What are the timing observation indicators and allocation patterns for historically low-position high-volume surges in the market?

How does the market operate after a turnover rate of more than 5%? The medium-term upward trend is likely to continue, and there is no need to worry too much about a decrease in the short-term upward slope or twists. We estimate the daily turnover rate of A-shares in history based on the free float market value. A rate of more than 5% is generally considered high. Since 1997, only 4% of trading days have seen a turnover rate of 5%, and since 2016, only 16 trading days have reached this level. Among the aforementioned 12 high-volume surge intervals, 8 intervals have seen a single-day turnover rate of more than 5% of the total free float market value of A-shares. The remaining intervals have seen a 3-5 times increase in trading volume. According to our statistics, after these 8 intervals saw a 5% daily turnover rate, the upward slope may noticeably slow down or even experience a phase of twists, but this has not affected the medium-term upward trend. Typical examples include February 2000, May 2006, December 2014, March 2019, and July 2020 (some analysis can also refer to our "Main Line of the Uptrend" published in July 2020). In addition, the high-volume surges we previously mentioned are often accompanied by inflows of incremental funds from outside the market. Short-term emotional impacts can easily lead to twists in the market trend. Market performance does not follow a rational interpretation based on fundamentals. Besides the aforementioned turnover rate, historical experience shows that technical indicators such as the 5-day and 10-day moving averages may also be important monitoring indicators in the short-term market trend. The logic is that the position of short-term moving averages is an important reflection of short-term profit effects.

Style allocation during high-volume surges: The field with the clearest logic usually leads the surge. Historical reviews show that in the early stage of a long period of depression and a rapid rise at the bottom, the best-performing style is generally not the sector that has adjusted the most previously, but the field with the clearest logic. The non-bank financial sector, especially the securities sector, which directly benefits from the increase in trading volume and the entry of incremental funds into the market, usually leads the market (with a probability of being in the top three of 75%). For example, if the reason for the rise is a significant increase in stable growth policies, and the mood improves rapidly, industries related to the policy support direction (such as the real estate chain) and non-bank sectors may have relatively good performance. Later, as investor sentiment improves, it often transitions to an increase in risk preference. High-beta industries such as TMT, defense, military, and non-ferrous metals also perform well. Medium-term allocation ideas can be combined with industry trends and changes in prosperity. If the rapid rise enters a "waiting period", historically, industries with strong fundamentals will have relatively good performance in the "waiting period". Taking the three market trends of 2014, 2019, and 2020 as examples, the market is in the "waiting period", and the index is in a phase of fluctuation and consolidation or has some twists. Industries with relative resilience often have fundamental support. For example, at the end of 2014, the high-volume surge entered the "waiting period" at the beginning of 2015, during which the leading industries were computers, media, and electronics with an upward profit cycle; during the "waiting period" in the second quarter of 2019, the leading industries were also consumer sectors such as food and beverages, agriculture, forestry, animal husbandry, and home appliances with an upward profit cycle; around the third quarter of 2020, the leading industries in the "waiting period" were the new energy vehicle industry chain, as well as home appliances, liquor, and basic chemical industries that are in line with the cycle or export chain.

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What can we learn from the current market trend? Our current allocation suggestions are as follows:

The short-term upward trend of A-shares is still expected to continue, and it is necessary to closely monitor policy responses, especially fiscal policy. The key to the medium term lies in the improvement of fundamental expectations. In our pre-holiday report "Has A-shares seen the bottom?", we believe that the current A-shares have seen the bottom, with "auxiliary signals appearing, policy signals beginning to emerge, and fundamental signals still waiting", and the "big bottom" conditions are being perfected. At the State Council's press conference, the central bank announced the creation of two structural monetary policy tools to support the stock market, which has become a focus of market attention; the China Securities Regulatory Commission has密集出台 related documents in the aspects of market value management, mergers and acquisitions, and the entry of medium and long-term funds; the Central Political Bureau meeting further stabilized investor sentiment, and the meeting in September to discuss economic work was the first time since the 18th National Congress, and the content focused on cyclical issues, reflecting the high-level's attention to the current economic challenges. Expressions such as "face difficulties", "increase the intensity of counter-cyclical adjustments in fiscal and monetary policies, ensure necessary fiscal expenditure", "take action as the top priority", "promote the stabilization of the real estate market", and "strive to boost the capital market" reflect a policy determination that exceeds the past, and current policy signals have begun to emerge. Judging from the breadth and intensity of the policy, we believe that this round of high-volume surges is not the aforementioned stage-type rebound with poor sustainability. The initial stage of the policy-driven market trend can be compared to the initial stage of the "519 market trend", the end of 2008, the end of 2014, and the beginning of 2019.

