CITIC Securities: Market Correction Nearing End, August Recovery Expected
CITIC Securities released a research report on August 2nd, suggesting that the current adjustment in the A-share market is primarily a correction of crowded trading rather than a deleveraging shock akin to South Korea's past experiences. This assessment is based on several factors: the overall leverage situation remains secure, with nearly half of all stocks experiencing gains in July, a significant increase from June. Furthermore, the current pullback in financing is relatively modest when compared to historical deleveraging events globally. The ETF market has also seen consistent fund inflows, with technology-focused ETFs providing substantial liquidity support. While localized liquidity pressures persist, particularly for some non-core AI stocks, which have led to temporary mispricing of key AI components due to portfolio adjustments within the tech sector, CITIC Securities believes this impact has largely subsided. The probability of a general market recovery in August is increasing, though it is not expected to be a simple oversold rebound. Positive narratives are emerging in non-AI sectors, and the funding environment is conducive to a moderate recovery. In terms of asset allocation, CITIC Securities recommends increasing exposure to energy and chemicals, non-ferrous metals, non-bank financial institutions, and innovative drug companies. Within the technology sector, investors should use the rebound to sharpen their focus on core holdings.
The report from CITIC Securities frames the current market adjustment as a healthy correction of over-enthusiasm in trading, distinguishing it from more severe deleveraging events. This perspective suggests that underlying market structures remain robust, supported by consistent ETF inflows and manageable leverage. The analysis highlights a potential shift in market sentiment, with improving conditions for both AI and non-AI sectors, alongside supportive financial environments. Investors are advised to strategically reallocate capital towards specific sectors and to refine their focus within technology stocks. This approach implies that market participants should look beyond broad market movements and identify specific opportunities driven by sector-specific narratives and liquidity flows, leveraging the expected recovery for targeted portfolio adjustments.
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