BofA W&W indicator continues to send a 'Very Bullish' signal for A-shares

Overview

This is a monthly strategy report from BofA Securities on the China A-share W&W Indicator. The report's core conclusion is that BofA's China A-share Wax & Wane indicator improved further in May 2026, with both the monthly average and weekly average readings at 29, in bullish territory; the daily reading fell to 13 on May 11, triggering a 'Very Bullish' signal. The authors believe the A-share market is currently displaying an 'A-share style' characterized by theme-driven trading, rapid rotation, and a preference for small and mid caps, and they reiterate that A-shares may continue to outperform H-shares.

Core views

The report's core views are as follows: first, as a contrarian sentiment indicator, a low W&W reading reflects weak market sentiment but better future buying opportunities, so a reading of 13 is interpreted as 'Very Bullish'. Second, earnings revisions have recovered from -12% YoY in September 2024 to 10.1% YoY in May 2026, which is an important positive factor. Third, liquidity remains loose and flows continue to support the market; turnover to market cap is 2.8%, above the long-term average of 1.1% since 2007. Fourth, the risks come from margin trading, equity fund positioning, and valuation, all of which are above long-term averages, indicating higher crowding and valuation pressure.

Analysis framework

The report uses BofA's China A-share Wax & Wane indicator to measure short-term sentiment and technical factors in A-shares, and combines six input factors: fund flows, liquidity, positioning, leverage, earnings, and valuation, to assess the market regime. It also compares the W&W indicator with CSI 300's forward 1-month, 2-month, and 3-month performance in historical correlation and back-test analysis to judge potential A-share performance over the next 6 months.

Methodology notes

• Market sentiment and contrarian indicatorBofA China A-share Wax & Wane Indicator

  The W&W indicator ranges from 0 to 100; low readings indicate extremely weak sentiment and form contrarian buy signals, while high readings indicate extremely strong sentiment and form sell-risk signals.

  Readings below 20 are 'Very Bullish' and readings from 20 to 40 are 'Bullish'; readings from 60 to 80 are 'Bearish', and readings above 80 are 'Very Bearish'. The report says the indicator is used to judge A-share market performance over roughly the next 6 months.

• Back-testing analysisW&W Indicator vs CSI 300 forward performance

  Historical data are used to compare the relationship between the W&W indicator and CSI 300's subsequent 1-month, 2-month, and 3-month performance.

  The report explicitly notes that this analysis is back-tested and does not represent the actual performance of any real account or fund, and future market and economic conditions may differ.

• Multi-factor market state assessmentSix input factors

  Fund flows, liquidity, positioning, leverage, earnings, and valuation together make up the W&W indicator inputs.

  The main positive factors this period are earnings, liquidity, and flows; the pressure points are elevated leverage, positioning, and valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China A-shares

  Core covered asset

  Strengths

  The W&W indicator is in bullish territory, earnings revisions have turned positive, liquidity remains ample, and flows are supportive.

  Weaknesses

  Margin trading, fund positioning, and valuation are all above long-term averages.

  Comparison

  The report believes A-shares may continue to outperform H-shares.

  Risks

  High valuation, elevated positioning, high leverage, and rapid theme rotation may increase volatility.

• CSI 300

  W&W indicator back-test reference index

  Strengths

  Earnings revisions recovered from negative levels to 10.1% YoY, indicating improved fundamental expectations.

  Weaknesses

  The index is still affected by valuation, macro, and geopolitical factors.

  Comparison

  The report compares the historical relationship between the W&W indicator and CSI 300's forward 1-, 2-, and 3-month performance.

  Risks

  Back-test relationships do not guarantee repetition in the future, and market conditions may change.

• STAR 50, ChiNext, and CSI 1000

  Recently stronger sectors/indexes

  Strengths

  They performed relatively well in the domestic China market over the past month, consistent with the 'A-share style' of theme-driven trading and small- and mid-cap preference.

  Weaknesses

  Continuation may be limited in a rapid-rotation environment.

  Comparison

  Stronger than NASDAQ Golden Dragon, MSCI China, and HSCEI.

  Risks

  If risk appetite fades or thematic trading cools, volatility may increase.

• H-shares, MSCI China, HSCEI, and NASDAQ Golden Dragon

  Relative laggards

  Strengths

  Could still be supported by an overall improvement in sentiment toward Chinese assets.

  Weaknesses

  The report says these indices lagged A-share-related indices over the past month.

  Comparison

  A-shares may continue to outperform H-shares.

  Risks

  Overseas market volatility, geopolitical tensions, and a cooling of global AI trades may affect performance.

Key data

• W&W indicator monthly average reading29The May 2026 monthly average reading, in bullish territory.
• W&W indicator weekly average reading29The report says the weekly average reading also remained firmly in bullish territory.
• Strongest daily bullish signal13The daily reading touched 13 on May 11, 2026, triggering a 'Very Bullish' signal and marking the strongest reading since September 2024.
• Latest daily reading37The report says the latest daily reading was 37, which is 'marginally bullish'.
• Margin trading as a share of A-share daily turnover9.9%Lower than recent levels in May 2026, but still above the long-term average of 9.0%; leverage score is 75%, which is elevated.
• A-share P/E valuation24.3xAbove the long-term average of 21.2x since 2007; the valuation score is 84%, which is elevated.
• Equity mutual fund positioning86.9%Above the long-term average of 84.7%; the positioning score is 64%, which is elevated.
• 10-year government bond yield1.76%In May 2026, it rebounded from the historical low of 1.6% in January 2025; the liquidity score is 21%, indicating conditions remain relatively loose.
• Turnover to market cap2.8%In May 2026, this was above the long-term average of 1.1% since 2007; the flow score is 34%, providing support.
• CSI 300 earnings revisions10.1% YoYRecovered from -12% YoY in September 2024 to 10.1% YoY in May 2026; the earnings score is 26%, which is positive.

Impact & implications

The report's investment implication is tilted toward being short-term bullish on A-shares, especially in sectors and indices supported by theme trading, the continuation of AI trades, rising interest in technology and industrials, and preference for small and mid caps. At the same time, elevated valuation and positioning mean the risk of chasing strength has increased, and if flows or earnings revisions weaken, the effectiveness of the current bullish signal may decline.

Risks

• The W&W indicator analysis in the report is back-test based, and historical correlation does not represent future performance.
• A-share P/E at 24.3x is above the long-term average of 21.2x, so elevated valuation may limit further upside.
• Margin trading at 9.9% is above the long-term average, and high leverage may amplify market declines.
• Equity mutual fund positioning at 86.9% is above the long-term average, and crowded positioning may weaken incremental buying power.
• Global markets are still exposed to geopolitical tensions and changes in AI-related trades.
• BofA discloses that it may have business relationships with the issuers it covers, so investors should treat the report as only one input in decision-making.

What to watch

• Whether the W&W indicator stays below 20 and remains in 'Very Bullish' territory, or rises back into the neutral range.
• Whether CSI 300 earnings revisions can maintain positive growth and continue to trend higher.
• Whether margin trading as a share of A-share turnover continues to stay above the long-term average.
• Whether A-share P/E rises further above 24.3x and intensifies valuation pressure.
• Whether fund positioning continues to stay above the long-term average, signaling rising crowding.
• Whether the relative strength of STAR 50, ChiNext, and CSI 1000 can continue.
• Whether the trend of A-shares outperforming H-shares continues.