Chen Guo: The core logic of the bull market has not been broken, and there is a high probability of a very considerable year-end rally from December to the beginning of the year. Now is the time to position

The A-share market has been fluctuating for several days; what will happen next?

On November 15th, Chen Guo, Chief Strategist of CSC, visited the Huaxia Fund live broadcast room to analyze and forecast the A-share market.

The investment notebook representative summarized the key points as follows:

1. A bull market does not mean prices rise every day, or that it cannot have pauses, especially this round of bull market... is relatively complex.

2. The market has experienced some pullbacks and fluctuations, the core reason being that it takes time for strategic deployment to tactical implementation, and for everyone to believe in its effectiveness.

3. The core logic of the market has not been destroyed.

Indeed, some stocks may have risen too quickly in the early stages and need a certain degree of correction. But overall, the market is still in a fluctuating range and does not face particularly large adjustment pressure.

1. Looking ahead, this is a very good time for layout, with a very high probability that there will be a considerable year-end market from December to early next year.

2. We have just experienced a relatively strong thematic investment market, which reflects that the market has enthusiasm but lacks confidence. The understanding of policies and their subsequent impact on the economy is still not very sufficient.

Therefore, in the future, when we look for opportunities, we will no longer focus on those themes that have already been overhyped, but rather on the key areas and industries that policies are truly focusing on and may impact.

Chen Guo believes that the Chinese economy is dealing with the issue of balance sheet deflation, and the main logic remains to revitalize the economy and combat deflation, which is still the logic of domestic demand recovery. External factors, such as Trump's presidency, have little impact; the key is internal factors. We should focus on strengthening domestic demand, benefiting from policy support, while also possessing some comparative advantages or industrial competitiveness.

The following is the essence compiled by the investment notebook representative (WeChat ID: touzizuoyeben), shared with everyone:

The core logic of the bull market has not been destroyed

Host: A recent research report you published impressed me, titled "The Core Logic and Clues of the 'Confidence Revaluation Bull'." You referred to the market rebound since the end of September as the first phase of the confidence revaluation bull, namely the "Blitzkrieg."

You suggested changing our mindset to face the market with a bull market mentality. We have also seen the market enter a correction and fluctuation phase after a violent counterattack, which you referred to as the "stalemate period." How do you view the current market opportunities? Do you think the market's upward trend will continue?

Chen Guo: First of all, before this round of market rally started, I mentioned that the market had already met the conditions of low sentiment and low valuation. So as long as we wait for policy signals, the upward trend of the market can be formed.

Indeed, after the 924 meeting, I believe the market has declared the beginning of the counterattack phase, or in my view, a bull market. But a bull market does not mean prices rise every day, or that it cannot have pauses, especially this round of bull market. I refer to this round of the bull market as the "Confidence Reassessment Bull", because it is relatively complex and faces the issue of balance sheet deflation that needs to be addressed and resolved after decades of economic development in China.

What we saw in the meetings on September 24 and 26 was a strategic deployment to address this issue. This deployment was strongly reflected in the market from September 24 to early October. However, as you mentioned, the market has indeed experienced some pullbacks and fluctuations, and the core reason is that it takes time for strategic deployment to transition into tactical implementation and for everyone to believe in its effectiveness.

So I initially stated that this round of the market can at least be viewed as a three-part thesis, and we are currently in the second phase. So far, the progress of policies has been in line with expectations.

Due to balance sheet recession, first and foremost, we need to address the balance sheet issue, rather than directly issuing consumption vouchers to stimulate consumption.

We need to assess why domestic demand and consumption have been sluggish for some time. A few years ago, people were still discussing the consumption upgrade of the Chinese middle class; now, why are we talking about consumption downgrade? Many reasons ultimately boil down to balance sheet issues.

For example, the decline in real estate prices for the middle class, and even their need to actively shrink their balance sheets, which we refer to as early mortgage repayment, will certainly affect consumption behavior, impacting not only real estate developers and businesses in the real estate chain but also those in the consumption chain. These businesses will see reduced income, and their expenditures and employee compensation, to some extent, will also be affected.

Similarly, the balance sheet issue is also reflected at the local government level. After local governments see a decrease in land sale revenue, the pressure to repay the accumulated debts becomes very significant. Therefore, they have to cut expenses or live more frugally.

This means that local governments will reduce investment and consumption. And those businesses and residents that originally derived income from local government investment and consumption will see their income decrease, leading them to also contract, meaning that a balance sheet issue has clearly caused various aspects of domestic demand to enter a deflationary spiral. Currently, we must interrupt this spiral and restart a positive cycle, but this needs to be implemented step by step.

