--- title: "[Huachuang Strategy Yao Pei] The Style Impact of Diminishing Remaining Liquidity - Weekly Strategy Focus" type: "News" locale: "zh-CN" url: "https://longbridge.com/zh-CN/news/265031006.md" description: "According to the report from Huachuang Strategy, remaining liquidity is tightening, and the market style is shifting from small-cap dominance to large-cap dominance. Both M2 and remaining liquidity have decreased, leading EPS to become the new driver of the market. The report points out the importance of focusing on the re-inflation trading logic and suggests that investors pay attention to pro-cyclical industries with tight supply, such as non-ferrous metals, steel, and coal. At the same time, it is expected that next year, sectors with low bases such as new energy and coal will release greater elasticity" datetime: "2025-11-09T15:28:37.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/265031006.md) - [en](https://longbridge.com/en/news/265031006.md) - [zh-HK](https://longbridge.com/zh-HK/news/265031006.md) --- > 支持的语言: [English](https://longbridge.com/en/news/265031006.md) | [繁體中文](https://longbridge.com/zh-HK/news/265031006.md) # [Huachuang Strategy Yao Pei] The Style Impact of Diminishing Remaining Liquidity - Weekly Strategy Focus According to the "Measures for the Administration of Suitability of Securities and Futures Investors" and supporting guidelines, this material is intended only for professional institutional investors among Huachuang Securities clients. Please do not forward this material in any form. If you are not a professional institutional investor among Huachuang Securities clients, please do not subscribe to, receive, or use the information contained in this material. This material is difficult to set access permissions, and we apologize for any inconvenience this may cause. Thank you for your understanding and cooperation. Report Highlights 1. Remaining liquidity is easing, shifting from valuation enhancement to EPS-driven: M2 decreased from 8.8% in August to 8.4% in September, and remaining liquidity decreased from 2.8% to 2.4%, with large and small cap comparisons switching synchronously. 2. Valuation system from 2600 to 4000 points: shifting from small cap to large cap dominance. 1. Market capitalization, trading volume & revenue share: Under conditions of ample liquidity in the past year, the share of small caps expanded; however, in the past 2-3 months, the share of large caps has begun to rise while small caps have declined, with continued improvement in anti-involution industries and a retreat in TMT & manufacturing; 2. In the past two months, companies with peak valuations are more concentrated in small caps and mid-to-low performance growth directions; 3. PEG: Most broad-based indices are concentrated around PEG=1.5, with the CSI 2000 having a PEG\>2, while industries with PEG<1 are mostly concentrated in cyclical and consumer sectors; 4. PB-ROE comparison: Among broad-based indices, the CSI 300 has a high cost-performance ratio, with industries having PB percentile-ROE<10% mostly concentrated in cyclical, consumer, and financial sectors. 1. Performance growth expectation perspective: 1) Focus on the re-inflation trading logic, emphasizing supply-tight cyclical industries: non-ferrous metals (industrial metals, small metals), steel, coal, aquaculture, etc.; 2) EPS has become a new driver for the bull market, with the market already pricing in performance recovery, focusing on sectors with low bases such as new energy, coal, steel, building materials, construction, chemicals, pharmaceuticals, and personal care, which are expected to release greater elasticity next year, as well as high-growth electronics and computers under industrial trend catalysts. Report Body I. Remaining liquidity is easing, shifting from valuation enhancement to EPS-driven Remaining liquidity has passed the most rapid upward phase, with market style shifting from small cap dominance under ample liquidity to large cap dominance under EPS recovery. By measuring remaining liquidity using M2 year-on-year - social financing stock year-on-year, equity assets have seen valuation increases and small cap dominance in a loose liquidity environment over the past year. Since July, we have emphasized in our July 27 report "The Second Half of the Bull Market: Physical Re-inflation - Weekly Strategy Focus" that the main driver of the bull market will shift from liquidity to EPS and inflation recovery in the second half, with large caps dominating. From a data perspective, M2 year-on-year in September was 8.4% (down from 8.8% in August), and remaining liquidity slightly decreased from 2.8% in August to 2.4%, indicating a marginal contraction, corresponding to the synchronous decline in the large and small cap comparisons represented by the CSI 2000/CSI 300 since August. Although the current decline may be incidental and