Huajin Securities: A-share structural slow bull market continues, short-term continue to balance allocation to technology companies such as CKH Holdings undervalued blue chips.

Huajin Securities released a research report stating that, in retrospect, the A-share market in the second half of 2014 and from April to July 2020 was mainly driven by liquidity and loose policy factors. The current market may be more similar to the second half of 2014, with a short-term trend of maintaining a volatile and strong tendency, and the continuation of a structural slow bull market. In July this year, the style may lean towards balance, while in August, growth may be relatively dominant. In the short term, it is recommended to continue balanced allocation of technology stocks such as CKH HOLDINGS with undervalued blue-chip companies. (1) In comparison, media, building materials, agriculture, forestry, animal husbandry, fishing, computer, and home appliances showed better profit growth rates in their mid-year reports. (2) Currently, growth sectors such as media, automobiles, pharmaceuticals, electric power equipment, and new energy, and value sectors such as agriculture, forestry, animal husbandry, non-banking finance, food and beverage, and home appliances have relatively high cost-effectiveness. (3) Short-term recommendations for balanced allocation: firstly, industries with positive policy and industry trends such as media (AI applications, gaming), computer (AI applications, digital currency), electronics (consumer electronics, semiconductors), communication (computing power), defense industry, Siasun Robot & Automation, innovative pharmaceuticals, etc.; secondly, industries with high valuation and profit growth potential such as non-ferrous metals, electrical appliances, major finance, and consumption (food, retail, farming), etc. In retrospect, the A-share market in the second half of 2014 and April to July 2020 was mainly driven by factors such as liquidity and loose policies. (1) Similar to the current situation, the markets in the second half of 2014 and April to July 2020 both showed a rally in the Shanghai Composite Index despite economic weakness. (2) The A-share market from the second half of 2014 to April-July 2020 was mainly driven by factors such as liquidity, loose policies, and positive external events. The economic and profit fundamentals in 2020 were better than in 2014. The liquidity was relatively loose in both periods: firstly, in terms of macro liquidity, the central bank in 2014 continuously lowered reserve requirements and interest rates, and from April to July 2020, the central bank in China and the Federal Reserve in the United States also lowered interest rates; secondly, in terms of stock market funds, there was significant inflow of margin financing in 2014, and from April to July 2020, there was a noticeable increase in foreign capital inflows and new fund issuance. The policy and external events were relatively positive in both periods, while valuation and sentiment indicators were at low levels. In the second half of 2014, the market favored value, while from April to July 2020, there was a balance between large and small caps with growth being advantageous. The current market may be more similar to the second half of 2014, with a short-term trend of maintaining a volatile and strong tendency, and the continuation of a structural slow bull market. (1) The economy and profits are showing a weak recovery trend. Economically, the weak recovery trend is continuing, with pressure on export demand, a potentially high growth rate in consumption, infrastructure, and manufacturing investment, and weak real estate investment. In terms of corporate profits, the mid-year reports of listed companies show a continued increase in profit growth rates, indicating that enterprise profits are still in a period of recovery. (2) Liquidity is expected to remain loose in the short term. In terms of macro liquidity, constraints on overseas liquidity to China remain small, and the central bank may further increase funds. In terms of stock market funds, foreign funds, margin financing, and new fund issuance are likely to continue to flow into the A-share market. Short-term policies are positive, external risks are limited, valuations and sentiment are slightly on the high side. Short-term style may continue to be balanced: since April this year, there has been a balanced style between large and small caps, with value slightly outperforming growth, which is similar to 2014. In the future, the style between large and small caps may continue to be balanced, with growth possibly having an advantage. The style may lean towards balance in July this year, while growth may be relatively dominant in August. (1) The style between large and small caps may lean towards balance in July and August. In terms of the calendar effect, the Shanghai 50 Index and small-cap stocks are likely to perform relatively well in August. Factors determining the style between large and small caps suggest that the economy may continue its trend of weak recovery in July and August, liquidity may remain loose, policies and external events may remain positive, and sectors such as technology, finance, and cyclical sectors may benefit, leading to a balanced style overall. (2) The style between growth and value may lean towards balance in July, with growth potentially having an advantage in August. The calendar effect shows that the style in July may lean towards balance between growth and value, while the probability of a value style outperforming in August is high, mainly due to weak growth performance. Factors determining the growth and value styles indicate that the economic fundamentals in July and August are in a trend of recovery, liquidity remains loose, policies and industry trends for technology are positive, suggesting that growth may have an advantage, although policies against internal competition and mid-year performance may favor value.