To The Moon

Since the start of this year, A-shares have repeatedly fluctuated under a pattern of "weak aggregate growth and structural divergence," with the index overall posting a slight decline, while industry and style rotation has clearly accelerated.

As of September 30, 2026, the Shanghai Composite Index stood at 3,842.19 points, down 3.19% year to date; the CSI 300 stood at 4,357.62 points, down 5.88%; the CSI 500 and CSI 1000 fell 0.41% and 3.90%, respectively; the ChiNext Index fell 2.12%, while the STAR 50 rose 13.82%.

In the third quarter (July-September), the market generally adjusted, with growth sectors that had previously risen sharply pulling back more noticeably. The ChiNext Index and STAR 50 fell 27.80% and 30.70%, respectively, in the quarter, while resources, dividend plays, and financials were relatively resilient, highlighting a clear shift between high and low valuations and a rebalancing of styles.

On valuation, the CSI 300 PE (TTM) was about 13.2 times, around the 60th percentile of the past decade; the PE (TTM) of all A-shares represented by the CSI All Share index was about 19.8 times, around the 70th percentile of the past decade, still generally near the historical center.

Trading and sentiment cooled somewhat. On September 30, total A-share turnover was about RMB 1.45 trillion, a clear contraction from the intra-month high of about RMB 2.16 trillion on September 22.

On fundamentals, in the 2026 interim reports, the year-on-year growth of net profit attributable to parent companies for all A-shares rebounded to about 15.9% (about 15.1% excluding financials), and the breadth of profit recovery continued to expand, though the divergence between high-prosperity AI-related sectors and traditional investment and consumption areas remained obvious.

Looking ahead to the fourth quarter, the market's core contradiction may shift from valuation rebalancing to the combination of third-quarter earnings verification, the pace of implementation of pro-growth policies, and cross-quarter liquidity arrangements.

On fundamentals, policy support continued to intensify: on September 28, the State Council executive meeting stressed increasing countercyclical adjustment of macro policy; on September 29, three government departments issued a document on interest subsidies for personal housing loans; the pace of fiscal spending and the use of bond funds accelerated; and the construction of the "Six Networks" and the "AI Plus" initiative continued to advance. Economic growth is expected to maintain a certain degree of resilience, but real estate is still in the bottoming stage, and the pace of domestic demand recovery remains relatively slow.

On policy, the domestic tone remains moderately accommodative, and the entry of medium- and long-term funds continues to advance. The requirement for state-owned insurers to allocate 30% of their new annual premiums to equity assets may bring incremental allocation demand to the market.

Overseas, major central banks in the United States, Europe, and Japan raised rates simultaneously in September, tightening global liquidity in phases, and high long-end U.S. Treasury yields put some pressure on highly valued growth stocks. However, September U.S. nonfarm payrolls came in below expectations, increasing market expectations that the October FOMC will not raise rates again. Combined with the pullback in international oil prices from highs, the external liquidity environment may no longer deteriorate further later on.

Overall, profit recovery and policy support underpin the equity market, while tight global liquidity and structural divergence remain temporary disturbances.

Short-Term View (Fourth Quarter of 2026)

In the short term in the fourth quarter, as the global liquidity environment is tight in phases, the market may be dominated by stock-game trading and structural rotation, index-level opportunities may be relatively limited, and the rebalancing of styles and industries may continue.

Among relatively favored directions, first are value and dividend assets with prominent defensive attributes, as well as the financial sector with stable dividends and long-term allocation demand, which may provide a stabilizer for portfolios in an environment of increased volatility. Second are directions with clear industry trends and relatively high earnings certainty, though in the short term, under liquidity constraints, they are more likely to focus on digesting valuations and waiting for catalysts.

After earlier gains, small-cap stocks are no longer cheap in valuation terms, and their cost-effectiveness has declined. The fundamental recovery in real estate and consumption still needs to be observed, and in the short term they may mainly fluctuate at the bottom. Cyclicals, pharmaceuticals, and TMT are affected in the short term by the global liquidity environment, and their pace may require waiting.

Overall, in the fourth quarter, a "balanced offense and defense, diversified allocation" approach is preferred, using a base position in dividends and value to reduce portfolio volatility while retaining attention to growth and technology. If overseas liquidity expectations improve further, or if the market sees a temporary adjustment, this may be viewed as a window to gradually increase elasticity.

Mid- to Long-Term View (Next 6-12 Months): Industry Trends Lead, the Center May Gradually Rise

In the medium to long term, the two foundations determining the equity market's center have not fundamentally changed. First, economic transformation and industrial upgrading continue to advance, and the medium- to long-term industry logic for artificial intelligence, technological innovation, and high-end manufacturing remains favorable. The breadth and depth of profit recovery are still expanding, providing fundamental support for growth and technology sectors. Second, the domestic liquidity environment remains reasonably accommodative, and the mechanism for medium- and long-term funds entering the market continues to improve, with insurance capital, households, and institutions providing long-term support through allocation demand.

Therefore, the equity market's center may gradually rise, though the process may still be accompanied by significant volatility.

In terms of structure, growth, TMT, and pharmaceuticals with clear industry logic and relatively high certainty of earnings improvement, as well as cyclical sectors with improved supply-demand conditions, are relatively favored in the medium to long term. Large-cap and mid-cap blue chips have advantages in earnings stability and valuation matching, and in the medium to long term may benefit more from capital allocation. The financial sector benefits from long-term capital allocation demand and still has allocation value in the medium to long term.

On risks, attention should be paid to unexpected tightening of global liquidity, repeated geopolitical conflicts, profit recovery falling short of expectations, and disturbances to valuations from reflation expectations.

Special reminder: Market volatility may be relatively high recently, and short-term gains or losses do not indicate future performance. Investors must invest rationally based on their own funding conditions and risk tolerance, and pay close attention to position and risk management.

Risk disclosure: The descriptions of individual stocks in this article do not constitute investment advice in any form, nor do they represent the holdings or trading moves of any fund managed by the fund manager. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only, and investors must be responsible for any investment decisions they make independently. In addition, any views, analyses, and forecasts in this article do not constitute investment advice of any kind to readers, nor do they assume any responsibility for direct or indirect losses caused by the use of the content of this article. Fund investment involves risks, past performance of a fund does not indicate its future performance, and the performance of other funds managed by the fund manager does not constitute a guarantee of the fund's performance. Fund investment requires caution. MACD golden cross signals have formed, and these stocks are rising well!