According to the Zhitong Finance APP, Guojin Securities released a research report stating that the current strong resonance of Chinese and American stocks and exchange rates is driven by investors' optimistic expectations for future corporate capital returns in their respective markets. The difference lies in the fact that the A-share market is pricing in a recovery from a historical low in ROE, while the US stock market is pricing in the continuation of already high ROE levels. However, there may be a divergence between the two in the future: US ROE may be long-term constrained by the return of manufacturing and multinational capital, while A-shares may see capital returns bottoming out and recovering due to the triple factors of anti-involution, overseas manufacturing being greater than services, and the cessation of debt contraction. From a market pricing perspective, considering the long-term profit recovery, the current PB repair level of A-shares is within a normal range, but there needs to be some buffer space for the uncertainty of the rhythm. The relative advantage of the barbell strategy will further weaken, while the recovery space for traditional industries remains large.
<h2>Guojin Securities' main viewpoints are as follows:</h2>
The strong resonance of Chinese and American stocks and exchange rates: a crossroads for capital returns
Historically, whether in the A-share or US stock market, market trends generally lead the trend of ROE. Recently, the simultaneous strengthening of the Chinese and US stock markets and exchange rates reflects investors' optimistic expectations for future corporate capital returns in their respective markets. The difference this time is that the A-share market is pricing in a stabilization and bottoming out of ROE at historical lows, while the US stock market is pricing in the continuation of ROE at historical highs. Since Q4 2021, the A-share market has seen a continuous decline in capital returns due to fierce competition under the trends of &#34;de-financialization, de-real estate&#34; and continuous upgrading and reinvestment in manufacturing; in contrast, the US stock market has enjoyed relatively high ROE against the backdrop of government debt expansion to stimulate demand while supply and leverage remain low. In the future, both trends are expected to change: for the US stock market, whether through tax reduction policies encouraging manufacturing investment or the repatriation of capital by multinational companies, there will be short- to medium-term support for the fundamentals of the US economy, but in reality, this will long-term suppress high ROE. However, the market's short-term pricing will focus on the total recovery at the front end. For the A-share market, the three factors of anti-involution, overseas manufacturing activity being greater than services, and the cessation of debt contraction may become sources for stabilizing and recovering capital returns, despite weak domestic demand in the short term, the medium-term upward trend is clearer. Historically, there is about an 8-month lag between the PB valuation gap of US and A-shares and the gap in ROE, and with the trend of convergence in ROE differences, the valuations of the Chinese and US stock markets will theoretically also converge.
The three major sources for stabilizing and recovering A-share capital returns in the future: anti-involution, overseas manufacturing &gt; services, and debt no longer contracting
The three major catalysts that could stabilize and recover capital returns in the A-share market in the future are: (1) Anti-involution, allowing industries previously constrained by excessive capital expansion to gradually bottom out and stabilize capital returns. Taking the cement industry as an example, the current mill operating rate is at its lowest level for the same period since 2019, cement production has continued to decline since 2022, and the price index has rebounded since the second half of 2024. The ROE of listed companies stabilized and rebounded in Q2 2024. (2) Overseas manufacturing &gt; services continues to drive demand for domestic capital goods and intermediate goods. For example, in June, the overall sales of excavators, domestic sales, and export quantities all rebounded, especially the year-on-year growth rate of export quantities returned to a high point not seen in nearly two years
(3) From the perspective of listed companies, there are signs that funds are gradually shifting from virtual to real, and the current debt repayment cycle may be nearing its end. After Q1 2023, listed companies entered a debt repayment cycle, which has now lasted for 8 quarters, second only to the period from 2014 to 2016. With the intensive introduction of anti-involution and fiscal support policies since Q4 2024, by Q1 2025, corporate operating cash flow and M1 have both achieved positive growth.
Considering the long-term profit recovery, the current PB recovery level of A-shares is at a normal level, but it needs to allow for some buffer space for the uncertainty of the pace.
The current market pricing state is that short-term stock prices are clearly running ahead of ROE, which is consistent with the historical cycle bottom characteristics. The absolute level of PB does not indicate an extreme degree of running ahead (there is still a maximum space of 20%), but due to the current low absolute level of ROE, its rebound elasticity and pace will still affect the PB recovery. We are more concerned about the structural differentiation: currently, the proportion of all A-shares with a historical PB percentile below 20% has significantly decreased to the lowest level since Q1 2017. The industries with a low proportion of low PB stocks are mainly concentrated in TMT + high-end manufacturing + banking, which is precisely the gathering place of the &#34;barbell strategy,&#34; and the future recovery space may be limited. In contrast, traditional industries represented by coal, oil and petrochemicals, steel, transportation, electricity and utilities, real estate, and non-bank financials still have a proportion of low PB stocks above 40%. We believe that in the future market, the relative advantage of the barbell strategy will further weaken, as the elasticity of its PB has already been overdrawn by other factors during the gradual recovery of ROE.
Under the mirror of China and the United States: the gears of capital return begin to turn.
The future state of declining domestic capital returns and maintaining high overseas capital returns will be reversed: under the combination of domestic anti-involution, cessation of debt contraction + overseas development of manufacturing, the capital returns of domestic manufacturing enterprises will gradually stabilize and rebound, while overseas enterprises' capital returns may decline as a result. In this process, A-shares will have more advantages and cost-effectiveness compared to other markets. The outstanding performance of the barbell strategy may completely reverse in the next six months. Our recommendations for current asset allocation are as follows: first, upstream resource products (copper, aluminum, oil) and capital goods (engineering machinery, heavy trucks, forklifts), intermediate products (steel) that benefit from rising overseas demand for physical assets and the promotion of domestic &#34;anti-involution&#34; policies; second, equity will outperform debt in the future, and the long-term asset side of insurance will benefit from the bottoming of capital returns, suggesting attention to non-bank financials; third, in consumption, quantity is more important than price: hotel catering, tourism and leisure, branded clothing, specialty chains, and opportunities in new consumption stocks are still worth exploring.
Risk Warning: Domestic economic recovery may be less than expected, significant downturn in overseas economy.

Guotai Junan Securities released a research report indicating that the resonance between the Chinese and U.S. stock markets and exchange rates reflects investors' optimistic expectations for future corporate capital returns. The ROE of U.S. stocks may be influenced by the manufacturing industry and the repatriation of multinational capital in the long term, while A-shares may bottom out and rebound under the impetus of anti-involution and the return of the manufacturing industry. The PB repair extent of A-shares is considered normal, but attention should be paid to the uncertainty of the pace

- Guojin Securities reports that the recent strengthening of Chinese and U.S. stock markets reflects investor optimism about future corporate capital returns, with A-shares recovering from historical lows while U.S. stocks maintain high ROE levels.  
- The report suggests potential divergence, as U.S. ROE may be constrained by manufacturing and capital repatriation, while A-shares could benefit from anti-involution, a stronger manufacturing sector, and stabilizing debt.  
- The analysis indicates that A-shares may offer better value compared to other markets, with recommendations for asset allocation favoring upstream resources and consumer sectors.

Guotai Junan Securities: Under the Sino-U.S. mirror, the gears of capital return begin to turn