On July 3, 2024, the A-share market showed a trend of shock adjustment, with major stock indexes closing down across the board, and the turnover of the Shanghai and Shenzhen stock markets hitting a new low of less than 600 billion yuan this year. Market sentiment is sluggish, and investors are in a wait-and-see mood.
Judging from the data, the overall valuation of the current A-share market is at a historical low, but the internal structural differentiation is obvious.
1. Valuations of major indices are hovering at low levels
From the perspective of scale indexes, the valuation of blue-chip indices such as SSE 50 and CSI 300 is relatively low, and the PE quantile is at a historically low level. This indicates that the market is more cautious about valuing large blue chips, and it also reflects investors' cautious macroeconomic expectations.
Looking further at the index valuation data, we can see that:
- The valuations of indices such as the SSE 50 and CSI 300 are at historically low levels, but the PE valuations of growth indices such as the ChiNext Index and the STAR 50 are relatively high.
- Valuations of traditional industry indices such as banks and real estate are generally low, while valuations of emerging industry indices such as pharmaceuticals and biotechnology and new energy are still high.
Second, the market sentiment is sluggish and the trading is light
Recently, the overall performance of the A-share market has been sluggish, and the rise and fall of major indices in the past 10 days, this month and this year are not optimistic. Market volume continued to shrink, reflecting a decline in investors' risk appetite and a strong wait-and-see mood.
3. Structural opportunities are emerging, focusing on undervalued sectors
Despite the overall sluggish market sentiment, there are still investment opportunities in some sectors and individual stocks.
- From a valuation perspective, the valuation of traditional industries such as banking, real estate, and infrastructure is at a historically low level, with a certain margin of safety, which is worth paying attention to.
- From a policy point of view, the state has recently introduced a series of policies to stabilize growth, which is expected to support infrastructure, real estate and other industries.
- From a technical point of view, some low-valuation sectors have shown signs of stabilizing and rebounding, and there may be opportunities for an over-falling rebound.
Fourth, risk factors still exist, and cautious optimism is needed
Although valuations in the A-share market are at historically low levels, risk factors remain, and investors need to remain cautiously optimistic.
- The foundation for domestic economic recovery is not yet solid, and there is uncertainty about corporate earnings growth.
- Heightened volatility in overseas markets and rising expectations of Fed interest rate hikes may have an impact on the A-share market.
- Geopolitical risks remain and could negatively impact market sentiment.
To sum up, the current A-share market is in a stage of low valuation shock, and investor sentiment is more cautious. Although there are structural opportunities in the market, risk factors still exist, and investors are advised to maintain a cautious and optimistic attitude, pay attention to policy changes and market liquidity changes, grasp structural opportunities, and control investment risks.