To The Moon

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On October 20, A-shares traded with mixed performance, as the Shanghai market outperformed the Shenzhen market while trading volume remained below 1.5 trillion yuan. A total of 3,778 stocks closed higher, with the computer, machinery equipment, and electronics sectors leading the gains.

Regarding the market's continued weakness and the question of when A-shares will bottom out, interviewed experts said the market is currently in a phase of strong wait-and-see sentiment and rebalancing of existing capital, with all parties waiting for third-quarter earnings to be fully realized, the Federal Reserve's rate decision to land, and geopolitical disruptions and other uncertainties to clear.

Judging from the combined policy environment, valuation levels, and adjustment cycle, the market has entered a bottom-building range, and mid-to-late October through early November is a critical window for confirming the market bottom.

Late-Session Rally Lifts Index

The index traded in a narrow range before a late-session rally. The Shanghai Composite Index rose 0.12% to close at 3,735.37 points, the ChiNext Index fell 0.26% to 2,739.2 points, and the Shenzhen Component Index edged down 0.14%. The CSI 300 and SSE 50 dipped slightly, the STAR 50 rose 1%, and the Beijing Stock Exchange 50 gained 3.88%.

Trading volume increased slightly by 22.68 billion yuan, with combined daily turnover across the Shanghai, Shenzhen, and Beijing markets reaching 1.47 trillion yuan. Leveraged capital activity continued to decline, with margin financing and securities lending balances across the three markets falling to 2.48 trillion yuan as of October 19.

On the board, non-bank financials, power equipment, base metals, white goods, Kirin batteries, and power battery recycling concepts weakened; general equipment, computer software, consumer electronics equipment, biomedicine, robot actuators, and medical devices sectors strengthened.

Among the 31 Shenwan first-level industries, 19 closed higher, with computers, machinery equipment, and conglomerates up about 2%, while electronics, pharmaceutical biology, social services, automobiles, and media also closed in the green. Non-bank financials and coal led the declines, though both fell by no more than 2%. Banks, transportation, home appliances, non-ferrous metals, and power equipment dropped about 1%.

At the individual stock level, profit-making effects were decent, with 3,778 stocks rising for the day and 56 hitting the daily limit up; 1,668 stocks fell, with 7 hitting the limit down.

Among actively traded stocks, CATL fell nearly 3% to 259.08 yuan per share, Changxin Technology dropped nearly 3% to 40.32 yuan per share, Zhongji Innolight declined about 2% to 647.9 yuan per share, and Eoptolink fell over 3% to 298.17 yuan per share. Base metals stock China Molybdenum closed down 7% at 14.35 yuan per share, while consumer electronics equipment stock Xiechuang Data dropped over 7% to 201.3 yuan per share.

Weak Consolidation and Divergence

Regarding today's market performance, Hang Seng Qianhai Fund manager Long Jiangwei told reporters that A-shares continued their consolidation pattern, with the day's movements full of twists and turns. In early trading, the three major indices diverged, with the Shanghai Composite pulling back slightly, but short-term sentiment clearly warmed up, with humanoid robots, edge AI, and other directions performing strongly, while PCBs and innovative drugs remained active repeatedly. In the afternoon, the market fluctuated and pulled back, with the number of declining stocks increasing. In late trading, incremental capital flowed in, effectively suppressing bearish forces and to some extent driving bullish sentiment, lifting the index into positive territory and extending the recovery trend since yesterday.

Long Jiangwei further analyzed that externally, Asia-Pacific markets were generally weak, with Japanese and South Korean stock markets declining, and South Korea's market falling notably. External risk appetite remains unstable, disrupting sentiment toward related A-share industry chains. On the board, robots, edge AI, PCBs, and other directions had certain catalysts, but most technology directions have yet to show signs of a trend reversal, with capital more inclined to speculate around subsectors with earnings support or clear industrial catalysts. Only if localized mainlines can remain repeatedly active and drive a recovery in volume can market confidence in going long be further restored.

