UBS's report states that the overall earnings of A-share companies are expected to increase by 5% year-on-year in the third quarter of 2024, an improvement from the 1% decline in the previous quarter. However, the rebound in overall earnings is mainly driven by the financial sector. Excluding the financial sector, the overall earnings of non-financial sectors are expected to decrease by 9% year-on-year in the third quarter, weaker than the 7% decline in the second quarter. UBS Securities analyst Meng Lei believes that the gradual implementation of a series of loosening policies since the end of September has reversed the expectations of market participants and the real economy. High-frequency data shows that the growth in real estate transactions in first-tier cities has begun to spread to more cities since October. Of course, it will take three to six months for policy benefits to corporate earnings. Therefore, UBS believes that the third quarter may mark the bottom of earnings for the next two years, and A-share market earnings are expected to show a clear recovery trend in the first half of next year, increasing each quarter. Meng Lei believes that in the short term, the upward momentum brought about by loose policies still exists, but the rate of upward movement in the market may gradually slow down, and the amplitude of two-way fluctuations will increase significantly. A large amount of off-market funds (including newly opened personal investors, newly issued mutual funds, foreign funds that were previously underweight in the Chinese stock market, and medium- to long-term funds that have not entered the market) are waiting to enter the market. UBS notes that the recent continued increase in margin financing balance in the A-share market reflects a gradual improvement in market sentiment. Therefore, in terms of investment style, in the short term, they believe that growth will outperform value in the context of abundant liquidity, and small-cap stocks will outperform large-cap stocks. Specifically, non-bank financials, electronics, and semiconductor sectors with high beta are expected to outperform the market. For long-term value investors who need dividends, the temporary underperformance of the value style provides a good opportunity to buy undervalued high-quality companies. For investors concerned about short-term technical retracements due to changes in overseas conditions, allocating some undervalued companies may enhance the defensive nature of the investment portfolio.