China Securities: A Roller-Coaster Week; Thoughts Ahead of 3Q Results

A- and H-share brokers in our coverage declined by 3% and 9%, respectively, during Oct 19-22, followed by a 1% and 3% rebound on Oct 23. Weakening market activity, softer investor sentiment, and a reset in 3Q earnings expectations have contributed to the recent sector weakness, while strong trading turnover and net inflows into onshore ETFs have marginally improved sentiment. With seven brokers reporting results in the coming week, we believe earnings delivery, market sentiment, and fund flows will be the key determinants of share price performance. We remain selective and continue to prefer names with stronger 3Q earnings growth visibility, including CICC-H (OW) and CMS-H (OW). Three key reasons behind the recent sector weakness: weakening equity market and investor sentiment (A-share ADT fell to Rmb1.6tn in October MTD, margin financing balances down 4.5% MTD);