At the beginning of November, we saw a very clear total of 12 trillion yuan in local policies. I believe this largely addresses and resolves the local debt issue. Its effects will not be seen overnight, but will continuously improve the businesses and residents related to local government investment and consumption, including the business environment at the local level.

Next, we will focus on real estate and the expenditures of other businesses. I believe subsequent policies will continue to unfold. Therefore, in this context, the core logic of the market has not been disrupted. The only thing that can be discussed is that, over the past period, some stocks have risen rapidly, especially concentrated in some micro-cap stocks or thematic stocks.

As you just mentioned, the profit-taking accumulated during this process is very strong. Therefore, once there is a slight disturbance, it can easily lead to fluctuations or adjustments in stock prices.

If we look at the current market, in fact, if you really look at some major indices, I think the volatility is not large. This reflects the logic I just mentioned, it’s not that the economic logic has been significantly damaged; in fact, I believe the probability of economic recovery is increasing, including some recent corporate data, medium-term data, and the recently released macro data

From December to early next year, there is a high probability of a considerable year-end market trend

Considering these factors, I believe that indeed some stocks may have risen too quickly in the early stages and need a certain degree of correction. However, overall, the market is still in a volatile range and does not have particularly large adjustment pressure.

At the same time, from a medium-term perspective, we believe that with the further introduction of policies, including those related to real estate, key industries, technology, and people's livelihoods, aimed at reversing deflation and overcoming deflation.

In this context, the overall trend of the market has not changed, and we also believe that looking forward from now is a very good time for layout, with a very high probability of a considerable year-end market trend from December to early next year.

Trump's presidency is a secondary contradiction, it will not change China's main logic

So what is China's main logic now? China's main logic is to fully revitalize the economy and combat deflation. Therefore, it is the logic of domestic demand recovery. This logic, of course, depends on whether the environment is the smoothest or has resistance.

But whether it is smooth or has resistance, this direction will not change. It will not be altered by the results of the U.S. presidential election. For example, whether Trump is elected now, or due to his tariff policies, or fluctuations in U.S. Treasury rates and exchange rates, we will not change our goal.

For example, we have now figured out that regardless of whether it is Trump or Harris, we have already considered that our goal is to drive from point A to point B. In this process, regardless of whether there are red lights or green lights, or whether there is congestion or other situations, it will not change our direction, but it will change our pace.

If there are too many red lights and too much congestion, it may slow down a bit. However, we will absolutely not change this goal because of these situations. The same applies now.

Our current core logic is still to stimulate domestic demand and initiate the internal circulation. To some extent, we can even say that if we fully assess external influences, a stronger, faster, and more effective stimulation of domestic demand and internal circulation may actually be a positive driving force for China's stock market.

Of course, on the liquidity level, factors such as the U.S. dollar index, U.S. Treasury rates, and the exchange rate of the RMB against the U.S. dollar are also external variables we need to consider when discussing monetary policy or overall economic policy. But as I said, internal factors are always the primary consideration.

Why do I say this? If we look back to September, we can see that the central bank actually took a series of very positive statements and actions.

You could say it was relatively loose, but what was the actual result? The result is that the RMB appreciated. Why? Because everyone felt that these series of policy statements and actions provided strong support or improvement for the Chinese economy.

So people have more confidence in RMB assets, which is why today we see the U.S. dollar seems strong, but behind the strength of the dollar is the continuous accumulation of U.S. debt, and the U.S. fiscal deficit is fundamentally uncontrollable, and they even want to further expand it So we need to ask, if monetary policy and fiscal policy actually have less control, how did they ultimately accumulate strong data for the U.S. economy and create a phenomenon of a strong dollar?

Then why should we tie our own hands? Why shouldn't we loosen up and expand, right?

If we return our goals to the tone set by the Politburo meeting, which is to address the current series of difficulties and challenges in the economy, I believe that making this the primary goal, or even a phased single goal, will mean that all problems will actually be resolved easily. A strong economy leads to a strong exchange rate, so it's not really a problem.

From this perspective, I personally believe that looking back later, although the series of external factors mentioned earlier may cause some concerns about market profits or disturbances in valuations.

But returning to our main logic, as long as we believe in the main logic we just discussed, and trust that our policies will be implemented in an orderly manner and will improve expectations for the Chinese economy. Then these factors are all secondary contradictions, and it is even possible that, similar to the last Trump tariff war, the Chinese economy and industries became stronger during his tariff war.

