Guotai Haitong: Position in Technology, Resources, and High Dividends Amid Market Volatility

Guotai Haitong released a research report stating that there are neither excessively high expectations nor excessively low expectations, and the broader market is moving sideways with fluctuations; after a sharp decline, the stock market will rebound somewhat, but the upside is limited and weak fluctuations will persist; a more forceful market trend needs time. In terms of investment, it is advisable to balance "healthy micro-structure" with "expectations that can be revised upward," favor a more balanced, more diversified, and small-but-fine approach, and be optimistic about domestic technology/strategic resource products/large financials with high dividends. The main views of Guotai Haitong are as follows: Trend assessment: There are neither excessively high expectations nor excessively low expectations, and the broader market is moving sideways with fluctuations; a large-scale market trend still requires time and waiting. It is currently in a consolidation period of a "transition bull market," and at this stage the broad market index has neither expectations of a major rise to new highs nor expectations of a major decline to new lows. First, after A-shares fully priced in industrial narratives in the first half of the year, there is temporarily a lack of new large-scale growth narratives and investment stories to drive an upward revision of overall expectations, and at the logical level it has entered a "waiting period." Second, since August, the pace of incremental funds entering the market has slowed noticeably, and the market state has also temporarily shifted from an incremental state to a stock-game state, so the impact of micro-structure on the market will increase. Short-term risk appetite will also be constrained by "gray rhino" factors such as Federal Reserve rate hikes, the inflation situation, tense international relations, and increasing technology sanctions and trade conflicts. The market is not unaware of the above factors. At a stage where expectation divergence is not high but risk assessment has not declined, the stock market will rebound somewhat after a sharp short-term decline, but overall it is currently a weak fluctuation with limited upside; a more forceful/larger-scale market trend will still require time, conditions, and waiting. There are localized micro-structure problems in China's stock market, which still require further self-digestion by the market; however, localized problems and localized pressure have a controllable impact on the overall market/broad-based indices, and there is no need to worry excessively. After micro-structure problems appear, stocks will, for a period, fail to express logic and instead be more affected by trading factors, and there will also be periods when they are insensitive to positive news and react more intensely to negative news. The market's reaction to third-quarter reports is still a window for us to observe whether this problem improves. This round of the stock market differs from 2015/2022 in that there is no overall micro-structure problem; it is mainly concentrated in a small number of heavily held stocks in certain local technology sectors, while the overall market and the vast majority of stocks have healthy trading structures. In addition, it is not that industrial innovation/logic changes are no longer expressed, but that under the existing setup they will be expressed more in technology sectors and individual stocks with "healthy micro-structure" + "expectations that can be revised upward." Second, micro-structure problems will not persist forever. After a period of sufficient turnover or the emergence of strong new narratives and new expectations, the relevant affected stocks can strengthen again. At present, the market still needs to self-digest the related problems, and it is expected that the end of the year and the beginning of next year will be a favorable node. Industry comparison: The current investment focus is on sectors and individual stocks with "healthy micro-structure" + "expectations that can be revised upward," with more balance and diversification, and obvious characteristics of "small-but-fine" and rotation. 1) Domestic-chain technology: overseas sanctions and trade disputes are increasing, and the necessity of self-controllability is rising; in 2027, China's AI will have an independent development narrative. Recommendations: domestic chips/upstream semiconductor components and materials/high-end equipment/pharmaceuticals, etc. 2) Strategic resources: U.S. Treasuries are no longer necessarily risk-free assets, and under the complex international situation the demand for resource security is increasing; geopolitical conflicts and AI construction demand will also tighten supply and demand for bulk commodities. Recommendations: precious metals/industrial metals/rare metals/oil chemicals/Shenzhen Agricultural Power Group, etc.; 3) Financials and high dividends: the demand for portfolio stability is increasing, and new insurance capital rules are raising the willingness to allocate to dividend assets. Recommendations: banks/brokerages/electric utilities and public utilities/telecom operators/leading real estate companies, etc. Risk warnings: overseas economic and geopolitical risks, and the risk that individual stock performance falls short of expectations.