Sinolink: Bull market in A-share earnings may begin

Sinolink releases research report stating that the bull market trend with China's improving profit fundamentals may be brewing. Currently, after the interest rate cut, a new scene transition is underway, and there are two types of opportunities to focus on: on one hand, after the liquidity suppression is relieved, Hong Kong stocks that have been stagnant from June to August may see a rebound; on the other hand, growth investment will gradually shift from technology-driven to export-oriented. Opportunities in cyclical sectors (non-ferrous metals, machinery, chemicals) will become the main theme in the medium term, preparing for a gear shift into a true bull market. Sinolink's main points are as follows: The scenario after the "pre-emptive rate cut": a new round of global physical demand expansion In the past 30 years, the Federal Reserve conducted pre-emptive rate cuts in 1995, 1998, 2019, and 2024, after which the US economy basically achieved a "soft landing", with GDP growth reversing its downward trend and unemployment rates slightly decreasing. This time, a "soft landing" is the benchmark scenario set by the Federal Reserve: the Federal Reserve has slightly raised its real GDP growth forecasts for 2025-2027 and lowered its unemployment rate forecasts for 2026-2027. For emerging markets, the impact of the Federal Reserve rate cuts mainly goes through two paths: (1) easing the pressure of currency depreciation in emerging markets after the rate cut, providing greater policy space for internal monetary policies. Recently, several important emerging economies (including several ASEAN countries, Mexico, Brazil, South Africa, etc.) have seen their currencies strengthen against the US dollar, leaving space for potential economic stimulus policies domestically. If economic growth stabilizes, their capital markets may benefit from the spill-over effect of the US dollar; (2) if the US achieves a "soft landing" after the rate cut, at the fundamental level, emerging markets may also benefit from a certain degree of US demand spillover. For a net-exporter like China, an "economic soft landing" after a pre-emptive rate cut means that overseas capital spending-driven external demand and the recovery of emerging markets' demand for exports will further increase. Standing at the next trend: Exporting and Going Global From past experiences in the rate cut cycles of 2019 and 2024, A-share export-oriented listed companies (companies in various industries with top 30% of overseas revenue as a percentage) outperformed the Shanghai and Shenzhen 300 Index. The selection includes a total of 18 sub-segments that may benefit from this round of "pre-emptive rate cuts". These industries are mainly 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 industry: plastics, electronic chemicals, chemical products, etc; (3) consumer and pharmaceutical industries with their own industrial trends: games, personal care products, clothing and textiles, medical devices, etc. The bull market in profitability may be on the horizon Contrary to market investors' beliefs, Sinolink believes that a bull market trend with China's improving profit fundamentals may be brewing. Currently, after the interest rate cut, a new scene transition is underway, and there are two types of opportunities to focus on: on one hand, after the liquidity suppression is relieved, Hong Kong stocks that have been stagnant from June to August may see a rebound; on the other hand, growth investment will gradually shift from technology-driven to export-oriented. Sinolink's medium-term recommendations remain unchanged: first, benefiting from improvements in operating conditions brought by the anti-"internal squeezing" within the country, and physical assets repair from manufacturing activity recovery and accelerated investment after overseas rate cuts: upstream resources (copper, aluminum, oil, gold), capital goods (engineering machinery, heavy trucks, lithium batteries, wind power equipment) and raw materials (basic chemical products, glass fibers, paper, steel); second, opportunities in domestic demand-related sectors will gradually emerge after profit recovery: food and beverage, pork, tourism and scenic spots, etc; third, the long-term asset side of insurance will benefit from the bottoming out and recovery of capital returns, followed by securities firms.