Since October, A-shares have continued to suffer from low volume and price performance. Regarding the current weak consolidation pattern, Anjue Asset Chairman Liu Yan analyzed that this is essentially the result of strong wait-and-see sentiment combined with rebalancing of existing capital. Capital is waiting for third-quarter earnings to be centrally verified, the Fed's rate decision, geopolitical disruptions, and other uncertainties to land. The overall mindset is cautious, willingness to chase highs is insufficient, and trading volume is difficult to sustain expansion. At the same time, high-level volatility in US Treasury yields and overseas geopolitical uncertainty suppressing foreign capital inflows jointly constrain the market's upside space.

Three Signals Needed to Confirm the Bottom

A-shares have continued to adjust in the second half of the year, with chip costs declining significantly. When will this round of market movement bottom out?

"There is no absolutely precise bottoming point for A-shares. The bottom is usually a range of repeated grinding. Judging from policy, valuation, and the adjustment cycle, we have currently entered a bottom-building zone, and mid-to-late October through early November is the core confirmation window for the market bottom," Liu Yan stated directly. Support near 3,700 points is relatively strong, and downside risk is limited, but a full stabilization and reversal still requires time to exchange for space, and the bottom-grinding process will likely be accompanied by repeated consolidation and divergence.

Historical patterns show that the policy bottom typically leads the market bottom by one to three months. The current policy bottom is already clear. Since September, stable growth policies have continued to intensify, and signals for capital market stabilization and domestic demand expansion have been released intensively, which has already capped the index's significant downside space.

Liu Yan told reporters that this round of mid-term adjustment that began in early July has lasted about 15 weeks, with technology growth sectors generally pulling back 30% to 40%, and core index valuations at historically low levels, leaving limited room for further compression. The market truly confirming the bottom still requires three signals: first, the Fed's rate decision landing and confirming that US Treasury yields have peaked; second, third-quarter earnings disclosure being completed, finishing the clearing of earnings negatives; third, trading volume continuing to expand, combined with capital forming a net inflow consensus.

"The A-share bottom range is gradually becoming clearer, and positive signals are accumulating. Declining chip concentration, reduced crowding in technology sectors, and broad-based ETFs absorbing volume at elevated levels indicate that selling pressure has been released to some extent," PaiPaiWang Wealth Research Director Liu Youhua told reporters. Before trading volume effectively expands, the market will likely maintain a box-range consolidation pattern of "policy and ETF support below, volume and overseas disruptions capping above."

Consolidation and Stabilization to Continue

How will A-shares perform in the short term, and which factors deserve close attention?

Morgan Stanley Fund believes that after the market's continuous rapid decline, with the gradual intervention of market stabilization forces, the market is expected to enter a pattern of wide-range consolidation. Stabilization forces typically find it difficult to reverse investor pessimism in the initial stage, and repair takes time.

Liu Yan expects the short-term market will likely continue its range-bound consolidation pattern of "policy bottom support below, volume pressure capping above," with the probability of systemic large rallies or sell-offs both low, and structural opportunities remaining the core focus. Going forward, attention should be paid to the Fed's rate signals, third-quarter earnings realization, and policy window stable growth measures. In terms of allocation, priority should be given to AI industry chains and high-end manufacturing directions with order and earnings support, while avoiding purely thematic high-crowding targets.

"Looking ahead, A-shares may continue their consolidation and stabilization pattern, with the Shanghai Composite likely seeking support near 3,700 points," Long Jiangwei cautioned. In the short term, three aspects need attention: first, the upcoming intensive third-quarter earnings disclosure period, where earnings realization pressure may intensify volatility in high-valuation growth sectors; second, further moves in the domestic policy toolbox, including MLF, LPR, and the pace of fiscal stimulus; third, the transmission of overseas market volatility to risk appetite.

Golden Eagle Fund equity research department macro strategy researcher Jin Dalai told reporters that after continuous adjustments, the market has short-term technical repair needs. However, offshore AI financing and return divergence has not yet been digested, and the breadth of domestic earnings improvement still needs verification. A-shares are expected to remain in consolidation, stabilization, and structural rotation in the short term. Whether the repair rally can continue depends on whether core technology sectors can stabilize, whether trading volume can effectively expand during rallies, and whether third-quarter earnings can drive upward revisions in earnings expectations. Going forward, focus should be on the domestic Financial Street Forum annual meeting, policy implementation effects, and earnings disclosure, while also tracking overseas technology company performance and capital expenditure guidance, AI financing conditions, and oil price changes.