In the short term, observe changes in sentiment, and in the medium term, face the difficulty of response. Combining the good performance of Chinese assets, especially Hong Kong stocks, during the long holiday; there is still room for A-share valuation repair; some institutional investors may have low positions or not much increase (data shows that the positions of some private equity funds in August may be at a historical low, the margin balance has increased but the amount is limited, the transaction amount of Northbound funds accounts for the market transaction amount has not increased significantly; new accounts outside the market are more active, etc., we believe that the A-share market will continue to rise in the short term. However, it is necessary to pay attention to the fact that the short-term rise speed of major indices is rare in history, among which the market transaction amount on September 30 exceeded 2.6 trillion yuan, and the turnover rate calculated based on the free float market value on that day reached 6.9%, exceeding the 5% turnover rate threshold that needs attention for low-position high-volume surges in history. After the recent rapid rise of the market, accompanied by rapid valuation repair and extremely short-term profit funds, historical experience shows that it is not possible to rule out a slowdown in the short-term upward slope or twists, but there is no need to worry too much. In terms of technical indicators, the 5-day and 10-day short-cycle moving averages mentioned above may be an important observation period in the next 1-2 weeks. In the medium term, the global macro paradigm shift pointed out by the CICC strategy group in "New Macro Strategy Research (I): Asset Allocation in the Era of Great Differentiation", the main contradiction of domestic fundamentals may be insufficient total demand and low inflation. Prices and listed company profits in the third quarter may still face certain pressures. Whether future policy efforts are sufficient to improve fundamental expectations, and whether the "waiting period" from policy-driven to fundamental-driven can be smoothly realized, is the key to the future market trend. Recently, pay attention to the progress of fiscal expenditure and potential efforts, and the consumption and price situation in the fourth quarter is also very important for improving fundamental expectations. Externally, the US election and the pace of US interest rate cuts may also affect China's policy environment.

In terms of allocation, policy beneficiaries are still the short-term main line, and the medium term turns to prosperous fields. The industry rotation characteristics of this round of high-volume surges are similar to history, with policy beneficiaries such as non-bank, real estate chain, and some net-breaking sectors leading the surge. Under the background of rising risk preference, technology hardware and software (mainly semiconductors and AI), high-end manufacturing (mainly lithium batteries and photovoltaics), and related small and medium-sized innovation indices have greater upward elasticity. Combining with the current environment, we believe that the structural characteristics before the festival may still continue in the short term, with non-bank, real estate chain, semiconductors and other technology hardware or high-elasticity fields. The medium-term structural allocation may turn to high-prosperity industries or fields with improved fundamental expectations. In the main text of our report, we sort out the positions of the capacity cycle, inventory cycle, and profit cycle of various industries, as well as the current valuation levels of each industry. It is recommended to focus on the following main lines in the future: 1) The current fundamentals are in a good state, benefiting from external demand for export and overseas fields or supply-side cleanup: power grid equipment, commercial vehicles, automotive parts, construction machinery, and industrial metals, etc.; 2) The valuation is at a historical low level, with the logic of turning around difficulties or expectations: food and beverages, lithium batteries, consumer electronics, etc., especially in areas preferred by foreign capital, there may be a larger room for replenishment; 3) The dividend sector currently shows differentiation, and in the future, focus on consumer dividends and resource dividends compared to the yield on Treasury bonds, which still have cost-effectiveness: coal, oil and gas, clothing, home appliances, etc. The industry allocation suggestion for October is as follows:

The main over-allocated industries in October: non-ferrous metals and precious metals, electrical equipment, semiconductors, consumer electronics, and liquor; the main under-allocated industries in October: environmental protection and water affairs, e-commerce, architectural decoration and engineering, building materials, and medical services.