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there are major changes in policy signals, and market expectations are greatly reversed. in the future, domestic demand policies will continue to increase or push price signals to arrive earlier, and the market will usher in a major turning point; after the expected major reversal, it will be characterized by the concentrated entry of incremental funds, mainly retail investors. , the pulse-like rise will continue in the short term; it is currently in the transition stage from an expected major reversal to a major inflection point in the market, with low p/b and domestic demand recovery as the core. after the price signal is confirmed and the market reaches a major inflection point, the market will start to the resumption of the credit cycle has become the core feature of the annual bull market, and institutional investors will have better entry opportunities. first of all, from the perspective of policy and price signals, the innovation of monetary tools at the end of september and the politburo meeting’s stance on real estate significantly exceeded market expectations. the scale of the incremental fiscal policy during the year may be relatively mild, but the direction of use may be significantly expanded. under the influence of quantitative policies, the turning point of price signals is expected to arrive early. secondly, from the perspective of market characteristics, institutional investors have significantly increased their positions in a-shares recently, but retail investors have entered the market more rapidly. this round of market conditions has superimposed two characteristics: a sharp reversal of expectations and the concentrated entry of incremental funds from retail investors. the pulse-like rise is still mainly driven by expectations and funds, supplemented by verification of fundamentals. finally, from the perspective of allocation ideas, there are two main lines in the market transition stage. one is low p/b style revaluation, and the other is the valuation restoration of the domestic demand sector. it is recommended to downplay dividends and go overseas; when the price signal is confirmed, the market will usher in a major turning point. after that, the market led by institutions is expected to gradually return, and by then the two major sectors of high-quality growth and domestic demand are expected to continue to dominate.

significant changes in policy signals

market expectations for a big reversal

1) the monetary instrument innovation and the politburo meeting’s stance on real estate at the end of september both significantly exceeded market expectations.on the monetary policy front, this round of widespread interest rate cuts is very rare in history. at the same time, the collateral swap facilities and stock repurchases and special re-lending for holdings launched by the central bank clearly exceeded market expectations and were widely understood by investors as providing the central bank with a put option protection for the stock market has made investors more firm in their expectations of a market bottom. in addition, it is extremely rare for the politburo meeting to analyze and study the economic situation in september, reflecting the importance that decision-makers attach to increasing macro-control and strengthening counter-cyclical adjustments. among them, the meeting proposed for the first time to promote the real estate market to "stop falling and stabilize". this was the first time that policy objectives were clarified after the politburo meeting in july last year adjusted the positioning of real estate. it was also the first time that supply reduction should also be used as one of the control measures.

2) the scale of the incremental fiscal policy during the year may be relatively moderate, but the direction of use has been significantly expanded.in terms of fiscal policy, which the market is most concerned about, the scale of incremental fiscal policy may be relatively mild in the short term, but the adjustment of its direction may be more critical. the macroeconomic team of the research department of citic securities believes that the focus of subsequent fiscal policies may be tilted towards benefiting people's livelihood and promoting consumption. the change in the focus of fiscal expenditures will help improve the efficiency of fiscal stabilization of growth. in terms of the direction of incremental fiscal policies, subsequent efforts may shift from infrastructure and industrial subsidies in the past to subsidizing low-income groups, subsidizing childbirth, and stimulating consumption. in terms of policy scale, the amount of new special government bonds and special refinancing bonds may be around 2 trillion yuan or more. based on the fiscal revenue and expenditure data this year, the fiscal revenue side is under greater pressure, but the expenditure side is more rigid. in the future, it is not ruled out that incremental fiscal tools will be introduced to supplement the revenue and expenditure gap to ensure the intensity of fiscal expenditures.

