Guotai Junan Securities: The bull market for A-share earnings may begin

According to the Zhitong Finance APP, Guojin Securities has released a research report stating that a bull market driven by the recovery of China's profit fundamentals may be in the making. Currently, after the interest rate cut, a new scenario transition is beginning, and two types of opportunities can be focused on: on one hand, after the liquidity suppression is lifted, the Hong Kong stocks that stagnated from June to August may have a rebound; on the other hand, growth investment will gradually shift from being technology-driven to going overseas for exports. Opportunities in the manufacturing sector (non-ferrous metals, machinery, chemicals) will become the mid-term main line, preparing to shift gears and enter a real bull market.

The main points of Guojin Securities are as follows:

The scenario after "preventive interest rate cuts": A new round of global physical demand expansion

In the past 30 years, the Federal Reserve has implemented preventive interest rate cuts in 1995, 1998, 2019, and 2024, after which the U.S. economy has generally achieved a "soft landing," meaning that GDP growth reversed its downward trend, and the unemployment rate slightly declined. In this round, a "soft landing" may be the baseline scenario set by the Federal Reserve: the Fed has slightly raised its real GDP growth forecast for 2025-2027 and lowered its unemployment rate forecast for 2026-2027. The Fed's "preventive interest rate cuts" mean an increased probability of enhanced liquidity and economic stabilization for the U.S. stock market, thus the U.S. stock market often performs well after previous "preventive interest rate cuts."

For emerging markets, the impact of the Fed's interest rate cuts mainly occurs through two paths: (1) After the interest rate cut, it alleviates the pressure of currency depreciation in emerging markets, providing greater policy space for domestic monetary policy. Recently, several important emerging economies (including multiple ASEAN countries, Mexico, Brazil, South Africa, etc.) have left room for potential domestic economic stimulus policies due to the strengthening of the U.S. dollar; if economic growth stabilizes, their capital markets may benefit from the spillover of the dollar; (2) If the U.S. achieves a "soft landing" after the interest rate cut, on a fundamental level, emerging markets will also be driven by a certain degree of demand spillover from the U.S. For a net-exporting country like China, the economic "soft landing" after preventive interest rate cuts means that external demand driven by overseas capital expenditure and the recovery of emerging markets will further increase.

Standing at the next windfall: Going overseas for exports

From past experience, during the interest rate cut cycles of 2019 and 2024, A-share export-oriented listed companies (those with overseas revenue accounting for the top 30% in various industries) have outperformed the CSI 300. From the perspective of industry distribution, this does not only exist in so-called "interest rate-sensitive" growth industries but depends on the specific supply and demand situation of the industry at that time. The bank has screened a total of 18 sub-sectors that may benefit from this round of "preventive interest rate cuts," which can be divided into three categories: (1) Investment-related capital goods: photovoltaics, general equipment, semiconductors, communication equipment, commercial vehicles, etc.; (2) Intermediate goods related to the recovery of manufacturing prosperity: plastics, electronic chemicals, chemical products, etc.; (3) Consumer and pharmaceutical sectors with their own industry trends: gaming, personal care products, clothing and home textiles, medical devices, etc.

A bull market driven by profits may soon begin

Contrary to the perceptions of market investors, the bank believes that a bull market driven by the recovery of China's profit fundamentals may be in the making. Currently, a new scenario transition is beginning after the interest rate cut, and two types of opportunities can be focused on: on one hand, after the liquidity suppression is lifted, the Hong Kong stocks that stagnated from June to August may have a rebound; On the other hand, growth investment will gradually shift from technology-driven to overseas exports.

The bank's mid-term recommendations remain unchanged: First, benefiting from the improvement in operating conditions brought about by the domestic anti-involution, the recovery of manufacturing activities and accelerated investment after overseas interest rate cuts, physical assets include upstream resources (copper, aluminum, oil, gold), capital goods (engineering machinery, heavy trucks, lithium batteries, wind power equipment), and raw materials (basic chemicals, fiberglass, paper, steel); Second, after profit recovery, opportunities will gradually emerge in domestic demand-related sectors: food and beverage, pork, tourism, and scenic spots; Third, the long-term asset side of insurance will benefit from the bottoming out and recovery of capital returns, followed by securities firms