To The Moon

According to a research report, A-share market performance was lackluster in September, with sector rotation accelerating notably. Thematic concepts such as circuit boards, CRO, optical communications, optical fiber, liquid cooling, banks, biotechnology, MLCC, electronic cloth, semiconductors, shipping, AI applications, and innovative drugs posted temporary positive returns.

Looking ahead to October, the report suggests that after the adjustment, earnings resilience and positive signals for stabilizing growth are expected to support a gradual market recovery. Expectations of tightening liquidity were a major factor weighing on market sentiment earlier, but September employment data reduced the likelihood of another Federal Reserve rate hike before the midterm elections. Historical experience shows that while short-term Fed rate hike expectations may suppress upward valuation movement, over the medium to long term, domestic economic and corporate fundamentals, along with industry development progress, remain the anchor for stock price trends.

October overweight sectors: communication equipment, non-ferrous metals, oil and petrochemicals, pharmaceuticals, banks. Underweight sectors: construction and engineering, textiles and apparel, education, light industry and household goods, retail.

Key points from the report are as follows:

A-share market performance was lackluster in September, with the Wind All A, Shanghai Composite Index, and ChiNext Index falling 3.6%, 5.3%, and 8.8% respectively, as pessimism briefly spread. Sector rotation also accelerated markedly, with some thematic concepts posting temporary positive returns, such as circuit boards, CRO, optical communications, optical fiber, liquid cooling, banks, biotechnology, MLCC, electronic cloth, semiconductors, shipping, AI applications, and innovative drugs. AI hardware and applications rebounded at one point, and the dividend attributes of banks drew attention.

Looking ahead to October, we believe that after the adjustment, earnings resilience and positive signals for stabilizing growth are expected to support a gradual market recovery. Expectations of tightening liquidity were a major factor weighing on market sentiment earlier. Crude oil prices fluctuated at high levels, affecting global prices and demand. The Fed's dot plot and US futures data indicate the Fed may raise rates once more this year, with the dollar index and US Treasury yields rising to relatively high levels, but September employment data reduced the probability of another Fed rate hike before the midterm elections. Historical experience shows that while short-term Fed rate hike expectations may suppress upward valuation movement, especially for high-valuation sectors, over the medium to long term, domestic economic and corporate fundamentals, along with industry development progress, remain the anchor for stock price trends.

Before the end of October, listed companies will gradually disclose their third-quarter reports, and sectors with earnings support are expected to become allocation targets. In a previous report, we noted that overall A-share profit growth in the third quarter may decline sequentially, with structural differentiation continuing, while upstream energy and raw materials and the TMT sector are expected to maintain relatively high growth. Combining bottom-up observations from industry analysts, sectors such as some non-ferrous metals, technology hardware benefiting from AI prosperity and overseas demand, innovative drugs, CXO, hydropower and nuclear power, construction machinery, liquid cooling, container shipping and oil tankers, baijiu, duty-free, tourism, and gaming are expected to see third-quarter earnings growth continue to improve from the interim report.

Looking ahead to the fourth quarter, the year-end Politburo meeting and the Central Economic Work Conference will be held successively. Facing relatively weak domestic demand, recent signals for stabilizing growth have been released, which helps maintain investor confidence. Overall, we believe A-share market valuations are relatively attractive, with limited room for further declines, and the long-term, steady progress trend since "9.24" is expected to continue.

Recent sector prosperity review:

1) Energy and basic materials: Oil prices fluctuated at high levels, with Fed rate hike concerns persisting. In September, crude oil (up 5%) and the chemical price index (up 11%) rebounded. Due to geopolitical disruptions, crude oil prices remained high. The US-Iran conflict has not yet been resolved. On September 24, Yemen's Houthi armed forces attacked Saudi Arabia [1], triggering concerns over crude oil supply. France stated that G7 member countries announced a coordinated release of 100 million barrels of strategic petroleum reserves. On October 6, Shell CEO Wael Sawan said that oil flows in the Middle East have recovered to about 80% of pre-conflict levels [2]. In non-ferrous metals, in September, prices of gold (down 7%), aluminum (-2%), zinc (-2%), lithium carbonate (-23%), tungsten (-7%), antimony (-0%), and cobalt (-13%) generally fell, while copper (up 1%) and praseodymium-neodymium oxide (+1%) rose slightly. In September, the Fed raised the federal funds rate by 25 basis points to 3.75%-4.00%, the first hike since July 2023, with an overall tone more hawkish than market expectations. The dot plot showed most Fed officials believe another rate hike may come this year. The actual magnitude and frequency of US rate hikes may depend on US economic data. September US nonfarm payrolls added 29,000, below expectations, reducing the probability of a rate hike before the midterm elections. As of October 5, 10-year and 30-year US Treasury yields rose to 5.31% and 5.66% respectively, at historic highs. In coal, affected by differentiated downstream demand, thermal coal (up 11%) continued to rise, but coking coal (+46%) and coke (+27%) prices pulled back. Domestic coal output continued to decline, with August raw coal output down 8% year-on-year. Domestic real estate chain-related commodities such as rebar (down 1%), iron ore (-3%), and the Nanhua Glass Index (-5%) continued to show weak price performance.

