On July 31, the three major A-share indices collectively closed higher, with the CSI Scale Index performing strongly, with the CSI 500 and CSI 1000 both rising by nearly 4%.
From a valuation perspective, the overall valuation of the A-share market is at a historically low level, and some industries and indices show high investment value.
First, the scale index led the rise, and the market sentiment picked up
On July 31, the A-share market ushered in a general rally, with the Shanghai Composite Index, Shenzhen Component Index and ChiNext Index rising by 2.06%, 3.37% and 3.51% respectively. Among them, the CSI Scale Index, represented by the CSI 500 and CSI 1000, performed eye-catchingly, rising by 3.98% and 3.97% respectively, indicating that the market's enthusiasm for investment in small and medium-cap stocks is heating up.
Recently, the A-share market has continued to fluctuate, and investor sentiment is more cautious. However, the general rally on July 31 sent positive signals, indicating that market confidence is gradually recovering. From the perspective of trading volume, the turnover of the two cities exceeded one trillion yuan, reaching 1.2 trillion yuan, showing that the market activity has increased and investors' willingness to participate has increased.
Second, when the valuation repair is underway, the attractiveness of A-shares increases
From a valuation perspective, the overall valuation level of the A-share market is at a historically low level, and it is highly attractive for investment.
As shown in the chart above, the PE quantiles of the CSI 300, CSI 500 and CSI 1000 are 24.95%, 15.0% and 14.15%, respectively, which are at historically low levels. This means that these indices are now valued at lower valuations and more valuable investments than at other times in history.
Specifically, the valuation advantages of some industries and indices are more prominent. For example, the PE quantile of China Securities Media, China Securities Biopharma and China Securities Medical are all in the single digits, showing high investment value. In addition, low-valuation indices such as China Securities Bank, China Securities Dividend and Shenzhen Stock Exchange Dividend also have certain investment attractiveness.
Third, the policy side continues to exert efforts to boost market confidence
Recently, a series of favorable policies have been introduced, injecting a boost into the A-share market.
- Policies to activate the capital market continue to be implemented: On July 24, the Politburo meeting of the Central Committee proposed to "activate the capital market and boost investor confidence", pointing out the direction for the development of the capital market. Subsequently, the China Securities Regulatory Commission, the Shanghai and Shenzhen Stock Exchanges and other regulatory agencies have intensively introduced a series of policy measures, including reducing transaction costs, optimizing trading mechanisms, and supporting listed companies to repurchase shares, aiming to enhance market activity and enhance investor confidence.
- Fiscal and monetary policies work in tandem: Since the beginning of this year, in the face of complex domestic and international economic situations, the mainland has continued to implement a proactive fiscal policy and a prudent monetary policy to provide strong support for stable economic growth. Recently, the central bank has stepped up counter-cyclical adjustments, injected liquidity into the market through RRR cuts and open market operations, and created a good monetary environment for corporate financing and capital market development.
Fourth, the capital side continues to improve, providing liquidity for the market
With the continuous development of policies, the capital of the A-share market is also improving, providing sufficient "ammunition" for the market to rise.
- Northbound funds continue to flow in: Since the beginning of this year, northbound funds have continued to flow into the A-share market. As an important representative of foreign capital, the continuous inflow of northbound funds shows that foreign investors are optimistic about the A-share market in the long term.
- Rebound in public fund issuance: After last year's downturn, the public fund issuance market has gradually picked up since this year, and the scale of new fund issuance has grown steadily. As an important institutional investor in the A-share market, the recovery of public funds will bring incremental funds to the market.
Fifth, risk factors still need attention
Despite the recent positive signals in the A-share market, the following risk factors need to be paid attention to:
- Domestic and international macroeconomic uncertainties: The sluggish global economic recovery, intensifying geopolitical risks, and the domestic economy are also facing the triple pressure of shrinking demand, supply shocks, and weakening expectations, all of which may have an impact on the A-share market.
- Slowdown in earnings growth of listed companies: Benefiting from the impact of last year's low base, the earnings growth rate of A-share listed companies was higher in the first half of this year. However, as the base effect weakens, the earnings growth rate of listed companies is expected to slow down in the second half of the year, which may put some pressure on market valuations.
- Investor sentiment fluctuations: The investor structure of the A-share market is dominated by retail investors, and their mood fluctuates greatly and is easily affected by short-term factors.
6. Looking ahead: Structural opportunities are the mainstay
Looking ahead, we believe that the A-share market will show a volatile upward trend, and structural opportunities will become the main line of the market.
- Focus on valuation repair opportunities: From a valuation perspective, the overall valuation level of the A-share market is at a historically low level, and some industries and indices have more prominent valuation advantages and have high investment value.
- Grasp the investment opportunities brought about by economic transformation and upgrading: With the continuous advancement of economic transformation and upgrading in the mainland, emerging industries, high-end manufacturing, digital economy and other fields will usher in rapid development, and relevant listed companies will benefit from industry development dividends and have high investment value.
- Focus on industries and fields supported by policies: National policies will continue to escort the development of the capital market, and investors can pay attention to industries and fields supported by policies, such as scientific and technological innovation, green development, rural revitalization, etc.
In general, the current A-share market is in the process of valuation repair and structural market interpretation, and investors need to maintain a cautious and optimistic attitude, rationally analyze the market, and grasp investment opportunities.