Short-Term Focus on Defensiveness

How should positions be allocated under current market conditions? Liu Youhua suggested adopting a balanced allocation approach: defensive base positions can be allocated to dividend, utilities, power, banking, and other assets; the offensive end should focus on technology subsectors where third-quarter earnings are expected to materialize and chip pressure is relatively low.

Long Jiangwei prefers allocating to dividend and pro-cyclical sectors with reasonable valuations and strong earnings certainty, remaining cautious on technology growth targets with high prior gains and obvious valuation premiums, waiting for sufficient adjustment before selectively positioning.

Morgan Stanley Fund recommends relatively balanced allocation, focusing on the following areas: first, resources, where commodity logic remains relatively smooth before clear overseas recession signals emerge, with non-ferrous metals and some chemical products worth watching; second, technology chains, where the long-term AI logic remains strong but a new narrative is needed from a medium-term perspective, with short-term priority on new technologies, price increase segments, and AI application end; third, high dividends, which can serve as an investment stabilizer; fourth, pharmaceuticals, where AI empowerment continues to strengthen the pharmaceutical services chain logic; fifth, domestic demand industry chains, where rising external environment uncertainty has increased market expectations for domestic incremental policies, highlighting the relative advantages of domestic demand sectors.

Regarding the technology direction, Furong Fund believes that short-term sentiment and medium-to-long-term industrial trends should be viewed separately, and it cannot yet be concluded that the industrial trend has ended based on short-term growth fluctuations. The technology sector has experienced a notable retreat from prior highs in the short term, among which subsectors with greater earnings elasticity next year and representing new technology directions already offer relatively high cost-effectiveness. From a medium-to-long-term perspective, it is still necessary to observe the emergence of new AI industry paradigms and whether they can drive significant upward revisions in demand, which will be primarily tracked and responded to.

In terms of industry allocation, two main lines can continue to be watched going forward: first, the growth mainline, focusing on AI computing power, applications, and semiconductors; second, the non-AI line, focusing on new energy, innovative drugs, and other directions with turnaround logic or improved policy expectations.

On industry allocation, Jin Dalai suggests maintaining a balanced approach in the medium term, emphasizing earnings certainty and defensive attributes in the short term, and selectively watching technology repair opportunities where prosperity and valuation match. In the technology direction, concerns about offshore AI financing and investment returns are rising, and short-term digestion of valuation and chip divergence is still needed. Stock selection should place greater emphasis on order realization, cash collection, and the sustainability of customer capital expenditure. In the value direction, focus on banks, power, coal, and other varieties with strong cash flow and dividend support; also watch non-bank financials, pharmaceuticals, and other sectors, where innovative drugs and CXO companies with product ramp-up, overseas cooperation, and order realization support may see valuation repair when market risk appetite warms and trading volume recovers.

Liu Yan suggests that position management should follow the general principles of neutral positioning, balanced allocation, and contrarian operations. Total position is recommended to maintain a neutral and flexible level of 50% to 70%, retaining 20% to 30% in reserve cash, neither blindly going all-in nor staying completely empty and missing out. Reserved cash can be used to add positions on dips when the index sharply tests the 3,700-point support level, or to follow the trend after market signals become clear. Structurally, adopt a barbell-type balanced allocation: 30% to 40% core base positions in high-dividend assets and mandatory consumption, relying on stable dividends and low valuations to hedge against volatility as a portfolio safety cushion. 20% to 30% flexible positions focused on technology growth directions with clear industrial catalysts and third-quarter earnings support, capturing structural opportunities in existing capital rotation. Single-sector positions should be controlled within 15%, avoiding purely thematic speculative targets. Before the Fed's rate decision and third-quarter earnings disclosure land in late October, maintain neutral positions without aggressive expansion, and gradually increase positions to 70% to 80% after signals become clear.