1. **Reassessing the Foundation of the Current A/H Bull Market** The core drivers of the ongoing A/H bull market remain intact: - **China’s Economic Long-Tail Risks Easing**: Measured by offshore USD bonds, long-tail risks are declining. The reaffirmation of "economic development as the central task" in policy signals underscores growth priorities for the 15th Five-Year Plan period. - **Global Competitiveness of Chinese Industries**: Sectors like AI, biotech, and rare earths demonstrate rising global prowess, reflected in corporate fundamentals. Despite ROE declines in traditional sectors, overall A-share ROE has stabilized for three consecutive quarters, supported by manufacturing recovery. With two DuPont factors (profit margins, leverage) already improved, ROE may rebound as PPI recovery boosts asset turnover. - **Capital Market Upgrades and Liquidity**: Regulatory support and scarce high-yield alternatives (e.g., declining deposit rates, weak property/ bond markets) fuel sustained capital inflows into equities.
2. **Evaluating the Current Correction** - **20-Day Moving Average Breach**: Historical data from 99 instances show post-break adjustments average 6–7 days and 3% declines. The current 4-day, 5% drop since November 17 suggests near-term risks are largely priced in. - **Valuation Metrics**: A-shares’ equity-bond yield gap remains below historical averages, indicating relative attractiveness. The CSI 300 and Hang Seng Tech trade at discounts to U.S. peers (0.5x and 0.45x valuation ratios, respectively), with no bubble risks. - **Hang Seng Tech’s 120-Day Line**: Past rebounds at this level signal potential entry points; recent touches imply selling pressure is exhausted. - **Sector Sentiment Cooling**: TMT trading volume (27% of total) nears its AI-cycle low. Other tech subsectors (chips, robotics, biotech) also show reduced activity, suggesting capitulation. - **Historical Adjustments**: Bull market leaders typically correct by 18% over 20 days. Current declines in gaming, chips, and biotech exceed these averages, implying oversold conditions.
3. **Regulatory Tailwinds** The approval of 16 tech ETFs (including AI-focused funds) on November 21 signals policy support, directing liquidity toward high-quality tech firms and stabilizing sentiment.
4. **Risks Ahead** Geopolitical tensions, slower-than-expected Fed easing, and domestic policy delays could disrupt recovery.
**Key Data Watch**: China’s October industrial profits, U.S. PPI/GDP, and Japan’s unemployment figures due next week.