The A-share market is quite thrilling day by day. Yesterday saw a deep correction of 6 points, and today the market experienced two rises and two falls, with the three major indices ultimately showing a differentiated performance with reduced trading volume.

The Shanghai Composite Index rose by 1.32% to 3,301 points, while the Shenzhen Component Index fell by 0.82%, and the ChiNext Index fell by 2.95%. The total trading volume for the day was 2.14 trillion yuan, a reduction of 796.8 billion yuan compared to the previous trading day, marking the second consecutive day of reduced transaction volume.

Looking at sector performance, aside from the resumption of trading for the "aircraft carrier" of the securities industry leading to catch-up gains, the "bull market standard-bearer" securities sector has taken a breather for the second consecutive day.

East Money, which had a transaction volume of as high as 90 billion yuan yesterday, almost hit a "20CM" limit down today; Tianfeng Securities staged a "heaven to earth" scenario during the trading session, then the limit down was lifted, turning red at one point, only to close again at the limit down; CITIC Securities fell by more than 8%...

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As the phase where randomly picking a code could lead to gains has passed, and the "bull market standard-bearer" has lost steam, where will the A-share market head?

01

High Dividend Sector Leads the Market with Strong Gains

The sudden "crazy bull" market in A-shares has reversed at a historically rare speed.

Within a week, the Shanghai Composite Index rose from a low of 2,687 points to a high of 3,674 points, with a cumulative increase of over 30%, generating a large amount of profit-taking and trapped positions in a short period. The pressure to take profits led to the market's inability to continue its blind rush.

On October 8th, which was eagerly anticipated by all, the A-share market ended with a high volume of 3.45 trillion yuan, closing after a rise and fall, with securities, sci-tech innovation, and the ChiNext board continuing to take the lead.On October 9th, the A-share market experienced a deep correction with reduced volume, marking the first pullback in the bull market. The securities sector underwent significant internal shocks, with the trading volume of East Money reaching a staggering 90 billion yuan, breaking the nearly 17-year-old single-day trading record for an individual stock (set by PetroChina on November 5, 2007, with 69.99 billion yuan).

Today, the A-share market saw a slight increase with reduced volume, with high-dividend stocks, led by state-owned enterprises, taking the lead again. Dividend strategy ETFs dominated the gain charts, with Hang Seng Dividend ETF and Hong Kong Central Enterprises Dividend ETF both rising by more than 4%.

Could this be the first main thread after the A-share market's fluctuation?

In fact, the press conference on September 24th and the meeting on September 26th were a perfect example of expectation management. The market saw a significant shift in policy, and under optimistic expectations, the A-share market immediately staged a boom where everything rose together, even though the policies had not yet been truly implemented.

Looking at the performance of the A-share market in previous bull markets, bull markets are phased. After the initial bottoming out and frantic repair, the market enters a stage of fluctuation and correction, gathering strength. After that, the market will choose a main thread again and start the main rising wave. Often, the latter phase of the market is the direction of the greatest returns.

After the first pullback in the bull market, the direction that the A-share market took the lead in today was surprisingly the high-dividend direction led by state-owned enterprises. Wasn't this the direction that funds with low risk appetite would buy before? Is the market taking the old path again?

It's because policies are starting to be truly implemented.

Before the market opened today, the central bank announced that the newly created swap convenience tool has officially landed, with an initial operation scale of 500 billion yuan, which can be further expanded based on the situation. From now on, it will accept declarations from qualified securities, fund, and insurance companies.

For institutions, using the funds obtained from the newly created swap convenience to exchange for high-dividend stocks is the preferred target for swap business, as it can cover the cost of funds and has a certain safety margin.

In addition, some of the high-dividend stocks are currently trading below their net asset value, with potential market value management requirements, and there is also upward momentum in the subsequent stock prices.So, have you discovered the pattern?

02

Who will be the real main line?

Originally, this round of historically rare rebound market was driven by policy, which means that directions supported by policies have greater room for imagination in the future.