3) under the influence of incremental policies, the turning point of price signals is expected to arrive early.according to data tracked by the real estate team of citic securities research department, looking at the lowest listing prices of actively traded communities in the three core cities of beijing, shanghai and shenzhen, the number of projects with lower minimum bids in shenzhen on october 5 was significantly less than the number of projects with higher lowest bids; looking at the cities that track the number of listings, the number of listings in 77.5% of the cities dropped on october 6 compared with september 30, with the overall median decline being 0.34%; looking at the second-hand housing transactions of large intermediaries in 75 cities, in the past 8 days the trading volume (september 28th to october 5th) increased by approximately 82% compared with the same period in 2023, and was only approximately 5% lower than the trading high after the "517" policy. considering that it is currently during the national day holiday, the data after the holiday may be exceeding the level after the “517” new deal. under the premise of clear policy objectives, adjustments to policy ideas and the continued implementation of a series of policy combinations in the future, the real estate team of citic securities research department predicts that starting from first-tier cities, it is expected to stop the decline in housing prices within the year. if the policy fails to fully achieve the goal of stopping the decline , there is still room for further introduction of policies in various places.

incremental funds, mainly retail investors, are concentrated in the market

feature,the pulse-like rise is expected to continue in the short term

1) institutional investors have significantly increased their positions in a-shares recently, but retail investors have entered the market more rapidly.from the perspective of new public offerings, the increase in active products in september was only 2.5 billion, and passive products reached 25.1 billion. however, we estimate that csi a500 etf related products have not started to build positions intensively. according to calculations by the quantitative and allocation group of citic securities research department, the current overall positions of public common stock, partial stock hybrid and flexible allocation products are 78.9%, 73.8% and 68.5% respectively, which are 9.1% higher than the highs since 2016. , 11.9 and 3.6 percentage points, there is not much room to add positions. according to a survey of citic securities channels, active private equity positions were 68.9% on september 20 and 71.0% on september 27, an increase of 2.1 percentage points in a single week, which is not a very large increase in positions in a single week in history. judging from the flow of foreign capital, according to refinitiv data, from may 23 to september 25, sample funds tracking msci china had net outflows for 18 consecutive weeks. the average weekly net outflow amount was us$580 million, while on september 26 from october 2 to october 2, active funds had a net inflow of us$610 million, and passive funds had a net inflow of us$4.56 billion, totaling us$5.16 billion, which was the largest single-week net inflow since 2015. the return of foreign passive products is more obvious, while active products are still hesitant. the return of foreign passive products may not be based on fundamental logical analysis, but more to make up for the previous systematic underweighting of chinese equity assets. overall, we believe that it is completely impossible for institutions to add positions or reflow to dominate the current pulse-like market. more incremental funds still come from the entry of retail investors and the idle funds of some companies. judging from our research on citic securities channels, there are still a large number of new account openings during the national day, and the pulse-like market in the short term may still be dominated by incremental capital entry such as retail investors.

2) this round of market conditions has the two characteristics of a sharp reversal of expectations and the concentrated entry of incremental funds from retail investors.from an analogy point of view, the current market status is similar to the market driven by the expected dramatic reversal in november 2022 and the market driven by the concentrated entry of huge amounts of retail investors' funds in november 2014. but in addition to these two characteristics, there are two differences in this round of market conditions: first, in the past two years, residents’ risk appetite has been continuously decreasing, and excess savings have been accumulating. against the background of asset shortage, the recent sudden reversal of the stock market will attract a large number of excess savings. savings funds are concentrated in the market; secondly, the current information transmission speed of chinese mobile internet and the degree of self-reinforcement of the same information are far beyond the past. new media carriers such as short videos will geometrically promote and amplify the same information, making it easier for investment investors expect a high degree of consistency in a short period of time. under this new feature, this round of pulse-like rises may last shorter but be greater than the first wave of rises in the two bull markets of 2006-2007 and 2014-2015. taking the shanghai stock exchange index as an example, the first wave of the bull market in 2006-2007 lasted for about 8 weeks, with a cumulative increase of 28.6%. the first wave of the bull market in 2014-2015 lasted for about 12 weeks, with a cumulative increase of 46.7%. now, this round of pulse-like rise has lasted for one week, with the cumulative increase reaching 22.2% (taking the central bank press conference on september 24 as the starting day of the increase). based on these characteristics, if we also take into account that there is still a large amount of incremental funds waiting to enter the market, it is expected that the pulse-like rise will continue in the short term.

we are currently at a major turning point in the expected reversal of the market.

the transitional stage focuses on low p/b and domestic demand recovery.

