A-share market suffered a sharp selloff on September 28, with the ChiNext Index and the Sci-Tech Innovation Composite Index both dropping more than 4%, the Shenzhen Component Index falling over 3%, and the Shanghai Composite Index declining 1.67%. The telecommunications and electronics sectors led the declines, while only four defensive sectors including petroleum and petrochemicals managed to close in positive territory.
A-shares had entered a phase of oscillating weakness in late September, with the decline widening on September 28. Main capital flows in the Shanghai and Shenzhen markets saw net outflows for four consecutive trading days, with the net outflow amount expanding to 55.122 billion yuan on September 28. Margin financing funds also saw net outflows in the previous two trading days, including a net outflow of 17.443 billion yuan on September 24.
Yang Chao, chief strategist at Galaxy Securities, told Yicai that this round of market adjustment resulted from a confluence of multiple factors including external interest rate shocks, pre-holiday risk-aversion trading, profit-taking in high-level sectors, and expectation realization. Among these, the external interest rate environment served as the underlying constraint, while concentrated pre-holiday selling was the short-term direct catalyst, together creating a scenario where only defensive sectors gained.
"In the last two trading days before the holiday, the index will most likely maintain a oscillating pattern, but the probability of deep consecutive declines is almost nonexistent. Selling pressure will gradually be released and converge, and the market will more easily stabilize modestly afterward," Yang Chao believes. He expects the market to likely stage a recovery rally after the holiday, characterized by stabilization first followed by gradual gains with structural differentiation.
Multiple brokerage analysts also noted, based on historical data, that the probability of the broader market rising after the holiday is relatively high.
How will the two pre-holiday trading days play out?
On September 28, all four major A-share indices opened lower and moved downward, maintaining a oscillating adjustment pattern throughout the day. The ChiNext Index suffered the steepest decline at 4.53%, followed by the Sci-Tech Innovation Composite Index at 4.31%, the Shenzhen Component Index dropping 3.44%, while the Shanghai Composite Index was relatively resilient with a decline of 1.67%, closing at 3,823.62 points.
Among the 31 primary industries under the Shenwan classification, only four sectors including petroleum and petrochemicals, utilities, agriculture and animal husbandry, and coal ultimately closed in positive territory, with gains not exceeding 1%. Among the 27 declining industries, telecommunications suffered the largest drop at 7.36%, electronics and building materials fell over 4%, and non-ferrous metals and machinery equipment dropped more than 3%.
Prior to this, the A-share market had already declined for two consecutive trading days. From September 23 to September 28, the Shanghai Composite Index accumulated a decline of 3.25%, the Shenzhen Component Index fell 6.30%, the Sci-Tech Innovation Composite Index dropped 6.46%, and the ChiNext Index declined 7.65%.
Capital also engaged in large-scale selling. Main capital flows in the Shanghai and Shenzhen markets saw net outflows for four consecutive trading days, with the outflow amount continuously increasing. After a net outflow of 11.414 billion yuan on September 22, net outflows on both September 23 and 24 exceeded 20 billion yuan, and by September 28 the net outflow amount sharply expanded to 55.122 billion yuan.
Regarding leveraged funds, margin financing saw a net outflow of 1.043 billion yuan on September 23, followed by a large net outflow of 17.443 billion yuan on September 24.
Yang Chao attributed this round of market decline to three reasons: First, overseas constraints continued to tighten as US economic data came in stronger than expected, the 10-year US Treasury yield continued to rise, the valuation center of global risk assets was suppressed, foreign capital staged outflows from growth sectors, and high-volatility technology sectors underwent significant valuation adjustments. Second, the seven-day National Day holiday carries multiple unobservable risks including overseas markets, geopolitics, and exchange rates, leading institutions, margin funds, and short-term capital to form a "realize early" game, which also prepares the ground for a post-holiday market rally. Third, sectors such as AI computing power and non-ferrous metals had accumulated substantial gains earlier, and with the realization of industry-positive catalysts, a "good news realized" scenario emerged, high-level positions loosened, and capital rotated to high-dividend defensive sectors like banks and petroleum and petrochemicals for safety.
So how will the A-share market play out in the last two trading days before the National Day holiday?
"From the perspective of capital game rules, funds that exited early in late September have already realized most of their positions, and chips genuinely planning to hold through the holiday have already been sold in advance. As the holiday approaches, active selling momentum in the market will diminish, and the market will more easily stabilize modestly afterward," Yang Chao believes. On the capital front, margin funds will still see small outflows, but the outflow scale will narrow; main capital will not continue large-scale flight but will more likely engage in internal sector rotation.
