The Zhitong Finance App learned that Cinda Securities released a research report saying that recently the market sector has shown strong high and low profile characteristics. Generally, the characteristics of high and low switching tend to appear near an inflection point in the market. The bank believes that this high and low cut may indicate that the recuperation from late March is over and a new rise is about to begin. Among the highs and lows this time, the significance of brokers' performance is even more important. In brokerage history, it may be both the standard-bearer of the bull market and the last stick in the sector's rotation. The starting point of a brokers' excess profit depends on cost performance, while the end point is more dependent on judging the bullish and bear market. The bank believes that judging from fundamentals and policies, the probability that the market will be bullish this year is higher than in July-August 2023.

Cinda Securities's views are as follows:

Comparing the excess earnings of brokerage firms and the trend of the full A Index since the end of 2018, it can be found that the first situation where brokerage firms generate excess income is a period of rapid rise in the index. For example, in Q1 2019 and June-July 2020, the market was in the two fastest rising stages in 2019-2021, and at this time, brokerage firms all had excess profits of 30% to 50%. The second situation where a brokerage firm generates excess profits is when the market rises or is at the end of a rebound. For example, August-September 2021, December 2021, April 2023, and July-August 2023, 8-9 2021 and December 2021 are the latter stages of the 2019-2021 bull market, and July-August 2023 is the end of the mid-2023 special estimate. The starting point of a brokers' excess profit depends on cost performance, while the end point is more dependent on judging the bullish and bear market. The bank believes that judging from fundamentals and policies, the probability of a bullish market this year is higher than July-August 2023.

The recent performance of low-level sectors has been stronger, including undervalued securities and real estate, and overdeclining growth.

Recently, the market sector has shown strong high and low cutting characteristics. Coal, banks, non-ferrous metals, and home appliances, which have had the highest gains since the beginning of the year, all fell last week, while real estate and securities, which had relatively weak performance since the beginning of the year, were strong. At the same time, most growth stocks were generally weak since the beginning of the year, and they all rose markedly last week. Generally, the characteristics of high and low switching tend to appear near an inflection point in the market. The bank believes that this high and low cut may mark the end of the recession since late March and a new rise is about to begin.

Brokerage is one of the least outstanding value stocks in the past year.

While cutting high and low this time, the significance of brokers' performance is even more important. First, the fundamentals of brokerage firms are more special than other value stocks. If we only look at the characteristics of PB and ROE, brokerage firms are more in line with value stocks. PB is low. Although ROE is not high, it can also stabilize above 5%. However, if you look at the dividend rate, the average dividend rate of non-bank finance is only 1.65%, which is low compared to other value industries. As a result, the industry's excess earnings have not been high in the past year.

There are two possible outcomes for the rise in brokerage firms: the last stick in rotation, or a sign that the market has broken through the rise again.

In brokerage history, it may be both the standard-bearer of the bull market and the last stick in the sector's rotation. Comparing brokers' excess earnings and the trend of the entire A Index since the end of 2018, the bank can find that the first situation where brokerage firms generate excess income is a period of rapid index rise. For example, in Q1 2019 and June-July 2020, the market was in the two fastest rising stages in 2019-2021, and at this time, brokerage firms all had excess profits of 30% to 50%. The second situation where a brokerage firm generates excess profits is when the market rises or is at the end of a rebound. For example, August-September 2021, December 2021, April 2023, and July-August 2023, 8-9 2021 and December 2021 are the latter stages of the 2019-2021 bull market, and July-August 2023 is the end of the mid-2023 special estimate.

If brokerage firms strengthen, this year's market may end better than July-August 2023.

The starting point of a brokers' excess profit depends on cost performance, while the end point is more dependent on judging the bullish and bear market. The bank believes that judging from fundamentals and policies, the probability that the market will be bullish this year is higher than in July-August 2023. This is because although the domestic economy is also expected to stabilize the inventory cycle from July to August 2023, the risk release of real estate is not complete, because the completed area of real estate remains high compared to the same period last year. Looking at this year, the completed area of real estate has dropped to a low level compared to the same period last year; this risk may have already been realized. At the same time, the global PMI has begun to gradually recover this year, and not just the bottom region fluctuates, so the probability that the global economy will rise marginally is even higher.

Short-term strategic view: The turbulence since late March is over, and the rise is likely to continue in May. Since April, the market has fluctuated due to factors such as delayed expectations of the Fed's interest rate cut, the cooling of themed investments during the quarterly reporting period, and the general impact of a high base on economic data. These effects will gradually end in May, and the market may rise again. There are three core forces that are once again upward: (1) Behind the delay in the Fed's interest rate cut is the re-inflation of the US economy. Historical experience tells the bank that in the early stages of inflation, it is beneficial to equity, because profits in many economy-related sectors will pick up again. The global economic inventory cycle will resonate upward. (2) China's nine regulations and other related policies continue to take effect. The stock market ecology is slowly changing, the scale of stock market financing has decreased, the scale of dividends has increased, and the supply and demand structure continues to improve. (3) As the market rose in February-March, absolute income investors, represented by private equity, did not have high positions, and there may be room to continue to replenish their positions later.

Industry configuration suggestions: The regular seasonal style in May will be slightly biased towards small-market growth, so in the short term, it will show high and low style cuts, but since major style trends are still valuable, this kind of high and low cut won't last long. The recommended configuration order for 2024: upstream cycle > automobile zero, overseas travel > financial real estate > AI, old circuit (pharmaceutical semiconductor new energy) > consumption. The highest ranking is probably the strongest main line of the future bull market.

This adjustment for upstream cyclical stocks is mainly to make up for the decline in short-term strong stocks, which is likely to end within 1-2 weeks. The rise in commodity prices has just gone from the gold wheel to industrial metals. The bank is expected to reach its peak in 1-2 years, so there is no need to worry about fundamentals for the time being. Follow-up outlook on the upstream cycle: (1) Whether the upstream cycle market can continue depends on commodity prices. The bank believes that the price increase is still in the early stages. Currently, the global economy is still at the bottom of the short cycle (inventory cycle). In the future, as the inventory cycle recovers, prices will continue to rise for 1-2 years. (2) The recovery of strong stocks usually ends within 1-2 weeks. Refer to the 2016-2021 liquor. If it is simply a strong stock to make up for the decline, it usually ends within 1-2 weeks. The bank believes that the upstream cycle may only break 1-2 times this time. (3) Under what circumstances will the cycle be adjusted quarterly? Referring to the 2016-2021 liquor bull market experience, if it is not a bear market, the bank believes that three conditions need to be met at the same time. There are phased concerns about fundamentals, and significant improvements in fundamental logic are concentrated in other industries, while the market continues to fluctuate or decline during the quarter. Quarterly adjustments will occur at this point, and the probability is not high now.

Risk factors: The real estate market declined more than expected, and US stocks fluctuated sharply.