one-time, from a 6-12 month perspective, the August M2 peak of 8.8% is already close to the nearly 5-year average of 9.5%, suggesting that remaining liquidity may have passed its most rapid upward phase. If social financing stabilizes or rises year-on-year, and M2 growth slows, remaining liquidity may ease over the next year and decline over the next 2-3 years, with market styles for large and small caps potentially resembling the backdrop of remaining liquidity decline seen in 2016-2018 The decline in valuation impact driven by liquidity and the amplification of EPS effects have led to large-cap dominance. It should be noted that historically, exceptions such as the liquidity rebound in 2018 did not present an upward trend in stock prices or small-cap dominance, mainly because the liquidity surplus at that time was characterized by a decline in social financing year-on-year that was greater than the decline in M2 year-on-year. This is different from the current situation where social financing growth is stabilizing and M2 is loose, indicating typical liquidity abundance. Therefore, the liquidity surplus in 2018 had little impact on the valuation system, and the pricing logic was more aligned with the process of performance decline. II. Valuation system from 2600 to 4000 points: Transition from small-cap to large-cap dominance Market capitalization, trading & revenue share: Over the past year, under conditions of ample liquidity, the share of small caps has expanded; however, in the past 2-3 months, the share of large caps has begun to rise while small caps have declined, with anti-involution industries continuing to improve and TMT & manufacturing sectors retreating. In our report on November 19, 2024, titled "Reinflation Bull Market - 2025 Investment Strategy," we clearly stated the "Reinflation Bull Market" view: the first half of the bull market is financial reinflation, with equity assets' valuations rising in the remaining loose liquidity environment. The index has risen from a low of 2600 in 2024 to 3800 in September, and further to the current 4000 points. We observe the changes in the share of various broad-based indices and key industries (the top ten industries held by actively managed equity public funds in Q3 2025, see our report on October 28, "TMT Sector's Market Value Share Hits Record High - Q3 2025 Fund Quarterly Report Review"). It is evident that within the range of 2600-3800 points, small-cap growth dominated, but from 3800 points in September to the current 4000 points, large-cap dominance has gradually emerged, specifically including: 1. Market capitalization share: Since September, the share of large caps has increased while small caps have decreased, with the growth sectors (TMT & manufacturing) share declining, and anti-involution sectors (non-ferrous metals, electric vehicles) rebounding since July. From the perspective of market capitalization share, the large-cap representative Shanghai Stock Exchange 50 (September 24: 27.5% → September 25: 24.8% → current: 25.6%), CSI 300 (59.2% → 54.9% → 55.5%) market capitalization shares have rebounded by 0.8 and 0.6 percentage points respectively since hitting bottom in September. In contrast, the small-cap representative CSI 1000 (11.7% → 12.5% → 12.2%) and CSI 2000 (8.7% → August 25: 10.1% → 9.8%) have both declined by 0.3 percentage points after reaching their peak under ample liquidity conditions. Looking at the top ten industries in public funds, previously dominant growth sectors such as electronics (8.5% → 12.8% → 12.4%), telecommunications (2.6% → 3.3% → 3.2%), automobiles (4.2% → 4.5% → 4.3%), machinery (4.3% → 5.1% → 4.9%), and military industry (2.6% → June 25: 3.1% → 2.7%) 1. Pharmaceuticals (7.2%→25/07 7.3%→6.2%) saw a significant expansion in market capitalization share before September, but has begun to decline currently. In contrast, the anti-involution key industries of electric new energy (6.6%→25/07 6.2%→7.9%) and non-ferrous metals (3.2%→25/07 3.3%→4.1%) have significantly improved since July. The market capitalization share of food and beverage, and home appliances in dividends/consumption has continued to decline over the past year. 1. Transaction volume share: Since May, the large-cap share has warmed up while the small-cap share has decreased. In the past three months, the growth sectors of telecommunications, automotive, machinery, and pharmaceuticals have seen a decline in share, while electronics, electric new energy, and non-ferrous metals have increased. From the perspective of monthly transaction volume share, the Shanghai 50 (24/09 9.0%→25/05 5.2%→25/10 7.7%) and CSI 300 (29.2%→18.8%→29.0%) have both rebounded by 2.5 and 10.2 percentage points respectively after hitting a bottom in May, while the CSI 1000 (19.5%→25/08 21.3%→19.5%) and CSI 2000 (22.1%→31.3%→20.0%), which represent small-cap shares, have significantly declined after