September delivered a rough month for A-share investors, with the Wind All A, Shanghai Composite, and ChiNext indices falling 3.6%, 5.3%, and 8.8% respectively, as pessimism briefly took hold.
Sector rotation also accelerated noticeably, with certain thematic concepts posting temporary positive returns, including 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 staged a brief rebound, while banks drew attention for their dividend characteristics.
Looking ahead to October, we believe that following the adjustment, earnings resilience and positive steady-growth signals are likely to support a gradual stabilization of the market.
Tightening liquidity expectations were an important factor weighing on market sentiment earlier. Crude oil prices oscillated at elevated levels, affecting global prices and demand. The Fed dot plot and US futures data suggested the Fed may raise rates once more this year, with the dollar index and US Treasury yields rising to relatively high levels, though September employment data reduced the probability of another rate hike before the midterm elections. Historical experience shows that while short-term Fed rate hike expectations may restrain upward valuation expansion, especially for high-valuation sectors, over the medium to long term, domestic economic and corporate fundamentals and industry development progress remain the anchor for stock price trends.
Before the end of October, listed companies will disclose their third-quarter reports in succession, and sectors with earnings support are expected to become targets for capital allocation. In our earlier report, "Which Companies' Q3 Reports May Outperform Their Interim Reports?", we argued that overall A-share profit growth in Q3 may decline sequentially, with structural divergence continuing, and that upstream energy and raw materials as well as the TMT sector may sustain relatively high growth. Combining bottom-up observations from industry analysts, sectors such as certain non-ferrous metals, tech hardware benefiting from AI prosperity and overseas demand, innovative drugs, CXO, hydropower and nuclear power, construction machinery, liquid cooling, container and oil shipping, baijiu, duty-free, tourism, and gaming may see Q3 earnings growth continue to improve from interim levels.
Looking toward the fourth quarter, the year-end Politburo meeting and the Central Economic Work Conference will be held in succession. Facing weak domestic demand, steady-growth signals have recently been released, helping to maintain investor confidence. Overall, we believe A-share market valuations offer good value, further downside is limited, and the long-term, steady-progress trend since September 24 is likely to continue.
A review of recent sector performance:
1) Energy and basic materials: Oil prices oscillated at highs, with Fed rate hike concerns persisting. In September, crude oil (up 5%) and the chemical price index (up 11%) rebounded. Disrupted by geopolitical factors, crude oil prices remained elevated. The US-Iran conflict has not yet been resolved, and on September 24, Yemen's Houthi armed forces attacked Saudi Arabia, triggering supply-side concerns. 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 oil flows in the Middle East had recovered to about 80% of pre-conflict levels. In non-ferrous metals, September prices generally fell for gold (down 7%), aluminum (-2%), zinc (-2%), lithium carbonate (-23%), tungsten (-7%), antimony (-0%), and cobalt (-13%), while copper (up 1%) and praseodymium-neodymium oxide (+1%) edged higher. 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 expect one more rate hike this year, and the actual pace and magnitude may depend on US economic data. September US nonfarm payrolls rose by 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 had risen to 5.31% and 5.66% respectively, at historic highs. In coal, affected by divergent 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 production down 8% year-on-year. Domestic property 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 steady-growth signals have been released successively, with actual effects yet to be observed. On the external demand side, exports maintained strong resilience, continuing to beat expectations. On the domestic demand side, 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 steady-growth signals, and the first batch of funds from new policy-based financial instruments has been deployed to help expand effective investment. On September 28, the State Council executive meeting studied work related to making macro policy more effective and promoting effective investment, with subsequent implementation and landing effects yet to be observed. 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 amid domestic debt resolution and the sustainability of overseas business models. In power equipment, due to the high base formed by rush installations before May 31, 2025, newly added power generation equipment capacity fell 46% in the first half, after which the decline in newly added 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. The positive signals released by current steady-growth policies are mainly concentrated on the investment side, and the transmission effect to the consumption side remains to be seen. Our tracking of certain product 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, while within retail sales components, catering revenue and goods retail rose 1.1% and 0.3% year-on-year respectively. As of mid-September, Moutai's 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, roughly 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 published 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 into various fields. On September 9, DeepSeek cut prices for its flash series models. On September 22, Anthropic released Claude Opus 5.5, and that same day OpenAI released GPT-6 Sol and GPT-6 Luna, with per-million-token input and output prices falling substantially. In early September, Meta launched Muse, whose download growth in the first 12 days exceeded ChatGPT's performance in the same period, though DAU slowed by month-end. On the consumer terminal side, August domestic mobile phone, laptop, and computer hardware/monitor/computer peripheral sales fell 3.6%, 21.3%, and 15.4% year-on-year respectively. Semiconductor sales demand remained robust, with August global and China semiconductor sales up 144% and 131% year-on-year respectively.
5) Financials: Stock market trading activity declined, and stock market performance may affect non-bank sector earnings. 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 balances stood at 2.6 trillion yuan, down slightly month-on-month, as stock market wealth effects 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. On prices, the August 70 large and medium-sized city housing sales price index for new commercial residential and second-hand residential components 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 Resident Housing Purchase Loans", with the policy focusing on newly added 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 size of 1 million yuan per household.
On allocation, screen for structural opportunities from the bottom up and focus on two main lines. 1) Areas where Q3 earnings growth improves month-on-month: for example, some upstream non-ferrous metals and tech 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 scales, 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: communications equipment, non-ferrous metals, oil and petrochemicals, pharmaceuticals, banks. October underweight sectors: construction and engineering, textiles and apparel, education, light industry and home furnishings, retail.
Chart 1: CICC A-share sector allocation views and sub-items. Note: Data as of September 30, 2026. Source: FactSet, Wind, CICC Research Department.
Chart 2: Fundamentals of A-share sectors. Note: Data as of September 30, 2026, using Wind consensus estimates. Source: FactSet, Wind, CICC Research Department.
Chart 3: Price performance of major energy and basic materials. Note: Data as of September 30, 2026. Source: Wind, CICC Dianjin Database, CICC Research Department.