To The Moon

According to a research report from CICC, the A-share market could experience a "good start" after the holiday period. Before the holiday, A-shares underperformed due to multiple external factors. However, overseas markets mostly rose during the holiday, and recent domestic economic data has been relatively stable. With third-quarter earnings reports expected to provide some performance support, investor confidence in October is likely to recover, and A-shares are expected to welcome a strong start after the holiday.

In the medium term, uncertainties remain regarding the Middle East geopolitical situation, US Treasury yields, and the US midterm elections, which warrant continued attention. Overall, the impact of external factors on A-shares remains阶段性 (periodic). The domestic fundamentals and medium-term logic have not changed, so there is no need to be pessimistic about the market's medium-term trend. The overall valuation of the A-share market offers good value for money, and the structural overvaluation seen in the first half of the year has largely improved. Meanwhile, A-share earnings growth this year is expected to exceed that of recent years, and the improved fundamentals are likely to support market performance. In the medium term, continue to focus on the restructuring of the global monetary order and the support for A-shares from the technology narrative. The long-term, steady progress trend since "9.24" is still expected to continue.

Main Views from CICC

As the National Day holiday on the Chinese mainland draws to a close, during the A-share market closure, the decline in US non-farm payroll data led to reduced expectations of a US rate hike. Hong Kong stocks first pulled back and then rebounded, while the Nasdaq continued to hit new highs. Combining overseas market performance during the holiday with relatively stable domestic economic data, third-quarter earnings are expected to provide some performance support, investor confidence after the holiday is likely to gradually improve, and A-shares may welcome a strong start.

Specifically: During the A-share market closure, Hong Kong stocks first fell and then rose, while US stocks continued to hit new highs. Before the holiday, the A-share market pulled back significantly due to external factors, including the Middle East situation, US Treasury selling pressure, US rate hike expectations, and concerns over possible escalation of external restrictions in the optical module sector. On September 29, a policy on interest subsidies for residential mortgage loans was announced, and the People's Bank of China adjusted and improved several monetary policy tools. These pro-growth policies helped boost market confidence, and A-shares rebounded slightly in the last two days before the holiday. From September 28-30, the Shanghai Composite Index fell 1.19%, the large-cap blue-chip CSI 300 fell 1.84%, and the growth-oriented ChiNext Index and STAR 50 fell 4.67% and 5.66%, respectively. In terms of trading, the average daily turnover was about 1.53 trillion yuan, continuing to shrink from the previous week. At the sector level, real estate, pharmaceuticals and biotech, and banking led gains, while telecommunications, electronics, and machinery underperformed.

In Hong Kong, the market opened on October 2, 5, and 6. Over these three days, the Hang Seng Index fell 1.35%, and the Hang Seng Tech Index fell 0.72%. On October 5-6, the Hang Seng Index rebounded 1.29% amid easing US rate hike expectations. In overseas markets, in the US, a decline in September non-farm payrolls eased market rate hike expectations, and US stocks continued to rise during the A-share closure. From October 1-6, the S&P 500 rose 2.2%, and the Nasdaq rose 2.8%, hitting a record high. Affected by the Middle East situation, crude oil prices continued to fluctuate at high levels, with Brent crude rising 3.1% from October 1-6. US Treasury yields continued to rise, reaching 5.35% on October 5, the highest since 2002.

Domestic Economy and Policy: Holiday Travel and Box Office Data Stable, Pro-Growth Policies Intensively Released Before Holiday

Holiday data: 1) Holiday travel data was broadly flat year-on-year. Data from the Ministry of Transport's official WeChat account showed that from September 30 to October 5, the total cross-regional passenger flow reached 1.77 billion trips, down 0.2% year-on-year. Among them, road passenger flow was 1.62 billion trips, down 0.9% year-on-year; railway passenger volume was 130 million trips, up 9.7% year-on-year; civil aviation passenger volume was 14.4 million trips, up 0.7% year-on-year; and waterway passenger volume was 9.46 million trips, up 4.3% year-on-year. 2) National Day box office revenue fell year-on-year. As of October 6, National Day box office exceeded 1 billion yuan, a significant gap compared with the total National Day box office of 2.104 billion yuan in 2024 and 1.835 billion yuan in 2025. 3) Holiday consumption data. According to the Ministry of Commerce's big data, in the first three days of the National Day holiday, passenger flow and sales at 78 pedestrian streets (business districts) monitored by the Ministry of Commerce increased by 3.4% and 5.3% year-on-year, respectively. Consumer goods trade-ins drove sales of 19.63 billion yuan, benefiting 3.483 million people.

Macro indicators: 1) China's manufacturing PMI in September was 50.1%, up 0.3 percentage points from August, rising for two consecutive months and moving into expansion territory in September. 2) The profit growth rate of industrial enterprises in August declined somewhat. From January to August, profits of industrial enterprises above designated size increased 15.7% year-on-year, down 1.9 percentage points from January-July, declining for three consecutive months since the May high; in August alone, profits rose 4.2% year-on-year, down 7 percentage points from July.

Domestic policy: 1) The Ministry of Finance, the People's Bank of China, and the National Financial Regulatory Administration issued a notice on implementing an interest subsidy policy for residential mortgage loans, implementing the policy nationwide to ease the interest burden on commercial personal housing loans for families newly purchasing their first home. It will take effect from October 1, 2026, initially for one year. During this period, for eligible first-home commercial personal housing loans newly issued by handling banks, the finance department will provide interest subsidies at an annualized rate of 1 percentage point for a term not exceeding 5 years, with a maximum loan scale per household eligible for subsidies of 1 million yuan. 2) The People's Bank of China adjusted and improved several monetary policy tools. These include lowering the interest rate on pledged supplementary lending (PSL) by 0.25 percentage points; expanding the support areas for PSL to include the construction of the "six networks"; increasing the quota for relending for technological innovation and technological upgrading by 200 billion yuan, and raising the support ratio for this relending uniformly from 60% to 100%; and increasing the quota for relending for agriculture and small businesses by 500 billion yuan, of which the relending quota for private enterprises is increased by 300 billion yuan.