peaking. In the top ten industries of public offerings, within the TMT & high-end manufacturing sectors, telecommunications (4.0%→25/09 6.2%→5.5%), automotive (5.2%→25/09 5.4%→4.7%), machinery (5.6%→25/08 8.1%→6.9%), and pharmaceuticals (7.3%→25/07 8.7%→4.9%) have all significantly declined in transaction volume share over the past three months, while electronics (12.8%→25/08 16.0%→19.3%) continues to expand its transaction volume share. In the anti-involution direction, electric new energy (8.1%→25/07 7.9%→11.6%) and non-ferrous metals (4.0%→25/07 5.2%→7.4%) have shown continuous significant improvement since July. The transaction volume share of food and beverage, and home appliances has continued to decline over the past six months. 1. Revenue share: The large-cap share rebounded in the third quarter, while the small-cap share continued to decline. In the growth sectors, telecommunications, machinery, and pharmaceuticals saw a decline in share in the third quarter, while electronics, automotive, electric new energy, and non-ferrous metals have increased their share over the past 25 years. From the perspective of quarterly revenue share, the Shanghai 50 (24Q3 29.4%→25Q2 25.1%→25Q3 27%) and CSI 300 (59.4%→59.1%→60.1%) both rebounded in Q3 after a decline in Q2, while the CSI 2000 has seen a continuous decline in revenue share since Q4 of 24. In the top ten industries of public offerings, within the growth sectors, telecommunications (3.5%→3.8%→3.4%), machinery (2.8%→3.0%→2.8%), and pharmaceuticals (3.3%→25Q1 3.6%→3.2%) The Q3 revenue share has shown a decline, with electronics (4.8%→5.6%→5.9%) and automotive (5.7%→5.8%→5.9%) still performing relatively strong. In the direction of anti-involution, new energy (4.7%→5.0%→5.0%) and non-ferrous metals (4.9%→5.4%→5.5%) have continued to warm up since 2025. In the consumer sector, food and beverage (1.6%→1.4%→1.4%) and home appliances (2.3%→2.5%→2.2%) revenue shares remain under pressure. In the past two months, companies with peak valuations are more concentrated in small-cap and mid-to-low performance growth directions. The ample liquidity conditions in the first half of the bull market favor small-cap styles, but if small-cap growth lacks significant support for next year's EPS, it may have reached its valuation ceiling. We screened 774 stocks with a PETTM percentile decline of \>10pct in the past two months (from 11/7 relative to 8/31) and conducted a distribution statistic on their market capitalization and 26E net profit growth. We found that over half of the samples (446 companies, accounting for 58%) have a market capitalization of less than 10 billion, while only 31 companies with a market capitalization of over 100 billion have seen a significant decline in valuation percentile in the past two months; 30% of the samples have 26E performance growth in the low growth range of <20%, and over half (301 companies, 56%) of the statistically available samples are in the moderate profit growth range of 20%-50%, indicating that companies lacking strong performance support may have reached their valuation ceiling in this round. PEG: Most broad-based indices are concentrated around PEG=1.5, with the CSI 2000 having PEG\>2\. Industries with PEG<1 are mostly concentrated in cyclical and consumer sectors. From the perspective of PEG, directions with low valuations and high performance growth expectations include the broad-based indices such as CSI 300 (PETTM 14, 26E net profit growth 9%), CSI 500 (33, 21%), CSI 800 (16, 10%), and Wind All A (22, 17%) are all concentrated around PEG=1.5, while the SSE 50 (12, 5%) and CSI 1000 (48, 24%) are around PEG=2. The CSI 2000, representing small and micro-cap stocks, has a PEG significantly greater than 2 (154, 64%), indicating a high valuation premium. In the Shenwan first-level industries, construction (13, 16%), environmental protection (30, 30%), building materials (29, 36%), steel (34, 47%), agriculture (24, 32%), textiles and apparel (27, 52%), social services (46, 56%), light industry (31, 74%), and new energy (42, 70%) Real estate (64, 110%) PEG < 1, industries with relatively low valuations and high performance growth expectations are mostly concentrated in cyclical and consumer sectors. PB-ROE comparison: Among broad-based indices, the CSI 300 has a high cost-performance ratio, with industries having PB percentile-ROE < 10% mostly concentrated in cyclical, consumer, and financial sectors. From the perspective of PB-ROE, directions with low valuations and high profit expectations are, broadly speaking, divided by the Wind All A index, with the CSI 300, CSI 800, and CSI 1000 having relatively high cost-performance ratios, currently at historical percentiles of 48%, 49%, and 47%, respectively, with 26E ROE reaching 11%, 11%, and 10%. In the Shenwan first-level industries, food and beverage (PB percentile 16%, 26E ROE 21%), agriculture (13%, 