In early November, after making a "second attempt" to surge, the A-share market in China entered a phase of persistent fluctuations and correctionBy closing on Friday, November 15, the Shanghai Composite Index had accumulated a decline of over 170 points from its recent highsDespite this situation, current sentiment within the private equity sector remains relatively optimistic regarding the future outlook of A-sharesInvestors are now focusing on structural opportunities while steering clear of stocks that lack fundamental support, highlighting two key strategies for short-term reactionsAdditionally, data indicates that major private equity firms are currently operating at high positions, suggesting a bullish stance among key players in the market.

The correction followed the A-shares hitting recent peaks, with major indices showing declines of 3.52% for the Shanghai Composite Index, 3.70% for the Shenzhen Component Index, 3.36% for the ChiNext Index, and 3.78% for the STAR Market Index throughout that week

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When examining leading and lagging industries, sectors such as internet and telecommunications exhibited strong trends, while cyclical sectors like real estate and non-ferrous metals showed relatively weak performanceMoreover, the trading enthusiasm in popular sectors like semiconductors, components, and IT equipment has decreased, while blue-chip sectors such as banking and oil have shown resilience throughout the week.

Notably, the trading volume has exhibited a pronounced downward trendThe trading volume for the All A Shares Equal-Weighted Index, which reflects overall market activity, dropped from levels exceeding 2.5 trillion yuan to below 2 trillion yuan in a single day.

Recent investment dynamics among private equity firms indicate that there is a sustained high "positioning posture" across the industryAccording to monitoring data from third-party organizations like the Private Equity Ranking Network, as of November 1, the average position level among China’s billion-yuan class stock private equity firms was recorded at 79.08%. This marks a significant increase from the previous week, achieving the largest single-week accumulation this year, and it even set a new high for 2024. In a longitudinal comparison, during the market surge at the end of September, these firms made notable reductions in their holdings but began to reinvest, leading to a record high in average positions by November 1.

Specifically, as of November 1, 56.83% of billion-yuan class stock private equity firms operated with heavy or fully invested positions (above 80%), while 36.82% maintained moderate weighting (ranging from 50% to 80%). Approximately 3.76% functioned with comparatively lower positions (between 20% and 50%), and 2.59% had low or empty positions (below 20%). On another note, compilations from the Private Equity Ranking Network and other third-party monitors indicate that the overall average positioning level among equity private equity firms has remained relatively high since the end of September.

Despite the high levels of correction, the prevailing optimistic outlook continues

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Since the start of the upward trend for A-shares in early October, the market is currently witnessing significant short-term pullback pressures at heightened levels relative to the upcoming fourth quarterNevertheless, leading private equity managers maintain a generally positive view on the broader A-share trendsWan Kaihang, Chief Investment Officer at Starstone Investment, stated that the range of policy measures initiated since late September presents a distinct narrativeThe newly implemented debt management policies aim to enhance debt limits to assist local governments in managing debt, thereby optimizing their structures and reducing financial risksOverall, the force and duration of these debt management policies align well with market expectations, and with anticipated continued positivity in fiscal policies for the upcoming year, the effects should contribute to a recovery cycle for the economy.

Moreover, Baoxiao Hui, Chairman and Chief Investment Officer of Changli Asset, noted that the recent influx of capital driven by policy incentives is expected to enhance market sentiments and push the stock market towards a continuation of its volatility-based upward trajectory

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Under these conditions, previously sidelined capital is likely to gradually enter the market, while those with less patient investment psychology might miss out on potential gainsConsidering this landscape, as long as the A-share market undergoes sufficient adjustments, it’s anticipated to rebound once again.

From a short-term risk perspective, some private equity institutions have provided advice on strategy adjustmentsMingyu Asset emphasized that with the implementation of incremental local debt replacement policies, there remains space for monetary easingHowever, patience is required as inflation appears to be bottoming out and reboundingThey highlighted that with key broad indices returning to the highs witnessed on October 8, some overly optimistic expectations from investors may need to be revised downwardThe market environments that benefited smaller caps, growth stocks, and thematic styles could start transitioning toward more fundamentally driven structural movements.

In addition, Shicheng Investment cautioned that future market rhythms may display increased "volatility," encompassing repeated policy trades, cautious expectations regarding overseas environments, and internal shifts in market styles

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