UBS Equities-China Equity Strategy _How long will the style shift last_ ...-118354630

ab21 October 2025Global ResearchChina Equity StrategyHow long will the style shift last?What is behind the recent A-share style shift?The A-share market has seen some style shift from 'growth/tech' to 'value/dividend' during October. Among the indices, the ChiNext/STAR 50 indices have shed 7.6%/8.5% MTD (as of 20 October), the CSI 300 has dipped only 2.2% and the SSE Dividend Index is up 5.6%. Behind the near-term style shift, we identify three factors: 1) investors are rebalancing portfolios to fend off risk from escalating China-US trade frictions; 2) some investors are taking profit in light of the recent 'greater tech' rally; 3) some investors fear leveraged investors‘ net inflow into high-beta stocks might slow somewhat after SMIC's margin-financing conversion rate was temporarily adjusted to 0 as a result of the stock hitting 300x trailing PE on 9 October. Still view 'growth' as the main investment style in the medium term We expect none of the aforesaid near-term factors to cause any major style shift in the medium term. First, the A-share market tends to price in escalating trade frictions in the first two trading days after such events. As the current round of tariff risks already caused market corrections on 13-14 October, we believe the shock has been largely priced in. Second, the recent greater tech pullback has reduced the risk of crowding. Greater tech sectors' turnover as of all A-shares fell to 32% last week, the average for the past two years, and was below 38% in late September. Last, the margin-financing conversion rate adjustment has, technically speaking, very limited impact. We think the current leverage is overall manageable with no signs of overheating. In fact, despite the recent A-share pullback, the balance of margin financing is increasing. A-share style allocation framework; ChiNext could offer better risk-rewardIn terms of style allocation, we believe 'growth' could outperform 'value' as the medium-term market outlook remains positive—any major corrections in 'growth' may present buy-on-dip opportunities. We expect an overall balance between the large and small caps given the low likelihood of any further major jumps in turnover and, hence, the difficulty in small caps providing further outperformance after significantly outperforming large caps in H125. When the 'growth' style prevails, investing in the ChiNext Index could offer better risk-reward as the greater tech sector has 39% weight in the index and the sector's current valuation is below the long-term average in both absolute and relative terms. Moreover, growth in the aggregate earnings of the ChiNext Index constituents has picked up notably to 16.5% in H125. We note some high-dividend stocks benefitting from insurers' inflows. Among pro-cyclical sectors, we prefer solar, chemicals and lithium under the current anti-involution campaign.Our preferred A-share stocksRatingMkt cap (Rmb 100mn)Last price (Rmb)Price Target (Rmb)UpsideAvg. dail