Nomura Orient International: After A-shares rebound on higher turnover, it is still advisable to wait for volatility to subside

How strong was the rebound?

On 4 November, the CSI 300 Index rose 2.31%, its biggest one-day gain since 21 July 2026. The ChiNext Index and STAR 50 Index rose 6.40% and 9.92%, respectively, while total A-share turnover climbed to 2.05 trillion yuan.
Technology hardware was the main driver of the rebound. Electronics, telecommunications and nonferrous metals led the gains among Shenwan's primary industry sectors, while the previously more defensive food and beverage, coal, petroleum and petrochemicals, and banking sectors lagged.

Nomura Orient International believes that after a steep correction, a return to fundamentals-driven market pricing requires lower volatility and a gradual stabilization of sentiment and liquidity. Turnover had previously declined for consecutive sessions, and the first clear rebound accompanied by higher turnover only appeared on 4 November; the rally may primarily reflect the release of pent-up sentiment.
The conclusion of the US midterm elections, the completion of A-share companies' third-quarter 2026 reporting, and the US earnings season passing its halfway point help ease some event-driven uncertainty and may support sentiment in the short term.
However, returns on AI investment, geopolitical risks, high oil prices and interest-rate hiking cycles amid diverging global economic trends remain constraints. The institution believes that even if turnover recovers, liquidity volatility and differences in valuation views may hinder a sustained rally.

The institution recommends maintaining a highly defensive portfolio in the short term until the market enters a low-turnover consolidation phase, then waiting for clearer reallocation opportunities. A-shares have entered a range that may offer reallocation opportunities after the correction, but investors still need to guard against tail risks arising from fluctuations in capital flows.
For the medium to long term, the institution is watching technology and high-quality dividend assets among centrally administered state-owned enterprises. Within dividend stocks, it favors banks with relatively low capital requirements that can maintain relatively high returns on equity and dividend yields, as well as selected centrally administered resource and transportation companies with stable cash flows and high dividend payout ratios.
In technology, the institution is especially bullish on hardware such as memory and optical communications: AI is driving demand growth, while these segments remain constrained by capacity. It is also watching AI power systems, liquid-cooling equipment, gas turbines and domestically produced computing hardware, and recommends gradually increasing allocations to technology and energy and chemical themes during market pullbacks.
If geopolitical disruptions persist and international oil and gas prices move into a higher range, the institution recommends watching domestic upstream oil and gas companies whose earnings may benefit from higher prices.