Shenwan Hongyuan Securities has released a research report stating that during the National Day holiday, global assets exhibited a pattern of "the high US Treasury yield stalemate remaining unbroken and equity market divergence continuing": US PCE and non-farm payrolls came in below expectations, lowering the probability of an October rate hike, but crude oil prices remained locked in a high-level tug-of-war, and US Treasury yields stayed elevated after hitting new highs. The market's perception of "short-term economic strength plus recurring inflation" was reinforced, while concerns that high rates exacerbate medium-term economic fragility lack any means of resolution.

US stocks continued their rebound but structural divergence intensified, Japanese stocks staged a strong rally benefiting from downgraded rate hike expectations, while Hong Kong stocks saw a modest correction due to the absence of southbound capital flows. For A-shares, the market remains in a consolidation and rest period between two major upward waves over the long term (analogous to the first half of 2014 or the 2018 scenario), with the medium-term consolidation continuing and leaning toward weakness, while a small-scale "Red October" rebound can be expected after short-term overselling.

On allocation, the report continues to favor AI chain segments where earnings have sufficiently digested valuations (storage, high-end CCL, PCB, capacitors), as well as non-tech tracks including CXO, innovative drugs, coal, shipping, precious metals, industrial metals, chemicals, and real estate. Meanwhile, high-dividend assets (banks, non-bank financials, food and beverage, utilities) retain allocation value as a defensive base position. The main views of Shenwan Hongyuan Group Co.,Ltd. (000166) are as follows.

National Day Asset Price Performance: October Fed Rate Hike Expectations Downgraded, but Oil Prices Stuck in High-Level Tug-of-War After Rebound, US Treasury Yields Stay Elevated After New Highs

High US Treasury yields and the corresponding medium-term concerns about the US economy have yet to find a resolution point. Holiday equity market performance across countries leaned more toward medium-term trend continuation, with event-driven catalysts having only a minor-level impact: US stocks continued to rebound with intensified structural divergence, Japanese stocks rallied strongly (the Bank of Japan's October rate hike probability was also downgraded), and comparable Chinese assets saw modest corrections.

National Day asset price performance characteristics: September US PCE and new non-farm payrolls came in below expectations, Fed officials made dovish statements, and October Fed rate hike expectations were downgraded. However, US Treasury yields did not decline significantly with the lower rate hike probability. Crude oil prices remained in a high-level tug-of-war after rebounding, and US Treasury yields stayed elevated after hitting new highs. The short-term perception of the US economic mix was reinforced: economic fundamentals remain strong, and inflation expectations are recurring. Fed rate hikes are matched with the short-to-medium-term economic and inflation combination. But the market reasonably deduces that sustained high rates will exacerbate economic fragility, medium-term credit risks may ferment, and local risks triggered by AI transformation could also be amplified. The problem behind elevated US Treasury yields, in summary, is that medium-term issues objectively exist, but policy arrangements have not provided a medium-cycle solution. Rate hikes are not the solution to medium-term problems; on the contrary, they may exacerbate medium-term risks. During the National Day holiday, oil prices, US Treasury yields, and Fed rate hike expectations remained the main threads of market trading. And the resolution point for high US Treasury yields has still not appeared.

On the equity market side, US stocks continued their rebound, but structural divergence further intensified, with profit-making effects continuously concentrating; Japanese stocks rallied strongly, while comparable Chinese assets represented by Hong Kong stocks saw modest corrections. In the short term, major capital markets' reactions to changes in the global asset allocation environment are asymmetric. The main differences may come from: 1. Exposure weight to short-term AI catalysts: for example, the exposure weight of the AI storage chain. 2. Continued pricing of medium-term AI industry divergence: AI large models and application end focus more on security, the sustainability of computing power inflation and high profit growth faces additional challenges; computing power inflation and CSP leader profit redistribution space objectively exist; supply constraints on computing power inflation are loosening. This corresponds to US stocks outperforming Asia-Pacific markets in the medium-term wave. 3. Independent liquidity logic of each capital market: the Bank of Japan's October rate hike expectations were also downgraded. Meanwhile, Hong Kong stocks continue to exhibit offshore market characteristics, and during the National Day holiday, the absence of southbound Stock Connect capital flows exacerbated Hong Kong's liquidity shortage problem. Overall, during the National Day holiday, global stock market performance was more a continuation of each market's respective medium-term trends; short-term event-driven catalysts had a minor-level impact.

