Core Viewpoint - The article discusses the current market conditions, highlighting the rotation of market styles and identifying sectors that have reached overvaluation, while also emphasizing the importance of earnings growth as a fundamental driver of long-term investment returns [7][15][18]. Market Performance - The overall market experienced a slight decline, closing at 4.2 stars, with large-cap stocks down and small-cap stocks slightly up [1][2]. - The technology sector in Hong Kong showed strength, with gains exceeding 1.5% [4][5]. - The A-share market has seen significant style rotation, with certain sectors experiencing rapid increases in valuation [7][15]. Overvalued Sectors - Several sectors have reached overvaluation this year: - **Banking Index**: Experienced a significant rise in 2022-2024 during a bear market, peaking in July before correcting to a normal high valuation [9][10][11]. - **Hong Kong Pharmaceutical Index**: After a sharp decline in April, it rebounded with substantial earnings growth, leading to a double-up trend before correcting to a normal high valuation [12][13]. - **Military Industry**: Saw a rise due to military exercises in September, reaching high valuation before experiencing a correction [14]. - **Chip Sector and Sci-Tech 50**: Benefited from a booming chip industry, reaching high valuations in late August before a slight pullback [14]. - **North Certificate 50**: This small-cap index also reached high valuation after significant gains in August [14]. Market Dynamics - The A-share bull market is characterized by style rotation rather than broad-based rallies, with leading sectors often reaching overvaluation first [15]. - Historical comparisons suggest that the current market resembles the 2013-2017 period, where specific sectors led the market and subsequently faced corrections [15][18]. Earnings Growth and Investment Strategy - Long-term investment returns are primarily driven by earnings growth rather than valuation increases [15][18]. - The article emphasizes that even in bear markets, indices can rise significantly over time, independent of high valuations [15][18]. Valuation Insights - A summary of various indices' valuations is provided, indicating which sectors are undervalued, fairly valued, or overvalued, aiding investors in making informed decisions [22][29][31].