From historical experience, growth stocks have outperformed the market strongly in the middle of each bull market, especially in directions with industrial trends.

Comparing to 2014-2015, large finance set the stage, activating the market's enthusiasm for doing more, followed by small and medium-sized growth stocks led by the ChiNext board, becoming the direction with the largest excess returns in the market.

From a policy perspective, new quality productive forces with strategic height are still continuously exerting strength.

Now, global economic entities are fiercely grasping the new round of technological revolution, rushing to catch up, for fear of falling behind others. For us, new quality productive forces help to accelerate the transformation of old and new momentum.

From the distribution of listed companies in strategic emerging industries, both in terms of quantity and total market value, they are concentrated in the ChiNext and STAR Market. For example, the ChiNext Index and the STAR 100 Index are representative indexes with a high concentration of "new quality productive forces."

From a fundamental perspective, although the total revenue and total net profit growth rates of A-share listed companies were negative in the first half of this year, the STAR 100 Index and the ChiNext Index are rare broad-based indexes with a positive year-on-year growth rate in net profit.From the perspective of profit expectations, the STAR 100 Index can be said to be leading the pack. Wind data shows that as of October 9th, the STAR 100 Index's net profit attributable to the parent company grew by 322.63% year-on-year, with an expected growth of 80% for next year, also leading its peers in broad-based indices.

Of course, whether it's artificial intelligence, digital economy, quantum computing, or new energy vehicles, the foundation of all hard technologies is the chip. Therefore, semiconductors, as a direction for domestic substitution, are also very worth considering.

The semiconductor industry has already emerged from the bottom of the cycle. Since the fourth quarter of last year, the utilization rate of domestic wafer fabs has rebounded from the bottom, with a continuous improvement on a quarter-over-quarter basis, and some products have begun to increase in price.

SIA data shows that global semiconductor sales reached $53.1 billion in August this year, a year-on-year increase of 20.6%.

This year, domestic wafer fab equipment investment has continued to grow rapidly, with orders driving high performance growth. Last night, the high-end chip leader, Wei Er Shares, announced that the net profit for the first three quarters is expected to increase by 515.35%-569.64% year-on-year; the chip foundry leader, Jing He Integration, is expected to see a net profit increase of 744.01%-837.79% year-on-year for the first three quarters.

The most sensitive capital has long smelled that the semiconductor business is entering a favorable cycle. This year, funds have continued to flow into the Chip ETF (159995), directly buying the product to become the largest semiconductor-themed ETF in the market, with the latest scale exceeding 30 billion yuan.

In addition, the recovery of the semiconductor industry actually benefits the upstream of the industry first, which can be verified from the latest third-quarter reports.

Today, Ding Long Shares announced that the net profit attributable to the shareholders of the listed company is expected to grow by 108%-115% year-on-year.

The "Semiconductor Materials and Equipment Index" tracked by the Semiconductor Materials ETF includes Ding Long Shares. More than half of the 40 constituent stocks of this index are semiconductor equipment (53.1%), and the proportion of semiconductor materials is 22.6%.Direction Worth Paying Attention To

In addition to the overall direction of the macroeconomy, there is a very worthwhile main line of research in the growth sector—"hard technology + mergers and acquisitions (M&A) restructuring."

After the news release on September 24, the document related to M&A restructuring was issued that same night: "Opinions on Deepening the Reform of the M&A Restructuring Market of Listed Companies," which encourages listed companies to use M&A restructuring as a means to transform towards "new quality productive forces."

Historically, M&A restructuring has been an effective way for companies to increase performance and achieve rapid growth. If a subsequent wave of M&A arrives, "science and technology valuation" will be a very flexible direction in the medium and long term.

However, as the saying goes, investing in good companies also requires a good price.

