UBS's latest assessment: The core of A-shares this year is driven by profits, with an expected profit growth rate of around 15% According to a report by Golden Finance on September 1st, Meng Lei, a China stock strategy analyst at UBS Securities, pointed out that A-shares have been driven more by profits this year than by rising valuations. He predicts that the overall A-share profit forecast for this year will increase by about 15%, indicating an upward trend in PPI, which will help drive the recovery of corporate income. In addition, the active capital market in the second quarter will also drive the income of financial sectors such as securities firms and insurance. Meng Leixu pointed out that there has been a very significant improvement in the profit margin of A-shares, due to the "anti internal competition" and other supportive policies, as well as the increasing proportion of overseas income of mainland enterprises. But he agrees that the valuation of A-shares has been suppressed, and he said he will pay attention to whether there is potential capital flow release to help its long-term valuation average increase. Although deposits from mainland residents are expected to become a long-term source of funds to support A-shares, Meng Lei admitted that it is not an "overnight process" and residents cannot quickly move all their deposits into the stock market. The main reason is that their risk appetite is not very high and they need some stable returns to break even. Therefore, they may generally prefer insurance products and wealth management products. When it comes to deleveraging in A-shares, Meng Lei believes that it has come to an end, but agrees that the rebound strength and pace of the A-share market may be relatively gentle. The allocation of public funds to the technology sector reached a historical peak at the end of the second quarter, and there is limited room for further investment in technology stocks. In terms of industry, UBS expects that the rising sectors of A-shares will expand, as improved profits will help promote market recovery in upstream materials or agriculture sectors. In addition, the bank's attention to related themes such as going global, industry, and high dividends will also increase. Nevertheless, Meng Lei emphasized that technology stocks remain the main focus and is also optimistic about growth stocks in A-shares. However, looking ahead to the third quarter, global technology stocks may experience a certain slowdown, as the controversy surrounding technology continues to escalate and the 10-year US Treasury bond yields are rising. Medium - and long-term investors may increase their holdings of bonds and reduce their allocation to emerging market stocks.