On October 20, the A-share market exhibited a trend of rising and then retreating, with funds shifting between technology stocks and traditional stocks. A total of 4,064 stocks closed higher, but market trading volume dropped by 200 billion yuan from the previous day, down to 1.75 trillion yuan. Experts interviewed indicated that the sustainability of the current market rebound is uncertain, and A-shares may continue to fluctuate in a consolidation pattern, with market sentiment, capital flow, and policy direction remaining the main driving factors. Investors should pay attention to the fluctuations of foreign capital flows on market sentiment and the restrictive role of reduced trading volume on market activity.
Sector Performance: Communications and Coal Lead Gains Today, the A-share market saw a slight increase in volume, with trading volume reduced to 1.75 trillion yuan, marking a new low since August 8 after decreasing by 200 billion yuan from the previous trading day. As of October 17, the margin balance of the Shanghai and Shenzhen markets dropped to 2.43 trillion yuan, down from 2.46 trillion yuan on the previous trading day.
Indices displayed a broad-based increase, with the Shanghai Composite Index gaining 0.63% to close at 3,863.89 points. The ChiNext Index saw a peak gain of over 3% during the day but ended up falling 1.98% to 2,993.45 points. The Shenzhen Component Index rose by about 1%, while the STAR Market 50, CSI 300, and SSE 50 slightly increased, though the Beijing Stock Exchange 50 experienced a slight decline.
The trend of funds switching from tech stocks to cyclical stocks was particularly notable today. Overall, sectors such as CPO concepts, communication equipment, optical communication modules, F5G concepts, robotic actuators, automotive thermal management, and optoelectronic devices led gains in the tech sector, while traditional stocks in coal, gas, and airport industries also performed well.
According to Shenwan’s primary industry sectors, most saw gains with a few declines; non-ferrous metals corrected by 1.34%, and sectors like agriculture, beauty care, food and beverage, and banking experienced slight declines. Other sectors such as power equipment, machinery, electronics, transportation, and social services performed well.
The tech sector initially surged in the morning but subsequently retreated, while traditional stocks demonstrated strong performance in the afternoon after a muted start. Specifically, both the communications and coal sectors rose by over 3%, albeit with diverging trends: communications peaked but pulled back, while coal continued to strengthen. Notable stock performances included gains for Segar Technology, Cambridge Technology, Chaoxun Communication, and Ruisi Kanda hitting the daily limit, along with several coal-related stocks.
The market displayed a strong wealth effect, with 4,064 stocks closing higher and 95 hitting the daily limit, while 1,253 stocks fell with 6 hitting the lower limit. In terms of trading volume, only 7 stocks exceeded 10 billion yuan in transaction volume for the day.
Among those, optical communication modules performed particularly well, with Zhongji Xuchuang rising by 7.87% to 403 yuan per share, achieving a transaction volume of 24.5 billion yuan. Xinyi was up 4.09% at 329.24 yuan per share. In addition, Sungrow Power rose by 3.02% to 148.63 yuan per share; CATL rose by 2.33% to 366.5 yuan per share; Cambrian Technology gained 2.68% to 1,281.12 yuan; Sanhua Intelligent Control was up 6.42% at 46.1 yuan; and Luxshare Precision gained 2.99% to 57.15 yuan.
"Today, A-shares rebounded after last week's fluctuations. However, the sustainability of this rise remains to be seen." Liu Youhua, director of wealth research at Pai Pai Net, noted, "Short-term factors include certain uncertainties such as the volatility of foreign capital flows potentially disturbing sentiment and reduced trading volume limiting market continuity. Thus, it is anticipated that A-shares may continue a consolidation pattern in the short term, with market sentiment, capital flow, and policy direction still being key drivers."
Chen Xingwen, Chief Strategy Officer at Heizaki Capital, indicated that after prior fluctuations, A-shares experienced a technical rebound today, highlighting rapid fund rotations. Nonetheless, the persistence of this rebound will depend on the realization of domestic demand data and actual corporate profit improvements. If key indicators such as social financing and industrial value-added fall short of expectations, the market may revert to fluctuations.