2) Industrial goods: Domestic investment demand lacks incremental support for upstream demand, and while growth stabilization signals have been released, actual effects remain to be seen. On the external demand side, exports maintained strong resilience, continuing to exceed expectations. On the domestic demand side, domestic consumption and investment growth both need improvement, with August fixed asset investment down 11% year-on-year and real estate investment down 26% year-on-year. Policy levels have successively released growth stabilization signals, and the first batch of funds from new policy-based financial tools has begun to be deployed, helping to expand effective investment. On September 28, the State Council executive meeting studied macro policy efforts to improve efficiency and promote effective investment, and the subsequent implementation and landing effects remain to be seen. Construction machinery domestic and overseas sales maintained high growth, with August excavator domestic sales up 17% year-on-year and export sales up 32% year-on-year, but investors have temporary concerns about demand under the domestic debt resolution background and the sustainability of the overseas business model. In power equipment, due to the high base formed by rush installations before May 31, 2025, new power generation equipment capacity in the first half fell 46%, after which the decline in new wind and solar power generation equipment capacity continued to narrow, further narrowing to -8% and -58% in August respectively. In automobiles, August domestic fuel vehicle and new energy vehicle sales fell 37% and 10% year-on-year respectively, with demand weakness already transmitting to the parts segment.

3) Consumer goods: Endogenous consumption momentum needs improvement. Currently, positive signals released by growth stabilization policies are mainly concentrated on the investment side, and the transmission effect to the consumption side remains to be seen. Our tracking of some commodity sales shows that in August, washing machine, refrigerator, and air conditioner sales rose 1.1%, rose 1.3%, and fell 6.4% year-on-year respectively. Within retail sales sub-items, catering revenue and goods retail rose 1.1% and 0.3% year-on-year respectively. As of mid-September, Moutai ex-factory price and wholesale price rose 0% and 1.5% respectively from the end of the previous month, with the baijiu industry in a bottoming-out and clearing phase. The average live pig purchase price was 12 yuan/kg, basically flat month-on-month, with live pig inventory at historic highs.

4) Technology: Anthropic and OpenAI ARR growth slowed, and large model prices were cut. The share of token consumption by open-source models rose significantly. The latest data released by TickerTrends shows that the ARR growth rates of Anthropic and OpenAI are slowing. The price cut wave among mainstream large models continues, which is expected to drive AI applications to penetrate various fields. On September 9, DeepSeek cut prices for its flash series models. On September 22, Anthropic released Claude Opus 5.5, and on the same day OpenAI released GPT-6 Sol and GPT-6 Luna, with input and output prices per million tokens falling sharply. In early September, Meta launched Muse, whose download growth rate in the 12 days after launch exceeded ChatGPT's performance in the same period, though DAU slowed somewhat by month-end. On the consumer terminal side, August domestic mobile phone, notebook computer, and computer hardware/monitor/computer peripheral sales fell 3.6%, 21.3%, and 15.4% year-on-year respectively. Semiconductor sales demand remained strong, with August global and China semiconductor sales up 144% and 131% year-on-year respectively.

5) Finance: Stock market trading activity declined, and stock market performance may affect non-bank sector results. As of August, insurance industry premium income rose 0.4% year-on-year and total assets rose 11% year-on-year. In September, the average daily turnover of all A-shares was 1.1 trillion yuan, down 0.2 trillion yuan month-on-month. As of month-end, margin financing and securities lending balance was 2.6 trillion yuan, down slightly month-on-month. The wealth effect of the stock market weakened, and trading and turnover activity declined.

6) Real estate: Fiscal interest subsidy policy promotes destocking of rigid demand. In September, commercial housing sales area in 30 large and medium-sized cities was 6.52 million square meters, down 11% year-on-year and up 8% month-on-month. In terms of housing prices, the August 70 large and medium-sized city housing sales price index for new commercial residential and second-hand residential continued to decline, falling 3.3% and 5.1% year-on-year respectively. On August 28, the Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources, the National Financial Regulatory Administration, the People's Bank of China, and the China Securities Regulatory Commission issued a series of policy documents to build a new model for real estate development. On September 29, the Ministry of Finance, the People's Bank of China, and the National Financial Regulatory Administration issued the "Notice on Implementing the Interest Subsidy Policy for Residential Housing Purchase Loans" [3]. As an incremental policy to stabilize the real estate market, the residential housing purchase loan interest subsidy policy focuses on new first-home rigid demand, providing eligible first-home commercial personal housing loans with an annualized 1 percentage point fiscal interest subsidy for up to 5 years, with a maximum subsidized loan scale of 1 million yuan per household.

In terms of allocation, screen for structural opportunities from the bottom up, focusing on two main lines. 1) Areas where third-quarter earnings growth improves sequentially: for example, some upstream non-ferrous metals and technology hardware benefiting from AI prosperity and overseas demand. 2) High-dividend assets: domestic long-end interest rates are at historic lows, listed companies overall maintain dividend yields and dividend scale, and during periods of rising investor wait-and-see sentiment, high-dividend sectors once again become an important choice for defensive allocation.

October overweight sectors: communication equipment, non-ferrous metals, oil and petrochemicals, pharmaceuticals, banks. October underweight sectors: construction and engineering, textiles and apparel, education, light industry and household goods, retail.

Chart 1: A-share sector allocation views and细分 items. Note: Data as of September 30, 2026. Source: FactSet, Wind, the research department.

Chart 2: Fundamentals of A-share sectors. Note: Data as of September 30, 2026, using Wind consensus estimates. Source: FactSet, Wind, the research department.

Chart 3: Price performance of major energy and basic materials.