August saw a broad recovery in A-shares, with small and mid-cap growth stocks showing stronger momentum as sector performance expanded toward resources and undervalued areas. The Shanghai Composite Index and East Money All-A share index rose 4.02% and 4.71% respectively, while the CSI 1000 and CSI 2000 gained 9.82% and 13.20%. Electronics, coal, communications, machinery and equipment, and non-ferrous metals led the gains.
The 2026 interim results further confirmed that A-share earnings continue to improve, though sector divergence remains evident, with AI hardware, non-ferrous resources, parts of the financial sector, and export-oriented manufacturing still being the more concentrated areas of profit growth. Nvidia's earnings report continues to validate the high-prosperity trend of AI computing power.
In terms of high-frequency data tracking, AI hardware and resource products remain relatively advantageous, with memory price increases continuing and optical module exports maintaining high prosperity. Non-ferrous metals are supported by low inventory and supply constraints, with the sustainability of price increases being relatively strong. In advanced manufacturing, demand for batteries and energy storage remains resilient, while construction machinery and automobiles have cooled off in the short term. Consumption and real estate remain generally weak, with live hogs in the phase of production capacity reduction and profit bottoming.
Looking ahead to September, the market remains in an environment of stock game-playing with structurally advantageous conditions. In terms of allocation, on one hand, it is recommended to retain directions with sustained validation of prosperity, such as AI computing power, non-ferrous metals, innovative drugs, and some export-oriented manufacturing. On the other hand, attention should be paid to institutionally underweighted sectors, focusing on banks, insurance, and securities which have high dividend defensive attributes, batteries, industrial metals, energy metals, and basic chemicals which have both improving profitability, and steel and hog farming which are approaching cyclical turning points.
Review of August Market Performance: In August, broad-based indices generally rose, with small and mid-cap stocks showing stronger elasticity, as growth, resources, and some undervalued sectors rose together. At the industry level, both growth and resource directions performed well, with the market shifting from a period of concentrated adjustment to multi-sector recovery. By the end of August, the balance of margin financing and securities lending was approximately 2.63 trillion yuan, accounting for 2.56% of A-share circulating market value, down from the previous month.
On the macroeconomic front, the manufacturing PMI rebounded to 49.8% in August, showing marginal improvement but still below the boom-bust line. July exports grew 23.9% year-on-year, with external demand maintaining strong resilience, while domestic demand recovery remains moderate.
Focus Points for September: The interim report earnings recovery and institutional position rebalancing will jointly determine the direction of sector allocation in September. TMT remains the most prominent sector for earnings growth, with electronics revenue and profit growing 31% and 103% year-on-year respectively. Cyclical resources also performed strongly, with non-ferrous metals revenue and profit up 27% and 89%. Some financial and manufacturing sectors also showed significant fundamental improvements, with non-bank financials and power equipment profits up 68% and 39%.
Nvidia's latest earnings report and guidance continued to exceed expectations, confirming the sustainability of AI computing power demand. On the other hand, after the August recovery, sectors such as electronics and communications have seen their institutional positioning and valuations reach relatively high levels, reducing the upside for valuation gains. In the context of market rebalancing, the valuation recovery space for institutionally underweighted areas is expected to open up, with banks, non-bank financials, and some cyclical and agricultural sectors still underweighted.
Prosperity Tracking: Structural divergence remains the main feature, with AI and resource products relatively advantageous. In TMT, memory prices continue to rise, semiconductor sales maintain high growth, and optical module export prosperity continues. In advanced manufacturing, battery demand maintains relatively fast growth, while construction machinery and automobiles weaken due to off-season effects. The photovoltaic industry chain is seeing price recovery.
In resource products, non-ferrous inventory remains low, coal inventory is declining with prices maintaining resilience, and basic chemicals are also seeing profitability improvements. Consumption overall recovery remains weak, live hogs are still in the phase of production capacity reduction and profit bottoming, and real estate has not yet formed a clear fundamental turning point.
Valuation and Trading Comparison: After the August rebound, valuations for high-prosperity sectors have clearly risen, with trading structure gradually spreading from the previous concentrated TMT focus to resources, pharmaceuticals, and undervalued sectors. Electronics, communications, and some advanced manufacturing valuations have risen back to relatively high historical ranges. Resource industries such as coal, petroleum, and petrochemicals have also seen significant valuation recovery. Within the financial sector, there is divergence, with securities and insurance valuations at relatively low levels.
TMT remains relatively active overall, but funds are already spreading toward agriculture, pharmaceuticals, and resources. Securities, insurance, and other underweighted financial sectors still have low trading activity, providing room for further rebalancing.
Allocation Recommendations: A rebalancing allocation should be conducted around "marginal prosperity improvement + institutional underweighting + defensive bottom positions."
(1) Technology growth: This remains the core of prosperity, focusing on optical modules, high-end PCB, high-speed copper connections, storage, semiconductor equipment, and advanced packaging and testing driven by global AI capital expenditure and localization progress, as well as innovative drugs supported by policy, R&D demand, and License-out improvements.
(2) Advanced manufacturing: Key focus areas include energy storage and batteries with resilient demand, AI equipment, new energy equipment, and export-oriented manufacturing with global competitiveness.
(3) Cyclical resources: Focus on non-ferrous metals such as copper, aluminum, and tin supported by low inventory and supply constraints with relatively low institutional allocation ratios, basic chemicals with improving profitability, and coal with optimizing supply-demand dynamics.
(4) Low-position catch-up: In the context of market rebalancing, focus on institutionally underweighted sectors, with key attention on banks and non-bank financials that combine high dividend defensive attributes, steel driven by supply contraction and policy improvements, and hog farming approaching cyclical turning points with continued production capacity reduction.
Risk Disclosures:
1) Data statistical error risk: The report's relevant data mainly comes from third-party databases such as Choice, iFinD, and Wind. Due to factors such as data collection methods, statistical caliber, and industry classification standards, there may be certain deviations between different databases. Meanwhile, some high-frequency and fundamental data have update lag, and conclusions based on historical data calculations and analysis may not fully reflect current market changes. Relevant judgments are for reference only.
2) Domestic and international economic fluctuation risk: The current global economy still faces many uncertain factors, with divergence in growth momentum among major overseas economies and an increased risk of global economic recession. Meanwhile, the Fed's monetary policy path remains uncertain, and the pace of rate cuts and inflation changes may affect the global liquidity environment and further disturb risk asset performance.
3) Market liquidity risk: Equity market performance is closely related to the capital environment. If macro expectations change, risk appetite declines, or market capital inflows slow down, it may lead to tightening market liquidity, thereby affecting asset valuation levels and market trading activity, bringing phased adjustment risks.
4) Risk of intensified overseas geopolitical conflicts: The current global political and economic landscape is complex and changeable. Regional conflicts, trade frictions, and changes in major power relations may continue to affect market expectations. If geopolitical risks further escalate or spread, they may affect global energy prices, supply chain stability, and investor risk appetite, intensifying financial market volatility.
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