Overseas Economy and Policy Events: US Non-Farm Payrolls Decline, Core PCE Below Expectations, US Rate Hike Expectations Cool

Overseas economy: 1) US September non-farm payrolls declined. The US added 29,000 non-farm jobs in September, far below the downwardly revised 133,000 in August and below the average monthly increase of 45,000 over the prior 12 months, significantly cooling market expectations for another Fed rate hike in October. 2) US August PCE rose 3.4% year-on-year, below the expected 3.7%; it rose 0.3% month-on-month, in line with expectations. Core PCE, excluding food and energy, rose 3% year-on-year and 0.2% month-on-month, below expectations of 3.3% and 0.3%.

Overseas events: 1) The US formed a "Superintelligence Working Group." Trump signed an executive order on September 29 renaming "artificial intelligence" as "superintelligence." On the same day, heads of several US tech companies signed the "White House Superintelligence Agreement: Joint Commitment on Frontier Responsibility" at the White House, which requires companies to commit to strengthening safety controls for frontier AI models. On October 4, Trump announced the formation of a "Superintelligence Working Group" tasked with coordinating federal government efforts to "ensure the United States continues to maintain global leadership in the field of superintelligence." 2) China-US "30 billion to 30 billion" reciprocal tariff reduction framework. From September 20-23, China and the US held the eighth round of economic and trade consultations and reached consensus on a framework for reciprocal tariff reductions of 30 billion USD under the Trade Council framework. The two sides agreed to provide reciprocal tariff reduction treatment on imports of about 30 billion USD each (based on 2024 bilateral trade volume), in accordance with their respective domestic laws and procedures, with more than 90% of products exempted from all mutually imposed additional tariffs and enjoying most-favored-nation tariff treatment. Based on their respective market needs and industrial interests, the US will reduce tariffs on imports from China such as toys, home appliances, baby products, kitchen and bathroom products, and holiday gifts; China will reduce tariffs on imports from the US such as agricultural products, personal care products, medical devices, and coal.

Outlook: Investor Confidence Expected to Gradually Recover After Holiday, A-shares May See a Strong Start, Medium-Term Trend Not Pessimistic

Looking ahead to after the holiday, A-shares may welcome a "good start." Before the holiday, A-shares underperformed under the influence of multiple external factors. During the holiday, overseas markets mostly rose. Combined with relatively stable recent domestic economic data and third-quarter earnings expected to provide some performance support, investor confidence in October is expected to recover, and A-shares are expected to welcome a strong start after the holiday. In the medium term, uncertainties remain regarding the Middle East geopolitical situation, US Treasury yields, and the US midterm elections, which require continued attention. Overall, the impact of external factors on A-shares remains periodic. Domestic fundamentals and medium-term logic have not changed, so there is no need to be pessimistic about the market's medium-term trend. The overall valuation of the A-share market offers good value for money, and the structural overvaluation faced in the first half of the year has largely improved. Meanwhile, A-share earnings growth this year is expected to be higher than in recent years, and improved fundamentals are likely to support market performance. In the medium term, continue to focus on the restructuring of the global monetary order and the support for A-shares from the technology narrative. The long-term, steady progress trend since "9.24" is still expected to continue.

In terms of sector allocation, the implementation and effects of pro-growth policies released before the holiday need continued observation, which may later affect the earnings expectations and stock price elasticity of cyclical industries. As third-quarter earnings approach, it is still advisable to focus on sectors and companies with strong earnings certainty and emphasize bottom-up discovery at the industry and individual stock levels. Two main lines are recommended: 1) High-growth sectors: Earnings in the hardware segment of the AI industry chain are generally growing rapidly, but with changes in the narrative, divergence may emerge in the future. Segments with lower barriers and faster capacity deployment progress face greater risk, while areas with high demand certainty and difficult-to-alleviate capacity bottlenecks are expected to continue benefiting. Attention is recommended for optical communications, semiconductor equipment, and industries related to upstream power bottlenecks. Outside the AI industry chain, innovative drugs (especially CXO) and power grid equipment generally have high prosperity. 2) Cyclical improvement: More and more areas are seeing fundamentals recover from cyclical bottoms. It is recommended to focus on areas with improved supply-demand dynamics from the perspective of the capacity cycle, such as chemicals, petrochemicals, and construction machinery. Fundamentals in various segments of non-ferrous metals are relatively good, but attention must be paid to the impact of Fed tightening risk on financial attributes.

Chart 1: Global Major Asset Class Price Performance, October 1-6. Source: Wind, CICC Research Department. Chart 2: Global Major Stock Market Price Performance, October 1-6. Source: Wind, CICC Research Department. Chart 3: National Day Holiday Passenger Volume. Source: Ministry of Transport official WeChat account, CICC Research Department. Chart 4: Profit Growth of Industrial Enterprises Above Designated Size Has Declined in Recent Months. Source: Wind, CICC Research Department. Chart 5: US September New Non-Farm Payrolls Declined. Source: Wind, CICC Research Department. Chart 6: US 10-Year Treasury Yield Continues to Rise. Source: Wind, CICC Research Department.