A-share "imperfect bottom" rally jumped the gun, Sinolink Securities suggests three allocation strategies around oversold rebounds
According to a research report released by Sinolink Securities Co., Ltd. (600109), after 19 trading days of oscillating declines from September 21 to the present, the market finally welcomed a significant intraday rebound this Friday. Amid the rebound, the firm recommends three approaches: (1) oversold rebound opportunities in sub-sectors of electronics, communications, mechanical equipment, and power equipment; (2) low-position value stocks: biological products, electronics sub-sectors, education, papermaking, chemical fibers, etc.; (3) broad-based heavyweight directions benefiting from the ETF "backstop" effect, mainly non-bank financials. From a medium-term perspective, the firm maintains strategic recommendations for gold as a rate-reversal品种, as well as the energy chain undergoing supply constraints and pattern reconstruction (coal, crude oil, oil transportation).
A rally that was jumped the gun
This week (October 19-23, 2026), the market rebounded after a sharp decline. The Wind All A index dropped to an intraday low of 5,481.76 points on October 23, then climbed upward in the afternoon, with an amplitude of 5.16%, recording the largest single-day gain of the week at 2.02%. This strong rebound raises a question: has the market reached a phased bottom? The firm's conclusions from two dimensions—implied volatility of broad-based index options and the maintenance guarantee ratio of margin financing—are: panic sentiment across three broad-based indices (ChiNext, CSI 1000, STAR 50) has approached historical high percentiles (90%), but the degree of chip clearing is slightly insufficient. This means the market may rebound in the short term, but under unchanged external conditions, deleveraging is still needed in the medium term. Specifically, the current rising-volatility decline state corresponds to a median future 20-day return of 1.55% with a win rate of 54.43%. If IV can break through the 90% percentile threshold, the median return would rise to 5.79% and the win rate would increase to 79.05%. From the perspective of chip clearing, the current average guarantee ratio is 257.6%, with a rolling 3-year percentile of 25.9%, down 16.4% from the one-year high. Margin balances continue to decline, but there is still a gap compared to historical clearing bottom conditions. This will lead to significantly reduced rebound magnitude and duration relative to an ideal fully-cleared scenario, and the probability of a second bottom breach reaches 75%.
Looking ahead, if the intervention of exogenous variables is strong enough, it would also break the premise that the market needs to stabilize spontaneously: ETF inflows dominated by institutional holdings are positively correlated with the CSI 300 ERP. The 10-year mean +1 standard deviation is the starting point for net inflows, while the 10-year mean +1.5 standard deviations marks the peak of ETF inflows dominated by institutional holdings. This week, the CSI 300 ERP touched the 10-year mean +1 standard deviation threshold. Whether ETFs dominated by institutional holdings will begin sustained inflows in the future is an important observation indicator. High-intensity inflows still require ERP to continue rising.
If there is a rebound, allocate around three approaches
First approach: oversold rebound. Although the overall market has not "perfectly" hit bottom-range signals, some sub-sectors have reached positions with sufficiently deep declines and sufficient chip clearing. These are the directions where funds will first return after the market rebounds. The firm set thresholds of declines exceeding 15% since June 30 and comprehensive crowding below 40%, screening out 23 oversold rebound industries, concentrated in four directions: electronics (semiconductors, consumer electronics), communications (communication equipment), mechanical equipment (general equipment, automation equipment), and power equipment (grid equipment).
Second approach: after the collapse of previous main-line group-holding, quality stocks at valuation bottoms may gain market attention. The firm screened out 44 sub-industries, typical examples being: biological products, other electronics, optical optoelectronics, etc.
Third approach: if ETFs dominated by institutional holdings continue substantial inflows, then broad-based heavyweights will be the direction benefiting from the ETF "backstop."
Where is the bottom? Road signs for a major cycle reversal
The direct manifestations of the market's twists and turns since July are: new highs in US Treasury yields, rising geopolitical risks, and cracks in the AI narrative. Behind this is the contradiction between technology investment demand led by the US and insufficient savings outside China. Over the past period, economic systems outside AI have been continuously squeezed, while within AI the scope has been narrowing. To break this unsolvable cycle, it is actually necessary to see the US Treasury yield—the anchor of global capital costs—decline again. Although the current 10Y US Treasury yield has fallen from its high, it remains at a elevated 5% level. Since the 21st century, sharp declines in US real and nominal rates have been able to prompt a rapid rebound in global gross fixed capital formation growth and its share of GDP, with the mechanism being that investment is more sensitive to interest rates than consumption. Currently, the US real yield is 2.66% and nominal rate is 5%, both in the high range of the past two decades, similar to 2008 levels, thus suppressing investment outside the AI industry. If a simple analogy is made, there may be two future scenarios: one is a "crisis mode" where economic stall prompts monetary easing and rates fall rapidly; the other is a "steady-state mode" similar to 2013-2019, where investment can stabilize without continuous rate cuts, but this requires rates to return to at least a reasonable threshold level. Either way, from a medium-term perspective: the real opportunity requires seeing a significant decline in interest rates, and the first half of a major decline in US Treasury yields is often agonizing.
A jumped-gun bottom and a weak rebound
The market finally welcomed a significant intraday rebound this Friday. But precisely because of the large intraday rebound, the "bottom" has not been fully consolidated. A flawed bottom reduces the magnitude and duration of the rebound and brings hidden concerns of a second bottom breach. Amid the rebound, the firm recommends three approaches: (1) oversold rebound opportunities in sub-sectors of electronics, communications, mechanical equipment, and power equipment; (2) low-position value stocks: biological products, electronics sub-sectors, education, papermaking, chemical fibers, etc.; (3) broad-based heavyweight directions benefiting from the ETF "backstop" effect, mainly non-bank financials. From a medium-term perspective, the firm maintains strategic recommendations for gold as a rate-reversal variety, as well as the energy chain undergoing supply constraints and pattern reconstruction (coal, crude oil, oil transportation).
Risk warnings: Overseas monetary policy expectations tighten significantly; AI industry trends welcome major breakthroughs.
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