As early November approaches the U.S. midterm elections, the market is rapidly pricing in Iran-U.S. tensions, oil prices, AI capex and the interest rate path; meanwhile, October saw an unexpectedly sharp sell-off in technology stocks.

Four managers share a consensus: after the correction, positioning has clearly been flushed out, a short-term oversold rebound may appear, and the longer-term main theme is a shift from capital expenditure expansion to verification of business returns, with screening criteria returning to free cash flow and valuation matching.

Lin Peng believes the midterm election trading chain is logically sound but the path may not be smooth; in the short term the market trades expectations first, while reality may prove volatile, so we will respond flexibly. Han Dong points out that investor duration is broadly shortening and short-duration factors dominate, but the end of positive feedback is negative feedback, and long-duration capital such as insurance and foreign long-only funds, along with geopolitical turning points, deserve attention. Liang Shuang judges that the tech rebound has room but is a repair rather than a reversal, since what has been killed is valuation not earnings, and high dividend strategy is shifting from looking at dividend yield to looking at free cash flow. Luo Xiao likewise emphasizes that pricing is shifting from capital expenditure to business returns, that indiscriminate selling in AI may present mispriced opportunities, and that non-AI assets are already at expectation bottoms, cycle bottoms and valuation bottoms.

All-Market Funds

Lin Peng, Investment Manager of Harmony One Vision Series

Trading Game Before the Election Results Land

In early November, Democrats sweep the midterms, and the market quickly prices in the derivative effects: easing Iran-U.S. conflict - falling oil prices - pressure on AI capex - falling interest rates - rising gold - recovery in the traditional economy.

This trading chain is logically valid from a medium-term perspective, but the path to realization may not be smooth. In the short term the market trades expectations first, while reality may prove volatile, and we will respond flexibly.

Looking ahead, the short-term market may see an oversold rebound, and we will actively seize the opportunity. In technology, we remain industrially positive and investment-wise cautious. Opportunities after the correction should come from more reasonable prices and clearer earnings, not a mechanical return to the previous high.

In traditional industries, we continue to look for expectation gaps between companies and their industries. Opportunities in consumption, manufacturing, the property chain and pharmaceuticals need not wait for a strong aggregate reversal; share gains, improved competitive landscape and cash flow repair can also create returns. In a weak macro environment, whether quality companies can stabilize earnings and recover cash matters more than a simply low price-earnings ratio.

It is expected that before the end of this year, domestic policy expectations, the U.S. interest rate path and technology company earnings will continue to alternately influence the market.

Han Dong, Investment Manager of Harmony One Foresight Series

Investor Duration Shortening, Long-Duration Capital and Geopolitical Turning Points May Be Brewing

Since the pandemic, China's stock market, against the external backdrop of geopolitical competition, has seen continuous changes in investor structure and mindset, which has also driven the evolution of market style.

What we feel most clearly is that investor duration is shortening, and some factors that are effective over the long term but not necessarily in the short term are more headwind in market performance. Whether growth or value, momentum or quality, every factor, even if effective, has its own downturn and bubble periods, and does not affect stock prices frictionlessly in all cycles.

Long-duration quality/value factors have for a relatively long time been in a state of low explanatory power for stock prices; by contrast, some short-duration factors such as prosperity/momentum are driving market performance more. In terms of investor mindset, this reflects long-term expectations being hard to stabilize and lacking an anchor. When the medium and long term is hard to predict and discount, the short-term weight becomes higher and higher.

In terms of investor structure, domestic quantitative funds are flourishing and have become an important force in the market, and they are precisely the representatives pursuing high-frequency, short-duration factors. The development of overseas hedge funds has reinforced the investment approach and force of reverse shorting; due to leverage, their influence on some stocks, especially Hong Kong stocks with scarce liquidity, is enormous. In our understanding, shorting is inherently a decision model with a time cost that is hard to consider from a long-term perspective.

The deeper reason is the demands of the liability side. After decades of wealth accumulation, suddenly encountering an "era of chaos", Chinese wealth management clients increasingly tend to pursue absolute returns and focus on short-term drawdowns, which further limits the investment model of bearing short-term volatility in exchange for long-term investment returns.

But nothing moves in a single direction to the extreme and remains stable; the end of positive feedback must be negative feedback. In terms of positioning structure, investors represented by insurance are a representative of long-duration incremental capital; through the OCI account's protection against the pricing of short-term volatility, they can focus investment on long-term cash flow discounting. Although foreign long-only funds ignore the Chinese market in the short term, a large number of Chinese companies with global competitiveness fit their long-term investment standards very well, and some industry leaders moving toward Hong Kong stocks and entering their视野 have also shown differentiated trend characteristics in past markets.

