A research report from China Securities Co., Ltd. (601066) notes that this week's shrinking A-share turnover was primarily driven by trading-related and seasonal factors. After the positive expectations surrounding the visit to the US were priced in and subsequently dissipated, coupled with the approach of the dual holidays, the market is expected to see a restorative rebound after the holiday period.
The dominant overseas narrative has shifted to "re-acceleration plus re-inflation plus further rate hikes." The US economy is transitioning from a K-shaped divergence toward a more broad-based recovery, yet cost pressures persist. Long-end bond yields have surged, real interest rates are climbing, and Europe and Japan are following with rate hikes, tightening global financial conditions.
The relatively strong renminbi exchange rate provides some buffer, but the constraints from tightening external liquidity are unlikely to be fully removed in the short term.
At the allocation level, a balanced and flexible approach is emphasized. Sectors deserving close attention include: AI computing power, industrial metals, non-bank financials, banks, coal, oil, and oil shipping.
Positive US Visit Expectations Priced In, Pre-Holiday Volume Contraction, Post-Holiday Rebound Expected
Market expectations for a phase of eased China-US tensions had already risen markedly and been partially priced in ahead of the meeting. As the event concluded and positive expectations were realized, the market entered a phase of expectation convergence.
Combined with the approaching Mid-Autumn and National Day holidays, A-shares quickly shifted into a pre-holiday volume contraction mode. Overall, this week's adjustment and volume shrinkage were more driven by trading-related and seasonal factors, and the market is expected to welcome a restorative rebound after the holiday.
Calendar effects since 2016 show that, excluding the two years with significant market volatility in 2018 and 2024, the Shanghai Composite Index declined in the week before the National Day holiday 87.5% of the time, with an average decline of 1.1%. In the week after the National Day holiday, the index rose 62.5% of the time, with an average gain of 1.3%.
Overseas Pricing Reflects "Re-acceleration Plus Re-inflation Plus Further Rate Hikes"
The US manufacturing PMI for September jumped to 57.0 from 53.9 in August, well above the market expectation of 53.6. The US economy is spreading from an AI-driven, K-shaped pattern with uneven conditions at the top and bottom toward a more comprehensive recovery.
At the same time, supply bottlenecks and cost pressures persist, re-inflation risks are resurfacing, long-end US Treasury yields have surged again, real interest rates are trending higher, and the transmission effects of inflation and interest rates on the real economy are gradually emerging. The European Central Bank and the Bank of Japan are following with rate hikes, and global financial conditions are showing marginal tightening.
For A-shares, external constraints are mainly reflected on the denominator side, as surging US Treasury yields suppress the valuation center of globally high-valued growth assets. Domestically, however, the renminbi exchange rate remains broadly stable and relatively strong, providing some buffer for A-shares to a certain extent.
This is mainly supported by strong external demand and rising manufacturing competitiveness driving high export growth, allowing the renminbi to hit a stage high against the US dollar despite the widening China-US interest rate differential. However, the constraints from tightening external liquidity are unlikely to be fully removed in the short term and may still disturb A-shares through channels such as suppressing valuations and risk appetite, raising financing costs, and cross-border capital outflows.
Allocation Should Emphasize Balance and Flexibility
Given the combination of unresolved external interest rate disturbances and pre-holiday volume contraction awaiting repair on the domestic front, it is advisable to maintain a balanced and flexible offense-defense allocation.
On the offensive side, the AI industry chain remains the medium-term mainline. Once market sentiment recovers, the technology sector typically shows the most pronounced catch-up rally. Industrial metals may be suppressed by the rate hike cycle, but fundamentals still have support, and opportunities to add on pullbacks deserve attention.
On the defensive side, it is recommended to use low valuations, high dividends, and cash flow certainty as the base position. Non-bank financials offer both valuation appeal and earnings resilience, while banks retain their dividend base-position characteristics.
Finally, allocate to the resource sector mainline benefiting from hard supply constraints and rising prices, as a hedge against the environment of rising external inflation and interest rates weighing on high-valued growth stocks.
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