Investment Strategy Moving Forward What should investors do regarding positioning? Chen Xingwen recommends moderately participating in cyclical stocks such as coal and transportation for short-term opportunities, particularly in the context of rebounding Producer Price Index (PPI) and robust infrastructure efforts, making these sectors poised for some elasticity. Investors should closely monitor the movement of northbound capital and changes in margin balance, integrating sentiment-driven trends and increased industrial capital when assessing market confidence.
"In terms of overall allocations, focus on safety margins. Prioritize leading companies with high earnings visibility, reasonable valuations, and stable cash flows, thereby constructing a deterministic return structure amid uncertainties to achieve stable value appreciation across cycles." Chen Xingwen advocates for a "long-term positioning plus short-term flexibility" dual strategy. From a long-term perspective, he recommends concentrating on the main themes of national economic transformation, especially sectors like power equipment, machinery, and electronics. Specifically, power equipment benefits from the construction of new power systems; machinery from equipment upgrades and high-end manufacturing; and electronics from semiconductor domestic substitution and AI hardware innovation cycles—all three sectors benefiting from robust industry trends.
"Short-term uncertainties dampen market risk appetite, with funds possibly driven by hedging or profit-taking needs leading to volatility, particularly evident in the previously outperforming tech growth style." Fang Lei, Deputy General Manager at Xing Shi Investment, noted. From a mid-term perspective, as the U.S.-China relationship clarifies, uncertainties would gradually ease.
Fang further stated that the current market still possesses bull market drivers, with liquidity support likely to persist and fundamental drivers gradually catching up. In terms of liquidity, domestic rates remain low, and overseas liquidity continues to be loose, signaling ongoing increases in allocations toward Chinese equity assets. From a fundamental viewpoint, policy initiatives are expected to stabilize and exit deflation, indicating a mid-term focus on recovery that will boost equity asset dynamics.
Cai Zhenyi, Chief Investment Officer at Honghan Investment, expressed to reporters that current market activity has noticeably declined, with the active performance of coal and consumer sectors highlighting a characteristic of phase adjustments, predicting restoration of market dynamics towards the end of the month. Meanwhile, major tech firms are starting to announce their Q3 reports, attracting significant industry attention. From a sector perspective, computing power and non-ferrous industries are likely to achieve high performance growth, while the military industry may witness an overall industry turning point. In the short term, market opportunities will primarily concentrate on tech sector repairs, alongside the resilience in non-ferrous and military sectors, with trading characteristics driven by these sectors becoming increasingly apparent. Comprehensive market opportunities may be more visible by year-end.
"In Q4, A-shares are expected to maintain a structurally slow bullish trend amid polices and liquidity resonating, with low valuation, high dividend sectors continuing to exhibit structural allocation value alongside high growth trajectories." Liu Youhua analyzed. He pointed out that positively, expectations for Federal Reserve interest rate cuts have significantly strengthened—with market predictions suggesting an over 98% likelihood of a cut in October and a potential further 50 basis points cut in December. The easing dollar liquidity is likely to bolster global risk appetites. Concurrently, domestic policies supporting growth remain strong, stabilizing underpinning for the A-share market.
From a mid-term perspective, Liu highlighted that with the gradual implementation of the "14th Five-Year Plan" and the upcoming Fourth Plenary Session, sectors focused on technological autonomy and energy security may once again become policy focal points. Industries such as semiconductors, artificial intelligence, rare earths, and coal may benefit from improved conditions, potentially becoming pivotal market themes. In terms of liquidity, the margin balance remains high, reflecting active trading, but attention must also be directed to foreign capital flow fluctuations affecting short-term sentiment.
Regarding investment opportunities, Mingyu Asset Management suggests continuing to focus on consumer and dividend sectors that are less affected by trade disputes, such as banking, utilities, and food and beverage sectors. Additionally, coal and airport sectors benefiting from recovery should be monitored. In the mid-term, attention should remain on sectors with strong industrial trends, such as AI, robotics, and innovative pharmaceuticals.
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