Recently, the dual-creation sector has seen a surge in limit-up rallies, with the related index even soaring by as much as 50% since September 24. Now that the overall market momentum has temporarily stalled, coupled with the absence of new catalysts in the industry, sectors with high previous gains are facing significant pressure from profit-taking. It is currently advisable to be cautious about chasing highs and to be wary of catching falling knives.

In the current situation where the main line of A-shares is unclear, the previously popular "dumbbell strategy—dividends + hard technology" still has value in terms of allocation.

On the one hand, policies continue to promote market value management, in conjunction with "restrictions on shareholding reduction, encouraging dividends, and stock buybacks."

The central bank's first implementation of the "500 billion yuan swap facility" allows financial institutions to borrow securities from the central bank. After "security-for-security swap," the cost includes the rate paid to the central bank and the pledge cost. Institutions will be more inclined to buy high-dividend stocks, which may subsequently benefit high-dividend equity assets with stable returns.

On the other hand, don't forget that the central bank still has another new tool of 300 billion yuan, the "creation of a special re-lending facility for stock buybacks and increases," which has not yet been implemented.It is reported that the cost of the buyback and shareholding increase special loan is about 2.5%. Theoretically, as long as the company's dividend rate exceeds 2.25%, major shareholders will have the motivation to continue repurchasing stocks, thereby supporting the stock price. This is also beneficial to the dividend style.

Over time, the situation of "huge buybacks", one of the cornerstones of the long bull market in the US stock market, may appear in the A-share market.

04

Conclusion

For the recent pullback in the A-share market, it is important to clarify that this is a healthy pullback, which is a correction to the previous rapid rise.

At present, the policy bottom has emerged. The "one bank, one bureau, one meeting" on September 24, the Politburo meeting on September 26, and the relaxation of real estate in core cities on September 29 all indicate that the underlying logic of policy has undergone a major change, but the economic bottom still needs to be verified.

From historical experience, the policy bottom leads the market bottom, and the market bottom leads the profit bottom.

In this case, the first stage of policy expectations has brought about valuation repair and a general rise in the market, which has gradually come to an end. It is expected that the next stage will enter a differentiation stage, the index market will slow down, market fluctuations may increase, and finding a new main line is the top priority.

The author knows that the whole market is looking forward to the press conference of the State Council Information Office on Saturday, but I hope everyone still needs to be calm. Generally, major fiscal policies need to be reviewed by the National People's Congress (usually held in mid-to-late October), and now it may still need to wait patiently.

In view of the fact that the policy end has turned, economic improvement still needs time. At the same time, the world's major central banks have entered a monetary easing cycle, and there is also a probability of reducing reserves and interest rates in the fourth quarter of the country.The accumulation of these positive factors, as time goes on, will be reflected in the valuation and profitability of listed companies, forming the foundation for Chinese assets to move towards a long-term bull market.

For ordinary investors, even if a bull market arrives, buying high can still lead to losses. If they can persist in regular investment in index funds and diversify their purchases, it is the simplest and most effective way to invest. Time will not disappoint those who work hard in sowing.

In the unclear A-share market, adopting a "dividend + hard technology" barbell configuration is more prudent, such as the high dividend direction that has been popular for three years, like Hang Seng Dividend ETF (159726) and Hong Kong Listed Chinese Enterprises Dividend ETF (513910). Compared with the China Securities Dividend Index, the Hong Kong dividend sector has relatively lower valuation and higher dividend yield, which is also a highlight.

With the safety cushion of high dividends, it is advisable to allocate some aggressive and flexible varieties, such as ChiNext 100 ETF Huaxia (159957), STAR Market 100 ETF Huaxia (588800), Chip ETF (159995), and Semiconductor Materials ETF (562590), all of which are investment varieties worth paying attention to.

Off-market investors without a stock account can also consider the feeder funds of the aforementioned ETFs, such as the ChiNext 100 ETF Huaxia (159957) with the industry's lowest fee rate, and its feeder funds (Class A: 006248, Class C: 006249).

Plan your funds well, invest with idle money, don't bet everything on one throw, and don't let investments devour life.