1) the first main line is low p/b style revaluation.after the politburo meeting in september put forward the requirement to "stop falling and stabilize" the real estate sector, it has actually given a clear signal to curb or even reverse the downward trend in the value of collateral and the cycle of debt deflation. we believe that at least in the short term, the elasticity of such low p/b companies to repair is much greater than the elasticity of expected repairs in revenue, earnings, etc. industries with a concentration of low p/b companies, such asreal estate, banking, non-bank financeas well asbuilding materialsand other industries are one of the clearest main lines. in addition, active management institutions are currently overweighting companies with high p/b and underweighting companies with low p/b. among all a-shares, the 20% stocks with the lowest p/b accounted for 28.3% of the circulating market value, but only accounted for 25.0% of the positions held by major institutional investors, with an underweight ratio of 3.3 percentage points; the 20% with the highest p/b for individual stocks, the circulating market value accounts for 27.7%, but the positions held by major institutional investors accounted for 36.1%, overweighting by 8.4 percentage points. as the gap between the relative returns of active products and the index continues to widen, and at the same time, the net value rebounds significantly in a short period of time, we expect to see a significant increase in the redemption volume of active products, and they will instead invest in various broad-based etf products. this kind of position adjustment will also benefit the low p/b style more.

2) the second main line is the restoration of the valuation of the domestic demand sector.this round of policies attaches unprecedented importance to boosting domestic demand and will greatly change the way investors evaluate the valuation of domestic demand products. looking forward to the market outlook, the post-consumption cycle features are significant, and the expected economic recovery after the policy attitude is clear will actively drive the expected rebound in the consumption boom. after experiencing the release of early pessimism, the current valuation of the consumer sector is still at a historically low level. since 2024q4, most sub-sectors are at a stabilizing turning point due to the reduction of base pressure. it is recommended to actively treat consumption recovery opportunities under the policy shift. it is recommended to focus on both offensive and defensiveconsumer internet, low valuation, high return and expected to be the first to stabilize its operationsdairy products, mass cateringand other essential sectors, as well as economic recovery expectations driven byliquor, human resources, hotelsand so on in the procyclical direction. the sustainability and upside potential of the market depend on the specific effectiveness of subsequent policies after they are implemented, but it is currently at an inflection point for recovery driven by a clear policy shift.

it is expected that institutions will usher in better entry after the price signal turning point is confirmed.

timing, allocation, excellent growth and domestic demand will continue to dominate

the current market is in the transition stage from the expected big turning point to the big turning point of the market. the early stage of the market is characterized by the concentrated entry of retail investors, and the pulse-type market is driven by expectations and funds. for investors who currently have high positions, it is recommended to adjust the position structure, reduce positions in high-valuation sectors, move closer to the weight index as a whole, and avoid excessive deviations from the index, especially if the current institutions are obviously underweight. oflow p/b industries and domestic demand sectors. for those who still need to add positions and those who have been "empty" in the early stage, it is recommended to give priority to adding positions at low prices.p/b industryanddomestic demand sector, or with 300etf, a500etf, etc.broad-based index etf toolsas the first choice for adding positions. after the end of the pulse-like rising market, with the continuous implementation of incremental policies, the price signal represented by housing prices is likely to confirm an inflection point within the year. at that time, it is expected to start an annual bull market with the credit cycle as its core feature. institutions investors are expected to have a better time to enter the market, and it is recommended to formally ask for allocations.domestic demandandexcellent growthswitch, give priority to increasing domestic demand in the initial stage, while downplaying dividends and overseas expansion.