Key Directions for Policy Focus

Host: Which directions do you think are worth our attention in this market?

Chen Guo: First of all, I have mentioned before that this bull market will be phased. The second phase will show a certain degree of volatility. The first issue with this volatility is that if you don't grasp the rhythm well, it will naturally be more difficult to make money. Secondly, within this volatility, some directions may significantly outperform the market, while others may underperform, because it is not a broad-based rally, which is why the difficulty here is increasing.

From the current situation, we have just experienced a relatively strong thematic investment market, which reflects that the market is enthusiastic but lacks confidence. The understanding of policies and their subsequent impact on the economy is still not very sufficient.

So looking for opportunities in the future will no longer revolve around those themes that have already been overly speculated, but rather around the key areas where policies are truly making an impact and the industries and companies that may be affected.

For example, these directions: First is debt reduction, which is not a simple theme. It is actually helpful for asset revaluation and also useful for operational improvement.

For instance, the asset quality of city commercial banks, construction companies, environmental protection companies, landscaping companies, and of course, all industries related to local government investment and consumption will have some positive effects.

The second is real estate, because real estate occupies a large portion of the balance sheet. Recently, I feel that continuous policies are being introduced, and more importantly, we expect that there will be quite a few more policies likely to be implemented in the future.

This includes what Minister Lan mentioned in a previous press conference, specifically discussing the storage policy. We also anticipate that there is still some room for interest rate cuts, as well as further loosening of some restrictive policies in core cities Moreover, from the current situation, the real estate sales in some core cities have stabilized and even shown an upward trend. Therefore, the real estate sector and its related chains actually have some opportunities.

Additionally, there is a need for more expansion of domestic demand. More expansion of domestic demand also includes a focus on "two 重" "two 新，" which refers to major strategies, major security, and equipment upgrades through trade-ins. We believe that these directions will likely see more related policy declarations and some fiscal policy support at the Central Economic Work Conference and at next year's Two Sessions.

Furthermore, it will also improve the fundamentals of related industries. This year, we have already implemented some trade-in programs, such as in the automotive and home appliance sectors, which have been relatively vigorous. I believe that this scope will significantly widen next year, and the intensity will significantly increase.

This may include various electronic products, digital products, various equipment such as machinery, and many major strategic constructions related to security. To a certain extent, this can effectively address potential tariff risks.

Because a considerable portion of industries is actually export-oriented, concentrated in sectors like manufacturing, the manufacturing industry is affected by external demand or tariffs. Therefore, having some key internal support will actually provide a good hedge.

Especially if it aligns with our strategic development direction or industries in China that possess global competitiveness, the support received during this process may be greater. So this is also a key point for expanding domestic demand. Of course, expanding domestic demand is not limited to this; it will also reflect on other livelihood security aspects.

Finally, cultivating new productive forces is also very important. Recently, Minister of Finance Lan has also mentioned support for technological innovation, and Central Bank Governor Pan has also discussed this, along with other leaders from the Ministry of Science and Technology.

This time, we are not just providing a simple stimulus to traditional industries. In this process, we also hope to find new industrial directions, and the government will actually provide strong fiscal support.

This is not a simple theme; during this process, fiscal support will actually improve industry prosperity, enhance industry income, and boost research and development. Among these, some companies in China that possess global competitiveness may gradually emerge, and this industry may grow from small to large. These are all worth our attention, so I believe there are still many opportunities.

If we speak from a unified perspective, we need to focus on strengthening domestic demand, benefiting from policy support, while also possessing some comparative advantages or industrial competitiveness. If we were to discuss industries, I might list many sectors, whether it be finance, real estate, machinery manufacturing, electronics, or military industry, there are quite a number of industries worth paying attention to.

Chen Guo has repeatedly won awards such as New Fortune, Crystal Ball, and Golden Bull Awards, and was named one of China's Most Valuable Analysts. In July of this year, he predicted the end of the third quarter for A-shares. [7 月份预判了 A 股三季度末](http://mp.weixin.qq.com/s?__biz=MzI0OTU4MTM3NQ==&mid=2247494830&idx=1&sn=5a54312f51f15642a1a51cb592db29a5&chksm=e98df6fedefa7fe8dca99db1239d6b0d6d17b255136aba14c814cdbe789ad8c2ceecdb The market trends of (e91044&scene=21#wechat_redirect). In this round of bull market, how to grasp the underlying investment logic? Scan the QR code in the image below to learn with Chen Gu