On October 9th, the three major A-share indices opened significantly lower, all falling more than 5%. Has the overheated A-share market cooled down? If the future significant upward trend can continue, is the current pullback a good opportunity to increase positions?

Why did the pullback occur today?

We believe that this round of adjustment is a short-term fluctuation and does not change our optimistic view of the upward trend of A-shares. In the short term, market sentiment may be significantly affected, leading to increased volatility in stock indices. Investors should respond cautiously, paying attention to policy dynamics and changes in market sentiment. Additionally, the short-term pullback may be an adjustment to the high valuations seen earlier, and the market is expected to find a new balance point after the adjustment.

There are mainly a few factors that may have led to the pullback:

1. The unsustainability of high transaction volumes: Although the market is active, high transaction volumes are hard to sustain, which may lead to a pullback after a rapid rise in the market.

2. The global market linkage effect: The pullback in the Hong Kong stock market, especially the significant decline in the Hang Seng Index and the Hang Seng Technology Index, may drag down A-shares.

3. Adjustment of market sentiment: The adjustment of market sentiment after the holiday, and the actual effect of domestic policies may not meet market expectations in the short term, leading to a short-term pullback, etc.

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Looking deeply into history, we can see that bull markets are often closely linked to the prosperous stages of economic cycles. When economic growth is strong, GDP growth rates are stable, corporate profits are substantial, and monetary policy is loose, this undoubtedly provides a solid foundation for the stock market. For example, during the early years of the stock market in the early 1990s, due to scarcity and the public's desire for wealth appreciation, investors flocked in, creating the bull market of that period. The 2005 shareholding reform, although initially seen as a trouble, actually stimulated the market's long-term potential. Despite experiencing short-term pullbacks in the process, it ultimately led to an unprecedented bull market, such as the significant rise after the low point of 998 points on June 6th.

Can the significant upward trend continue?

We are confident in this round of policies and the A-share market, and we are optimistic about A-shares in the medium to long term. There are mainly a few reasons:

1. Policy expectations and market confidence: Although the market is more volatile in the short term, the combination of policies in this round is strong, and it is expected to provide positive support to the market in the medium to long term, as well as to enhance investor confidence.

2. Capital flow and market structure: With the continued implementation of fiscal policies, market funds are expected to continue to flow in, and A-shares are expected to enter a new phase of fluctuating upward. Investors can pay attention to industries or sectors with reasonable valuations and good fundamentals. Such as broad-based leaders, consumer sectors, high dividend sectors, etc.3. Global Market Interconnection: It is necessary to pay attention to the interconnection effect of the global market, especially the impact of changes in overseas markets on A-shares, and maintain a flexible response strategy.

4. Relatively Low Valuation Level of A-shares Still Has Room for Repair: After two weeks of rebound, the PE of the CSI 300 Index has been repaired to above the historical median, and PB has also been repaired from close to the historical minimum value to above the historical 20th percentile. There is still some room for repair.

As shown in the figure, compared with other countries, the PE and PB valuations of the Chinese market were significantly lower before the start of this round of the market. There is still a certain ability to attract funds globally.

Zhang Ge from Tianhong Fund: I think the support for A-shares in the near term is very strong. The support points include: 1. The money-making effect is strong, and funds outside the market (retail investors and institutions) may accelerate their entry; 2. Some FOFs and insurance funds were previously under-allocated to equity, and at least they will be repaired to the standard allocation recently, and may be over-allocated; 3. The market still has expectations for fiscal policy and other stimulus policies. Subsequently, everyone needs to pay attention to risk factors such as the third-quarter report (the whole market looks at data that is not optimistic), the US election, and policy cooling.

How should investors operate in the face of retracement adjustments?

Since A-shares have risen for so long, many investors do not know how to get on the bus. Against the background of being optimistic about the A-share market in the medium and long term, we believe that the retracement is an opportunity, and we suggest that investors should add positions appropriately when the market is low and hold A-shares in the medium and long term.

In this round of the bull market, it is still recommended to pay attention to the following assets:

1. Core assets of A-shares: The implementation of policies to reduce reserves and interest rates will release a large amount of liquidity, and the overall performance of the market is good. You can layout core assets with characteristics of ultra-large market value such as CSI 300 and MSCI A50; at the same time, the current market is beneficial to stocks in the ChiNext and STAR Market that were in a low position before, so it is recommended that investors layout the core growth of A-shares - ChiNext Index. ChiNext ETF Tianhong (159977), Double Innovation Leader ETF (159603)

2. Financial information targets: At the beginning of the market reversal, financial information service targets and newly listed stocks have a more obvious excess return. As actual policies continue to be implemented, the market's main line will fall on targets that benefit from policies, and this round of policies is conducive to enhancing the long-term value of the capital market. Related targets can pay attention to Securities ETF (159841).

3. Industries in difficulty before: Relevant policies have warmed up market sentiment and investment confidence, so industries such as consumption, medicine, and new energy that performed poorly in the market before may achieve a strong rebound and can be chosen as a layout for investors seeking value investment and long-term growth potential. Biomedical ETF (159859), Photovoltaic ETF (159857)4. High Dividend Assets - Dividend-Paying Category: The dividend yield of dividend-paying assets remains high at present. Driven by high dividends, these assets possess high value and stable dividend-paying capabilities. As long-term interest rates decline, these assets are still considered promising for the future. Investors seeking relative certainty may choose to include them as a core allocation in their portfolios. Dividend Low Volatility ETF (159549)