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A-Share Investment Strategy Summary

Core Content

This document outlines the A-Share investment strategy from GF Securities (Hong Kong) Brokerage Limited, with a focus on market outlook, sector recommendations, and risk factors in the context of the ongoing China-US trade dispute.

Main Views and Key Information

Market Outlook

• Risk Appetite Depressed: The escalating China-US trade dispute has led to a decline in market risk appetite, resulting in significant drops in the SHCOMP (-3.7%) and ChiNext indices (-5.7%) following the White House's statement about potential tariffs.
• Valuation Contractions: The key driver of the market downturn is the rise in the equity risk premium, which has caused valuation contractions. However, the room for further contractions is limited due to the resilience of current A-share market profitability.
• Upside Greater than Downside: The overall market is expected to have a likely upside greater than downside pressure, with potential for a marginal rebound in the credit environment and re-rating opportunities as risk premiums fall.

Sector Recommendations

• Positive Sectors: Sectors that have undergone full adjustment but maintain improving fundamentals, such as property, steel, and coal, are recommended.
• Neutral Sectors: Sectors with valuations and profitability levels that still dominate, including retail, textiles, and pharmaceuticals, are considered neutral.
• Focus on Alpha Stocks: Stocks with positive business conditions, particularly in the medical services sector, are highlighted for potential outperformance.

Risk Factors

• Trade Disputes Escalation: Continued escalation of China-US trade disputes remains a key risk.
• Company Performance: Interim A-share company results that fall below expectations could further impact market sentiment.

Rating Definitions

• Company Ratings:

  • Buy: Expected to outperform the Hang Seng Index by more than 15%.
  • Accumulate: Expected to outperform by more than 5% but not more than 15%.
  • Hold: Relative performance between -5% and 5%.
  • Underperform: Expected to underperform by more than 5%.

• Sector Ratings:

  • Positive: Expected to outperform the Hang Seng Index by more than 10%.
  • Neutral: Relative performance between -10% and 10%.
  • Cautious: Expected to underperform by more than 10%.

Analyst Certification

• The research analysts certify that the views expressed in the report accurately reflect their personal opinions on the covered companies and securities.
• No part of their remuneration is directly or indirectly linked to specific recommendations in the report.

Disclosure of Interests

• GF Securities (Hong Kong) and its affiliated companies do not hold shares in the securities mentioned.
• No investment banking relationships with the mentioned companies in the past 12 months.
• Analysts and their associates do not serve as officers of the companies mentioned and have no financial interests in the securities.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• It is intended solely for GF Securities (Hong Kong) clients.
• The report may not be available in all jurisdictions, and no liability is accepted for losses arising from its use.
• The information and recommendations are subject to change without notice and should not replace professional advice.

Copyright

• This document is copyrighted by GF Securities (Hong Kong) Brokerage Limited.
• No part of the content may be copied or re-distributed without prior written consent.