As we enter early November, a key task is to outline next year’s sector allocation strategy to facilitate early research. Our framework for industry comparison revolves around four stages: "positioning → outlook → coordinates → high-frequency tracking." This report focuses on our analysis of "positioning" and "outlook."

**Positioning: Identifying Industry Cycles Based on Q3 Reports** Using Q3 financial data, we assess where industries stand in their operational cycles.

**Right-Side Industries (Uptrend):** 1. **Strong Expansion & Recovery (High Demand-Supply Synergy, Peak Growth):** - AI (primarily overseas computing power-related) - Memory (equipment/materials, chips) - Edge Computing - Energy Storage (batteries/systems) - Pharma R&D (CXO) - Select Export Leaders (non-U.S. exports + U.S.-branded exports)

2. **Moderate Expansion & Recovery (Supply-Demand Gaps, Price-Driven):** - Copper Foil - Mid/Low-End CCL - Potash Fertilizers - Fiberglass - Wind Power Components (bearings/blades/castings) - Copper

**Left-Side Industries (Bottoming/Consolidation):** 1. **Late-Stage Clearing (Inflection Point Reached):** - Energy Storage (LFP/electrolytes/second-tier batteries/lithium) - Wind Power Cables - Memory Modules - Liquid Cooling - Smart Meters - Select Commodities (e.g., cutting tools/glass)

2. **Mid-Stage Clearing (Select Opportunities Emerging):** - Energy Storage (6F/electrolyte solvents/additives/separators/aluminum foil/lithium equipment) - Storage Inverters - Wind Turbines - Cyclical & Auto Parts

3. **Early-Stage Clearing (Awaiting Catalysts):** - Anti-Internal Competition - U.S.-Focused Export Chains - Hog Cycle - New Consumer Segments

**Outlook: Demand-Driven Strategies for 2024–2026** We prioritize terminal demand and supply chains, viewing demand as beta (market-driven) and supply as alpha (idiosyncratic). Our strategies combine growth and reversal plays to manage volatility.

**Growth Strategy (2026 Upside Sectors):** - U.S. AI (computing/memory/power) - Edge Computing - U.S. Healthcare - Domestic Energy Storage - Offshore Wind (China/Europe) - Copper (tied to global PMI)

**Reversal Strategy (Three Tiers by Conviction):** 1. **High Conviction (Q4 Focus):** Sectors with right-side demand but left-side supply chains: - Energy Storage (materials/equipment/second-tier batteries/lithium) - Wind (turbines/cables) - AI (liquid cooling/memory modules)

2. **Medium Conviction (2026 Recovery Potential):** - Domestic Computing (data centers/semiconductor foundries) - U.S. Housing (tools/furnishings) - U.S. "Reindustrialization" (machinery/forklifts/equipment) - European Storage (commercial/residential)

3. **Low Visibility but Attractive Risk-Reward (Monitor Signals):** - Domestic Cyclicals (pending fiscal clarity by late November) - Anti-Internal Competition (policy-dependent) - Hog Cycle (slowing supply, awaiting price rebound)

**Risks:** Geopolitical tensions, slower-than-expected liquidity easing, and weak stimulus measures.

**Market Snapshot (Week of Nov 3–9):** - **Equities:** Shanghai Composite +1.08%; top gainers: Power Equipment (+4.98%), Coal (+4.52%), Oil & Gas (+4.47%). - **Commodities:** WTI crude -2.54% ($59.43), Brent -1.56% ($63.57); iron ore inventories +2.45%. - **Liquidity:** PBOC net withdrawal of ¥1.57 trillion via reverse repos.

**Upcoming Data:** China’s October CPI/PPI (Nov 9), U.S. PCE (Nov 10), and UK GDP (Nov 13).

*Disclaimer: Historical trends may not predict future performance. Sector thresholds are subjective and vary by industry characteristics.*