In terms of the geopolitical environment, the Democrats' landslide in the midterm elections partly reflects a backlash in the United States against the Trump administration's extreme policies. Although we do not expect China-U.S. relations to return to the past, we are also closely watching which parts of the external industrial environment and market style that gradually moved to extremes over the past few years under the relatively radical Trump administration are sustainable and which may see turning points.

Liang Shuang, Investment Manager of Harmony One Vision/Far Horizon Series

Tech Rebound Is Repair Not Reversal; High Dividend Shifts from Dividend Yield to Free Cash Flow

Views on some industries:

1) Technology: the rebound has room, but its nature is repair rather than reversal. There is room. The STAR 50 fell 24% in one month and 47% from its peak, and the STAR Market fell 30.7% in a single quarter in Q3 (the largest in history); meanwhile the third-quarter reports show that AI industry chain-related earnings are actually being delivered, and what has been killed is valuation, not earnings themselves, which is the room for repair. The window depends on three time points: the midterm results landing (clearing policy uncertainty), the direction of the U.S.-Iran situation becoming clear (setting the tone for oil prices), and the December FOMC meeting (about a 64% probability of a 25bp hike). It is most likely a trading window for valuation repair, not an earnings-driven reversal. On the hardware side, because there are many doubts about demand after 2028, combined with Anthropic's financial data coming in below expectations and the continuously shrinking IPO financing scale, the hardware sector will still see huge volatility in the future. Conversely, if infrastructure investment is expected to decline in the future, then the cash flow of CSP-type companies will begin to improve, and there is room for valuation improvement.

2) High dividend: from "looking at dividend yield" to "looking at free cash flow". The CSI Dividend Index rose 1.8% in October, the only broad-based index to post a positive return that month. In an environment where the domestic macro environment is hard to call improved, oil prices are high, and U.S. September CPI has rebounded to 3.7%, the room for interest rate declines is compressed, and the bond-like attributes of dividends remain attractive for a long time.

3) After the third-quarter reports: a top-down industry list. In the first three quarters, all-A revenue was 56.2 trillion yuan, up 5.6% year on year, and net profit attributable to parent was 5.1 trillion yuan, up 7.8% year on year; while the median year-on-year net profit of individual stocks was -3.76% - the market-wide loss ratio was 25.67%, totaling 1,289 companies. Growth is real, but it is the growth of a minority of leaders. Both "top-down industry selection" and "bottom-up stock selection" are indispensable. Data source: Wind, sample of about 5,022 companies (excluding the Beijing Stock Exchange, ST and those without Shenwan classification), aggregate method is industry-summed year-on-year, 2026Q3 cumulative vs 2025Q3 cumulative. In addition, considering the huge decline in Hong Kong stocks during the year, after the midterms end, there is a possibility of a rebound. In sectors such as CXO and gold, from a horizon of more than one quarter, we remain firmly bullish. If the U.S.-Iran situation improves and oil prices fall, then consumer companies will also have opportunities.

Luo Xiao, Investment Manager of Harmony One Far Continent Series

Pricing Shifts from Capex to Business Return; Non-AI Assets at Three Bottoms

At the end of October, large technology companies' earnings became an important watershed: the market no longer only rewards growth in revenue and capital expenditure, but also begins to examine who finances the investment, how long it takes to pay back, and whether it erodes free cash flow. The idea we proposed in previous monthly reports, "from capital expenditure to business return", is becoming a more direct constraint on asset pricing.

But the decline slope of AI assets this round also exceeded our expectations; in hindsight, it may be largely related to excessive concentration of positioning. Based on 09/30 data, public funds' reduction in technology was still insufficient, with holdings still as high as 51%. Against the backdrop of high oil prices pushing up interest rates and weakening AI demand, crowded positioning amplified pessimistic sentiment.

But after the rapid sell-off in October, we are actually more positive on the market's short-term performance:

1) AI-related assets have been indiscriminately sold off, and there may be mispriced investment opportunities: the AI industry process has not stopped, but the investment focus is shifting from capital expenditure expansion to verification of business returns. We pay more attention to applications and cloud services that can form real payment and continuous repeat purchases, as well as key links that help reduce inference costs and improve computing efficiency. The core of screening companies is to see whether technological advantages can be converted into customer value, profit and cash flow, and match current valuations.

2) Non-AI assets are in a state of "expectation bottom, cycle bottom, valuation bottom": the fervor of AI investment in the first half concealed the highlights of all walks of life. In fact, after five years of adjustment, a group of companies in most industries has already emerged from the operating bottom, with significant improvements in asset quality, industry position and distributable cash flow, while valuations are still at historical lows.

3) Momentum indicators show the market correction is nearing its end: the momentum indicators we track, such as volatility, deviation rate, turnover rate and positioning distribution, show that the market correction is nearing its end.