) Short-term liquidity remains loose. First, macro liquidity remains loose: firstly, the US dollar is still in a low-level fluctuation, and overseas constraints on domestic liquidity are relatively small; secondly, the Politburo meeting in July continued to emphasize maintaining ample liquidity, and the central bank may release liquidity through various structural monetary policy tools. Second, short-term capital inflows into A-shares may continue to rise. (3) Short-term policies remain relatively positive, external risks are limited, and the risk appetite for A-shares may maintain a relatively high level.

Industry allocation: In the short term, it is recommended to continue to allocate technology growth and cyclical stocks on dips. (1) The excess returns from the short-term barbell strategy may be relatively limited. (2) In the short term, technology and cyclical stocks may relatively outperform. First, looking back, during the comprehensive slow bull period of US stocks, industries supported by policies and with high prosperity relatively outperformed. Second, currently, technology and cyclical stocks in A-shares may relatively outperform. (3) In the short term, it is recommended to continue to allocate on dips: first, industries with upward trends in policies and sectors such as computers (AI applications), media (AI applications), communications (computing power), electronics (semiconductors), military industry, robotics, and innovative drugs; second, industries benefiting from anti-involution policies and with improving expectations such as new energy, non-ferrous metals, express delivery, and chemicals.

Risk warning: Historical experience may not necessarily apply in the future, unexpected changes in policies, and economic recovery may fall short of expectations.