Discussing A-Share Long-Term, Medium-Term, and Short-Term Wave Positioning: Long-Term, A-Shares Are in a Consolidation Period Between Two Major Upward Waves. Medium-Term, the Consolidation Wave Continues and Still Leans Toward a Weak Oscillation Phase. Short-Term, After Market Overselling, a Small-Scale "Red October" Can Be Expected

During the National Day holiday, neither the global asset allocation landscape nor technology industry trends achieved major breakthroughs. The long-term, medium-term, and short-term wave positioning for A-shares remains generally unchanged, and we discuss more explicitly: Long-term: A-shares are in a consolidation and rest period between two major upward waves. A complete major wave cycle has two major upward waves, which is a classic characteristic of A-shares. This round of major wave cycle dominated by the AI industry trend will most likely have another major upward wave, with the core logic being that the technology industry trend has not ended and the space for household asset allocation migration toward equities has not been fully utilized. For the intermediate consolidation period, the upper-bound scenario can reference the first half of 2014, when the tech main line consolidated, the overall market was range-bound, but tech and non-tech themes were active, and micro-level profit-making effects were not weak. The theme rotation process is also the process of building consensus on new industry trends. The lower-bound scenario can reference 2018, when under macro shocks, the economic and policy combination was unfavorable, and core industry trends were affected. Once macro problems are resolved and industry trend consensus is rebuilt, the major wave cycle is reconstructed. Medium-term: the consolidation wave continues and still leans toward a weak oscillation phase. We continue to highlight two important upcoming nodes: 1. After the October Q3 earnings reports, AI leaders' earnings will have preliminarily digested valuations, and they may strengthen with divergence based on clues of continued improvement in 2027 profit growth. At the same time, on this basis, tech theme activity may pick up again. 2. The important opportunity for improvement in the overseas asset allocation environment is still the clarification of the direction of the Fed's monetary policy framework adjustment in the AI era. When the Fed's policy focus shifts to preventing medium-term potential risks and actively addressing structural risks that AI transformation may trigger, the global asset allocation environment may usher in a reversal. Short-term, after market overselling, a small-scale "Red October" can be expected. In the short term, the proportion of strong stocks in electronics and telecommunications has already entered the mid-to-low range, and market downward momentum has significantly spread. The market's small-scale oversold characteristics are becoming increasingly clear. Red October is one of the monthly calendar effects with the highest historical win rate. After the market's accelerated adjustment at the end of September, the realization of Red October is already a high-probability event. However, before major breakthroughs in the global asset allocation environment and technology industry trends, the Red October rally may only be small-scale.

Current Effective AI Chain Aesthetics Remain Unchanged: 1. The Few Directions Where Fundamental Expectations Can Exceed End-June Levels (CPO and the Few New Computing Power Inflation Directions Generated by GPT-6 Catalysts, PCB Industry Chain Price Pass-Through, etc.). 2. Directions Where 2027 Prosperity Continues to Improve Relative to 2026, to Be Verified by Late-October Q3 Earnings, and May Strengthen with Divergence After Earnings Digest Valuations. Focus on Storage, High-End CCL, PCB, and Capacitors. 3. Value Tech and Non-Tech Theme Investments

Non-tech directions outperforming for an extended period, and high-dividend assets having absolute returns for an extended period. Non-tech track directions also see increased short-term volatility, but the medium-term key directions remain unchanged: CXO, innovative drugs, coal, shipping, precious metals, industrial metals, and basic chemicals. Real estate, after new sales regulations standardized the industry, has entered a period of resolving historical legacy issues and laying out incremental policy; combined with short-term highlights in real estate sales, real estate remains an important source of excess returns. High dividends and tech tracks exhibit a "seesaw effect," with key focus on banks, non-bank financials, food and beverage, and utilities. Before clues of the market returning to strength emerge, one can still hold high-dividend assets based on defense.

Risk warnings: Overseas economic recession exceeding expectations, domestic economic recovery falling short of expectations.