After the National Day holiday, the A-share market has experienced notable changes influenced by external factors and some "profit-taking" trades. The semiconductor and tech sectors, which had previously seen significant gains, have retreated considerably, while defensive sectors such as banking have shown relative strength. This has sparked discussions on whether a style shift in the market is occurring. Some institutions believe that a transition in market style has begun at the capital level, while others maintain that tech growth remains the core narrative.
Short-Term Value Performance Prevails Entering October, the A-share market has exhibited some notable changes. Data from Wind shows that as of October 23, the average daily trading volume decreased from a peak of 2.67 trillion yuan to 1.67 trillion yuan, with the average daily trading size being 2.10 trillion yuan, which is lower than September's 2.42 trillion yuan.
In terms of major index performance, a clear trend towards value outperformance is observed. According to Wind, over the past 10 trading days, large-cap value stocks and the SSE 50 Index have posted increases of 4.51% and 0.21%, respectively. Meanwhile, the STAR 50 Index and small-cap growth stocks have underperformed significantly, declining by 8.95% and 7.32%, respectively.
From an industry perspective, coal, banking, oil & petrochemicals, and daily consumer retail sectors recorded increases of 9.37%, 7.45%, 5.75%, and 4.05% over the past 10 trading days, leading the sectors. In contrast, previously strong sectors like semiconductors, software services, and electrical equipment have seen declines of 9.64%, 6.97%, and 6.54%, showing clear signs of adjustment.
However, from the perspective of margin trading, the inflow of capital continues. As of October 23, margin trading balances stood at 2.45 trillion yuan, still on a steady rise. Latest data from the China Securities Index Company indicates that there were 7.73 million individual investors and 50,219 institutional investors involved in the margin trading market, with a total of 388,367 participants, and an average maintenance margin ratio of 277.5%. Margin trading balances account for 2.47% of the A-share market's circulating market value, while margin trading volumes make up 10.70% of A-share turnover.
Market Debates Style Shifts Institutionally, there is considerable divergence regarding whether a style shift is occurring in the A-share market. Some research institutions argue that the conditions for a style shift are now in place and are already happening, while others believe that the current market changes are a spontaneous "rebalancing," with tech growth still as the main narrative.
CITIC Securities notes that recent leading sectors, including AI, new energy, and robotics, have begun to show signs of a gradual decline, with only the dividend sector showing marginal improvement in relative strength and momentum. The rebound in the dividend sector may stem from investors' "muscle memory." Since July, the excess returns of sectors like coal, insurance, power, banking, publishing, and highways relative to the Wind's total A-share index have been -1%, -7%, -10%, -12%, -18%, and -23%, indicating possible momentum reversal space at the trading level.
CITIC Jiantou believes that after a peak in early September when the computing sector experienced trading overheating, the market has entered a consolidation phase, undergoing a pattern of capital rotating from high-performing sectors to lower-performing ones. They suggest that a style switch has begun, but by year-end, influenced by profit-taking and seasonal effects, dividend and large-cap value styles often dominate. Moreover, if market liquidity improves further and growth expectations for tech sectors strengthen next year, there's a high likelihood of an early cross-year rally for these sectors.
GF Securities contends that the current divergence in market valuation and trading activity has triggered conditions for a style switch, although relative changes in the fundamental backdrop are not yet apparent. However, looking at capital flows, players that typically prefer a balanced style have distinctly shifted from value to growth. In light of increased volatility in growth styles, alongside the impending year-end evaluations, any capital switches could serve as leading indicators of fundamental changes. Overall, triggers for valuation and trading shifts exist, but fundamental changes may take more time to materialize.
Hongyuan Securities’ chief strategist Wei Jixing pointed out that the current market is in a "congested period" characterized by relatively high levels, increased uncertainty, and a dampening effect on previous catalysts, leading to a cautious outlook mainly driven by defensive strategies. In the process of fluctuating risk preferences, certain "rebalancing" in market styles may occur, with dividends and cyclicals potentially taking precedence temporarily. However, as the core driving forces of the market remain largely intact, it is expected the market is waiting for the next trigger to reactivate the tech-driven core.
Bank of China Securities has asserted that the current market only exhibits style rotation, as the foundations for a style switch are still shaky. Logically, it suggests that apart from the long-term narrative for tech, a short-term inability to switch styles is supported by the likelihood of future "spring excitement" market trends. From the perspective of potential dominant styles in "spring excitement," the growth style of tech is already in the lead. Thus, the current adjustments in tech growth styles cannot be regarded as signals for a style switch; instead, these adjustments are seen as a healthy development, setting favorable conditions for their resurgence during future "spring excitement" trends.
Tianfeng Securities observes that with the profit-making effects of the year largely realized, funding behaviors in the fourth quarter are likely to turn cautious. Coupled with policy expectations and performance validation window effects, market style often transitions towards "profit quality + valuation safety" large-cap blue chips temporarily. Trading behavior in the fourth quarter is also expected to trend towards reduced volatility, with the stock market's liquidity marginally tightening and monthly turnover rate declining. From an industry perspective, leading sectors are largely concentrated in stable fundamentals and cyclicals, reflecting a decrease in investor risk appetite and a need to secure annual returns as the year draws to a close. The fourth quarter should focus on whether conditions for switching to undervalued sectors are maturing and whether the prosperity of high-valued sectors can be sustained, noting that merely relying on low valuations may not suffice to drive sustained trading shifts.
Long-Term Upward Trend Unchanged Despite the divergence on whether a style switch is taking place, institutions generally hold that the long-term upward trend of the capital market remains unchanged. Yan Xiang, chief economist at Founder Securities, asserts confidence in the future performance of the A-share market. Whether considering valuations or margin trading, the current risk levels in the A-share market are within a reasonable and normal range, and the key logic supporting upward movement in A-shares remains intact: first, a large number of internationally competitive high-quality companies have emerged in China amid the new wave of technological revolution and industrial transformation; second, we are at the tail end of the current round of profit declines, and corporate profits are expected to rebound systemically; third, domestic interest rates are at historical lows, making equity assets particularly attractive; and fourth, a series of important policies have been introduced to support the high-quality development of the capital market.
From the perspective of market valuation levels, Huaxi Securities research indicates that as of October 17, the price-to-earnings ratios (PE, TTM) for the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index are 16.51, 30.02, and 41.35, respectively, all close to the historical median since 2010. Industries like food and beverage, non-bank financials, and non-ferrous metals are currently at relatively low historical P/E levels. In comparison, the P/E ratios for the S&P 500, Nasdaq, and Dow Jones Industrial Average are 29.34, 42.87, and 31.27, all significantly higher than their historical medians since 2010.
CICC asserts that the overall valuation of the A-share market is still within a rational range. In a vertical comparison, major broad-based indexes of the A-share market are situated between historical averages and one standard deviation above. Additionally, the approximately 2.7% dividend yield of the CSI 300 Index remains relatively attractive compared to the yield on 10-year government bonds. In horizontal comparison, when compared to major markets such as those in the U.S., Japan, and Europe, the valuation of Chinese assets is at a moderately low level globally. Overall, A-shares maintain a reasonable valuation level, providing better investment prospects.
Bank of China Securities highlights that the long-term central upward trend of the A-share market does not warrant excessive concern. From a longer perspective, the initiation of the overseas interest rate easing cycle will aid the reassessment of RMB assets. The incremental funds for A-shares are still in the initial phase, with "anti-involution" policies supporting price expectations, macro liquidity being ample, and trends in nascent tech industries such as AI remaining strong. The long-term logic supporting the recent strengths of A-shares remains intact.