Shenwan Hongyuan Group: Short-term market cost-effectiveness has significantly improved; oversold rebound small and micro-cap stocks and themes have higher elasticity.

Shenwan Hongyuan Group released a research report stating that three issues in the current market objectively exist: the AI industry is accelerating the correction of computing power inflation, the capital supply and demand environment is unfavorable, and the overseas asset allocation environment remains unfavorable. However, the improvement in cost-effectiveness is equally clear: a timetable for long-term cost-effectiveness improvement already exists, and short-term indicators have generally pointed to high cost-effectiveness. If a rebound occurs, it will lean more toward an oversold rebound in nature. Oversold institutional heavy holdings are an important part of the rebound but typically do not lead it. Small and micro-cap stocks outperforming is the norm, and thematic rallies have higher elasticity. In the oversold rebound window, we reiterate the AI chain aesthetic. The window for excess returns in non-tech directions in the medium term has not closed. High dividends and tech tracks exhibit a "seesaw effect," and the oversold rebound phase is a headwind period for high-dividend assets. The main views of Shenwan Hongyuan Group are as follows: 1. The medium-term problems in the current market objectively exist, and the improvement in long-, medium-, and short-term cost-effectiveness is also objective. To summarize the current problems: 1. The AI industry is accelerating the correction of computing power inflation. 2. The capital supply and demand environment is unfavorable. 3. The overseas asset allocation environment remains unfavorable. To summarize the current state of cost-effectiveness improvement: 1. A timetable for long-term cost-effectiveness improvement already exists. 2. Short-term indicators have generally pointed to high cost-effectiveness. Our long-, medium-, and short-term positioning on the market remains unchanged, and we reiterate our understanding of the current problems and the state of cost-effectiveness improvement. The problems currently facing the market: 1. The AI industry is accelerating the correction of computing power inflation. In the forward-looking outlook for the AI industry, there is no widespread computing power inflation. Recently, overseas AI leaders have faced financing constraints and power constraints, with capital expenditure growth rates declining; disturbances to computing power inflation demand expectations and the gradual loosening of supply bottlenecks are all part of the correction of computing power inflation. For the market, there are opportunities in the phase dominated by computing power inflation and also in the phase dominated by computing power deflation, while the transitional phase in between may be a headwind period for the market. 2. The capital supply and demand environment is unfavorable. Offensive directions are decreasing, and offensive capital is scarce. In October, all types of capital reduced positions to some extent, and in the short-term net value-sensitive zone, negative capital feedback loops are prone to ferment, requiring hedging forces to step in. 3. The overseas asset allocation environment is unfavorable. Raising rates to fight inflation, fiscal discipline consolidation, governance of economic structural contradictions, and the need to maintain overall stable economic operation must be balanced but are difficult to achieve simultaneously. Resource nationalism has become the backdrop of the era, and geopolitical conflicts recurring have also become the norm. At present, major global central banks prioritizing inflation control is a choice unfriendly to capital markets. Current state of cost-effectiveness improvement: 1. A timetable for long-term cost-effectiveness clearing already exists. Currently, the 1/PE of electronics and communications has rebounded to near historical median levels. With the disclosure of Q3 2026 reports, the static valuation of communications will fall below the historical median; with the disclosure of 2026 annual reports, the static valuation of communications will approach historical lows. This may be a clue to a mid-cycle or even long-cycle low region. 2. Short-term cost-effectiveness indicators have shown results. The money-making effect, momentum effect, floating profits and losses on holdings, and financing sentiment all point to short-term high cost-effectiveness. All types of capital generally reducing positions and negative capital feedback loops playing out in pulses are also signals that a short-term bottom is approaching. We reiterate our deduction of long-term, medium-term, and short-term wave positioning: Long term, A-shares are in a consolidation and rest period between two major upward waves. Medium term, the consolidation and rest wave continues and still leans toward a weak consolidation phase. Short term, market cost-effectiveness is broadly favorable, oversold characteristics are clear, and a rebound is reasonable. 2. Deducting the market characteristics of an oversold rebound: a broad oversold rebound, including institutional heavy holdings, but small and micro-caps and thematic rallies have higher elasticity. At present, the oversold rebound not being sustained and further adjustment following are consensus expectations. Under such circumstances, we particularly note that the elasticity of short-term thematic rallies may exceed expectations. Rebound trigger conditions are highly tied to policies to stabilize the capital market. This week, policies have significantly intensified, taking growth into account, and triggering a rebound is reasonable. At present, short-term market cost-effectiveness has significantly improved, but clues for solving medium-term problems are insufficient, and clues for a new tech consensus are also insufficient. If a rebound occurs, it will lean more toward oversold rebound attributes. According to historical experience, the characteristics of oversold rebounds within major wave adjustments are: broad oversold rebounds across structures, at least shifting from a downtrend to sideways consolidation for a period. Oversold institutional heavy holdings are an important part of the rebound but typically do not lead it. Small and micro-caps outperforming is the norm, and thematic rallies have higher elasticity. At present, the oversold rebound not being sustained, further adjustment following, and structural clues being difficult to grasp are consensus expectations. On this basis, considering a second round of speculation, individual short-term thematic directions may exhibit high elasticity. The directions the market has chosen in the short term are software and Siasun Robot&Automation. The market highly ties rebound trigger conditions to stabilizing capital market expectations. This week's significant policy efforts + a style that takes growth into account are conducive to the unfolding of a rebound. This week, the market attempted to rebound twice, both playing out along typical oversold rebound market characteristics, and the short-term rebound may still have some persistence. 3. In the oversold rebound window, we reiterate the AI chain aesthetic: 1. The few directions whose fundamental expectations can exceed those at the end of June. 2. Directions where 2027 prosperity continues to improve relative to 2026 may be the directions that strengthen divergently after earnings + valuation digestion through pullbacks. 3. Attach importance to investment opportunities in tech themes and non-tech themes. In the medium term, the window for excess returns in non-tech directions has not closed. Key directions remain unchanged: CXO, innovative drugs, real estate, coal, shipping, precious metals, industrial metals, and basic chemicals. High dividends and tech tracks exhibit a "seesaw effect," and the oversold rebound phase is a headwind period for high-dividend assets. Risk warnings: Overseas economic recession exceeding expectations, domestic economic recovery falling short of expectations.