13%), personal care (17%, 12%), pharmaceuticals (13%, 11%), social services (14%, 10%), construction (13%, 8%), building materials (13%, 7%), banking (19%, 9%), and non-bank financials (20%, 14%) have relatively low valuation percentiles and high profit expectations. High cost-performance industries from the PB-ROE perspective are mostly concentrated in cyclical, consumer, and financial sectors. Third, performance growth expectation perspective: tight supply + low base period Focus on the re-inflation trading logic, emphasizing cyclical industries with tight supply: non-ferrous metals (industrial metals, small metals), steel, coal, aquaculture, etc. The remaining liquidity has passed the most rapid upward phase, and its abundance may be difficult to strengthen again. The main driving force of the bull market has changed from financial re-inflation in the first half to physical re-inflation in the second half. We have summarized in our November 7 report "Not Just High-Low Cuts, But Also Anti-Overwork" that under the anti-overwork bull market and re-inflation trading, key industries to focus on are cyclical industries with tight supply, mainly concentrated in cyclical non-ferrous metals (industrial metals, small metals), steel, coal, petrochemicals; aquaculture and light textiles in consumption; logistics, pharmaceuticals, and construction machinery in manufacturing; and consumer electronics, components, and optical optoelectronics in technology EPS has become a new driver of the bull market, and the market has begun to price in the return of performance. Attention should be paid to low-base sectors such as new energy, coal, steel, building materials, construction, chemicals, pharmaceuticals, and personal care, which are expected to release greater elasticity next year. Additionally, under the catalysis of industrial trends, high-growth sectors such as electronics and computers are anticipated. In our November 2nd report "Three Focus Areas: Performance, Holdings, High-Low Cuts - Strategy Weekly Focus," we analyzed that the market has begun to price in the return of performance, with sectors/industries that performed better this year showing superior stock price performance. Looking ahead to next year, as PPI returns and EPS becomes a new driver of the bull market, performance will become a more important stock selection factor compared to liquidity. Low-base sectors are expected to release greater performance elasticity, mainly concentrated in cyclical and consumer sectors: steel with a compound profit growth rate of -57% over the past two years, and a growth rate of 47% in 2026; building materials -24%, 36%; coal -22%, 15%; environmental protection -8%, 30%; chemicals -7%, 27%; construction -6%, 16%; light industry -14%, 74%; pharmaceuticals -11%, 22%; personal care -9%, 25%; textiles and apparel 0%, 52%; power equipment -44%, 70%; military industry -24%, 64%. In addition, some growth sectors are expected to maintain high growth next year under the catalysis of industrial trends, such as electronics with a net profit growth rate of 44% in 2026, media 43%, and computers 77%. For the aforementioned low-base/high-growth industries, we traced back to see if their historical profit growth centers were priced into their stock performance: calculating performance growth rates based on two-year net profit CAGR and representing stock price trends with the Shenwan industry index/Wande All A, we found that low-base sectors such as new energy, coal, steel, building materials, construction, chemicals, pharmaceuticals, and personal care, as well as high-growth electronics and computers in 2026, have historically shown a correlation between performance growth centers and relative stock price trends, indicating a potential for stronger performance elasticity in a low-growth background. Risk Warning: 1. The macroeconomic recovery is not as expected; 2. Policy advancement is not as expected; 3. Historical experience does not represent the future: due to changes in market conditions and other factors, the experiences derived from historical data may become invalid in the future ### 相关股票 - [GHNM (600301.CN)](https://longbridge.com/zh-CN/quote/600301.CN.md) ## 相关资讯与研究 - [Banaszak warns against Merz's considerations on delaying coal phase-out](https://longbridge.com/zh-CN/news/280886347.md) - [Tata Steel Limited Faces Demand Notice From District Mining Officer Dhanbad For Alleged Excess Coal Production Of INR 3,851.9 Million](https://longbridge.com/zh-CN/news/281052299.md) - [WEC Energy Seeks Wisconsin Rate Hikes, Delays Coal Exit](https://longbridge.com/zh-CN/news/281425699.md) - [China Shenhua posts audited 2025 results and plans RMB22.34bn dividend amid industry risks](https://longbridge.com/zh-CN/news/281061851.md) - [18:55 ETCoal-Fired Pizza Explained in HelloNation Featuring Pizza Expert Ben Boggess](https://longbridge.com/zh-CN/news/281262935.md)