Key takeaways

- Sector rotation is influenced by funds, with different sectors taking turns.

- In mature and developed capital markets, sector rotation is often related to economic cycles, with significant differences in sector performance in different stages.

- By carefully studying the patterns of sector rotation, investors can make preparations in advance and avoid blindly chasing after high returns.

Conceptual Understanding

Sector rotation generally refers to the pattern of investment hotspots in the securities market shifting from one sector to another.

Under the framework of economic cycles, investors continuously shift funds to industry sectors that are expected to perform well in the future, thereby driving the rotation and rise of different sectors.

The manifestation of sector rotation

In the case of limited overall funds in securities investment and few market speculation hotspots, one or several global sectors are often first favored by funds. After a period of rise, the funds are transferred to other possible rising sectors, and then the so-called sector rotation occurs.

Sometimes, the market even shows a two-eight phenomenon, that is, the two representing the large cap weighted stocks and the eight representing the mid-small cap stocks, resulting in a seesaw market with two rising and eight falling, or two falling and eight rising.

From a long time period perspective, sector rotation more reflects the performance differences of different major asset classes in different stages of the economic cycle.

For example, during periods of rising inflation and overheating of economic growth, sectors representing csi commodity equity index, such as metal, coal, and oil, as well as consumer sectors, often perform well. In an economic recession, demand for bonds and money market assets increases, and medical and public utility sectors perform well, while the csi commodity equity index sector often experiences a significant decline.

Summary.

Sector rotation is an important manifestation in the capital markets. By tracking national policies, industry dynamics, thematic hotspots, and other information, investors can prepare for rotation, position themselves in advance for the next phase of market hotspots, and avoid blindly chasing after sectors and stocks that are already clearly overheated.