According to a recent market review and outlook report, China's capital market stability remains a key focus. The analysis suggests that the current phase for A-shares represents a consolidation period following the "first stage of gains," rather than a shift in the underlying bullish trend.
The report addresses concerns that the market may not be fully pricing in mid-term stagflation risks. It reiterates that stagflation itself is not a certainty, and tight monetary policies from either China or the US are not baseline assumptions. Simultaneously, potential upward catalysts for A-shares are also far from being fully priced in. High growth in the new energy sector, coupled with validation of pricing power and alpha in export chains, could attract pricing from Middle Eastern capital and coincide with returning foreign investment. This may lead A-shares to reflect impacts related to energy security and supply chain security, potentially creating a pathway for a quicker return to a strong market stance. With neither upside nor downside risks fully priced, the A-share market is not in a stable equilibrium in the short term but is neutrally priced. Currently, global capital markets are primarily pricing in event-driven catalysts from US-Iran tensions, suggesting it is not yet the time for heavy positioning.
Market speculation on the impact of US-Iran tensions largely follows the logic chain: weakened navigation in the Strait of Hormuz leads to higher oil prices, rising inflation expectations, increased concerns about Fed rate hikes, and subsequently heightened stagflation worries. Some investors fear that mid-term stagflation might be an objective reality but is not adequately priced, leading to perceptions of excessive market optimism. The analysis contends that while short-term A-share pricing is not stable, it is in a neutral state. Firstly, the stagflation narrative itself is variable. Faced with imported inflation, the optimal monetary policy choice for both China and the US may not be tightening. China's low inflation base and mature structural adjustment framework make non-tightening highly probable. The US labor market shows weakness, and as a net oil exporter, its inflationary pressures are limited. Policies supporting US manufacturing reshoring require a weaker dollar, lower rates, and lower costs. Using rate hikes to counter a one-off rise in the inflation trend is clearly suboptimal. If tight monetary policy is questionable, then pressure from an economic slowdown is also controllable.
Concurrently, the report highlights that potential upward catalysts for A-shares are also not fully priced. Rising energy costs could make the new energy and new energy vehicle industrial chains mid-term growth directions. China's energy security and supply chain security, combined with certain export chain segments demonstrating alpha and effective cost pass-through, may form new fundamental trends. This structural realization could resonate with pricing from Middle Eastern capital and returning foreign investment, potentially fostering optimistic expectations about relative national strength. Under baseline assumptions, for A-shares to regain strength, validation is needed from "leapfrog progress" in the new economy or cyclical improvements in fundamentals. A re-rating of manufacturing investment opportunities might provide a catalyst for A-shares to quickly return to a strong state. With neither upside nor downside risks fully priced, the mid-term outlook scenarios have not yet converged. The A-share market is not in a stable short-term balance but remains in a neutral state.
In this context, global capital markets continue to price event-driven catalysts from US-Iran tensions in the near term. In the absence of a mid-term consensus, the process of de-escalation is likely to be volatile. The market remains sensitive to short-term event catalysts, indicating that now is not the moment for heavy bets based on a mid-term outlook.
The discussion on China's capital market stability reiterates that high energy self-sufficiency and diversified external energy supplies underpin energy security, leading to a re-assessment of China's new energy advantages. The resonance between supply chain security and energy security may reopen a window where Chinese exports demonstrate alpha and pricing power. The fundamental basis for the healthy development of the A-share market remains unchanged, with policies aimed at stabilizing market expectations providing support. A-shares are still within a medium-to-long-term upward cycle; while the accumulation of positive returns faces disruptions, this merely extends the consolidation period after the "first stage of gains," and a "second stage of gains" remains highly probable. After recent short-term adjustments, valuations are not far from the historical median dynamic valuation target, suggesting the market's intrinsic stability may gradually recover.
The stability of China's capital market is a policy objective. This can be discussed on three levels: 1. Energy security and supply chain security form the foundation for overall stability. China's high energy self-sufficiency rate and diversified external energy supplies are key. Rising energy price trends lead to a re-assessment of China's new energy advantages. Furthermore, based on energy and supply chain security, sectors where Chinese exports have alpha and effective external pricing power are increasing. 2. The fundamental basis for the healthy development of the A-share market is intact. The balance between the market's investment and financing functions has significantly improved. Crucially, the quality of listed companies is optimizing, driving more diverse sources of investment returns. Additionally, during periods of significant challenge to market stability, proactive policy support is expected. The market has formed relatively stable and positive expectations regarding this support, making policy efforts more effective. 3. A-shares remain in a medium-to-long-term upward cycle. The current phase is merely an adjustment period following the "first stage of gains"; a "second stage of gains" is a matter of timing, not possibility. The view of a "two-stage rally" for A-shares is maintained. The market is currently in a volatile adjustment phase after the first stage. Historical precedent suggests that without major macro or sector-specific negatives, such adjustments might last a quarter. If quarterly-level industry or macro headwinds emerge, the adjustment could extend to two quarters. In a scenario of persistent negatives, the most significant post-first-stage adjustment可以参考s 2018. However, currently, even with a weak external environment, internal conditions are significantly better than in 2018. Once negative factors ease, A-shares are expected to return to a path of accumulating positive returns, eventually transitioning from quantitative to qualitative change and initiating a virtuous cycle of incremental fund inflows.
The valuation adjustment target during this volatile consolidation phase involves earnings growth digesting valuations and price corrections absorbing excesses, ultimately bringing static valuations closer to the historical median. After the recent rapid adjustment, this target is not far off. Combined with supportive policies, the intrinsic stability of A-shares may gradually be restored.
During the volatile consolidation period between the two rally stages, high-elasticity investment opportunities are still primarily found in the extension of technology themes and the expansion of macro narratives. In this phase, independent opportunities within sub-sectors can still show elasticity, but sector-wide coordination is weaker, making it difficult for positive return effects to spread broadly. Technology sectors related to the "reality" theme, which were strong before the US-Iran tensions, may still present short-term opportunities, particularly Co-Packaged Optics (CPO), energy storage, and AI-related power. In the next stage, new energy and new energy vehicles could emerge as new leading sectors. This is a direction that might resonate with macro narratives, offering upward elasticity and potential for broader positive return effects.
High-elasticity opportunities in the consolidation phase continue to stem from the extension of technology themes and macro narrative expansion. A key characteristic of this stage is that independent rallies in sub-sectors occur sequentially, with leading sectors typically following the process: "industry catalyst → valuation re-rating rally → valuation reaching historical highs, rally stalling." However, weak sector coordination limits the widespread diffusion of positive return effects.
Recently, during the risk aversion phase triggered by US-Iran tensions, high-elasticity opportunities were generally suppressed. As signals of de-escalation appear, rotation within high-elasticity sectors remains viable. Specifically, technology themes related to the "reality" focus, strong prior to the tensions, may still exhibit elasticity. Key areas to watch include CPO, energy storage, and AI power. For subsequent rotation, focus is on investment opportunities in new energy and new energy vehicles. New energy benefits from trends towards energy diversification and anti-fragile energy supply, potentially becoming a strategic resource alongside traditional energy. Furthermore, new energy could form the structural basis for foreign capital回流 and the re-rating of relative national strength, representing a direction with upward potential and scope for diffusion of positive returns.
Risks include overseas economic recession exceeding expectations and domestic economic recovery falling short of forecasts.