Regarding which sectors may perform relatively better in the last two trading days, Yang Chao believes: First, high-dividend base position sectors—banks, petroleum and petrochemicals, and utilities—with stable cash flows and dividend yields significantly higher than government bonds, are the top choice for capital seeking safety. Second, domestic demand consumption segments with strong third-quarter earnings certainty and sufficient prior adjustment, such as cinemas and essential foods, where demand is catalyzed by the National Day holiday, valuations are not bubbly, and chip selling pressure is smaller.
Meanwhile, high-level computing power and minor metals—growth sectors with large prior gains and high volatility—will continue to face pressure before the holiday, with relatively weak elasticity.
Post-holiday recovery rally expected
The market outlook after the National Day holiday is also drawing significant attention. Multiple brokerage analysts believe the market will likely stage a recovery rally after the holiday.
"The last two trading days before the holiday are often the best window for positioning, and the broader market may experience a rapid rise after the holiday," according to analysis by the team led by Chen Gang, chief strategist at Soochow Securities. A review of National Day market patterns since 2006 shows that the index typically undergoes oscillating consolidation in the early period, stabilizes in the two days before the holiday, and then enters a rebound phase. After the holiday, the broader market may experience a rapid upward move, with the rally mostly lasting until around T+5.
Liu Chenming, chief strategist at GF Securities, also noted based on data from 2011 to 2025 (excluding the September 24, 2024 rally), that over the past 15 years, in 13 of those years the post-holiday closing price rebounded more than 2% from the pre-holiday low. In other words, if positioning at lows before the holiday, the win rate for making money after the holiday exceeded 80%.
"From the statistical data of the past 15 years, the win rate for positioning at lows before the holiday and realizing gains after the holiday is indeed relatively high, but one cannot mechanically apply the pattern. The premise for the win rate to hold is that the pre-holiday decline is merely seasonal capital disturbance rather than fundamental or external systemic negative factors. The current environment meets this premise, but high-valuation bubbly individual stocks should be avoided," Yang Chao said.
Yang Chao further analyzed that after the long holiday ends, overseas uncertainties will be resolved, margin funds will return, onlookers will re-enter the market, trading volume will simultaneously expand, and the risk-aversion sentiment suppressing the market will quickly ease, with growth stocks expected to show greater elasticity. However, the rebound will not be a one-sided broad rally; the core depends on news developments during and after the holiday, with two possible scenarios.
If overseas markets do not see major declines and domestic industrial and consumption stimulus policies are released, post-holiday recovery expectations will be stronger. If foreign stock markets fall sharply during the long holiday, the market will likely open lower after the holiday to digest negative expectations, followed by oscillating rebound and recovery.
In his view, several core variables need to be tracked: First, US Treasury yields and Federal Reserve policy statements; second, international oil prices and commodity price fluctuations; third, domestic National Day consumption data to verify the strength of domestic demand recovery; fourth, the first batch of A-share third-quarter earnings forecasts, which will determine the fourth-quarter prosperity main line.
Regarding industry allocation opportunities, Deng Lijun, strategist at Huajin Securities, believes that after the holiday, technology growth and certain cyclical and consumer sectors may perform relatively better, and investors can position at lows before the holiday. From the perspective of strong industry continuity, technology growth and certain consumer sectors may be relatively advantaged after the holiday; from the overseas mapping perspective, technology growth and certain cyclical sectors may be relatively advantaged after the holiday.
Liu Chenming recommends prioritizing the AI industry chain with strong third-quarter prosperity, as well as sub-sector alpha in non-AI areas (pharmaceuticals, shipping, shipbuilding, select segments of the export chain, etc.).
Looking ahead to the fourth quarter, Yang Chao believes investors can follow a three-tier allocation logic of "defensive base positions at the foundation, prosperity growth main line and pro-cyclical elasticity," with four directions offering relatively strong certainty: First, base positions allocated to high-dividend value sectors such as banks, petroleum and petrochemicals, and hydropower utilities; second, core growth main line—the entire AI computing power industry chain including semiconductor equipment, advanced packaging, optical modules, and data center power supplies; third, pro-cyclical resources and high-end manufacturing such as basic chemicals, energy storage, power equipment, and oil and gas extraction; fourth, left-side positioning in consumer sub-sectors benefiting from domestic demand recovery such as film and cultural tourism, baijiu, home appliances, and automobiles.
"The overall recommendation is balanced allocation, not betting on a single sector, using high dividends to hedge against growth sector volatility, screening leaders based on third-quarter prosperity, and playing the fourth-quarter structural market," Yang Chao said.
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