Key Summary
After recent fluctuations and adjustments in the A-share market, He Kang, the chief strategist at Huatai Securities, stated that the recent decline was merely a technical adjustment (a short-term price fluctuation, not due to fundamental problems with the companies). He believes that the conditions for a rebound are now in place. On one hand, the underlying fundamentals remain strong: corporate profits are growing, and the AI industry is accelerating its development. On the other hand, various market stabilizers—such as state-owned funds, insurance companies, and listed firms—are taking action to reduce leverage risks, which has alleviated external pressures. It is likely that the period of sharp declines has passed, and market confidence should gradually begin to recover.
Detailed Analysis
1. The recent decline is not a fundamental collapse, but just a technical adjustment
You can think of a technical adjustment as a moment when the market takes a break after running hard, similar to a person resting after exertion—there's no issue with the companies' ability to generate profits. He Kang emphasizes that the fundamentals are still intact:
- Profits of industrial enterprises above designated size increased by 18.8% year-on-year in the first five months (companies are still making money).
- More than 43% of the earnings forecasts from over 1,700 companies are positive (many companies are performing well).
- The AI industry is still in a period of rapid growth (fields like computing power and semiconductors are continuing to develop).
In other words, there's nothing wrong with the companies themselves; it's just short-term market sentiment that has caused the stock prices to fall.
2. Three key signals indicating a potential rebound
He Kang believes the conditions for a rebound are met because the following factors have come into play:
- Excessive selling and panic: The market has dropped too sharply (far from its fair value), leading to panic among investors. Historical data shows that in such situations, there is a high probability of a rebound within a week (similar to a spring that bounces back after being compressed).
- Leverage risk reduction: The amount of funds borrowed for stock trading has decreased to 2.75 trillion yuan, accounting for less than 3% of the total market value, compared to 4.5% in 2015. This means there are few forced sales that could trigger a chain reaction of declines.
- Positive performance and industry trends: The development momentum in sectors like AI and semiconductors remains strong, indicating that companies' profitability is not declining, which supports stock price recovery.
3. Market stabilizers are taking action to support the market
Recently, various entities have been actively supporting the market:
- State-owned funds: China Chengtong has purchased nearly 10 billion yuan in stocks and continues to increase its holdings; China Guoxin has allocated over 50 billion yuan for this purpose.
- Regulators: The Securities Regulatory Commission has made it clear that it will do everything possible to maintain market stability.
- Insurers: Several insurance companies have stated their intention to increase their stock investments.
- Listed firms: On July 20th alone, more than 30 companies announced increases in holdings or share repurchases, with the total amount exceeding 10 billion yuan.
These actions serve as a reassurance that the market will not continue to decline uncontrollably, as there are forces working to stabilize it.
4. The impact of negative overseas factors is diminishing
Previously, several external factors were weighing on the market:
- AI-related stocks were affected by anti-monopoly lawsuits involving Korean storage companies.
- Hawkish statements from the Federal Reserve (suggesting possible further interest rate hikes).
- Middle East conflicts increased oil prices, exacerbating inflation concerns.
However, the impact of these factors is starting to weaken. For example, the market has begun to adjust to the expectation of interest rate hikes, and the volatility in oil prices has decreased. With less external pressure, the obstacles to a rebound in the A-share market are also diminishing.
5. The market has a strong foundation for the long term
He Kang believes there's no need for panic in the long run, as there are three key supports:
- Solid fundamentals: Growing industrial profits and a high rate of positive earnings forecasts indicate stable corporate profitability.
- Positive industry trends: The AI industry continues to develop rapidly, with significant potential in sectors like semiconductors and computing power.
- Shift in household asset allocation: As the returns on deposits and financial products decrease, investors are gradually shifting more of their money into stocks (this is a long-term trend).
In summary, the conditions for a short-term rebound are in place, and the market has a solid foundation for the long term. There's no need to panic excessively.
By breaking down the news in this way, complex financial information is presented in language that is easy for non-professionals to understand. The logic is clear, and each point is supported by specific data and examples, without the use of technical jargon.