Core Viewpoint: Unlike April, trade risk boundaries may be clearer, and domestic financial stability conditions are more transparent. External disruptions will not terminate the trend, and market corrections present opportunities to increase holdings in China. Style will not switch; we remain optimistic about technology, cyclicals, and financials.
Investment Highlights
▶ October Portfolio: 1. Overseas Technology: Tencent Holdings/Alibaba-W; 2. Electronics: Hygon Information/SMIC; 3. Computing: ArcSoft/R&P; 4. Communications: ZTE Corporation; 5. Machinery: Changying Precision/Hengli Hydraulic; 6. New Energy: Xiamen Tungsten New Energy; 7. Media: Mango Excellent Media/Kaiying Network; 8. Defense: AVIC Shenyang Aircraft/Guobo Electronics; 9. Pharmaceuticals: Hengrui Medicine; 10. Non-Banking Financial: East Money; 11. Non-ferrous Metals: Yunnan Tin; 12. Transportation: Air China; 13. Light Industry: Sun Paper; 14. Food, Beverage & Cosmetics: Ruoyuchen.
▶ Market Assessment: Asset declines caused by external shocks present excellent opportunities to increase holdings in Chinese markets. In early April, investors had vague estimates of trade risk boundaries brought by "reciprocal tariffs," and limited understanding of domestic economic and financial stability conditions and response preparations, leading to valuation contraction and confidence damage. Unlike the April shock, current trade risk boundaries are relatively clear, and domestic financial stability conditions are more transparent. Therefore, external shocks are disturbances that will not terminate the trend. Investment should focus more on the inherent certainty of China's "transformation bull" trend: accelerated Chinese transformation, declining risk-free returns, and capital market reforms. Current Chinese society and investors continue to experience surging demand for "asset allocation," especially high-quality assets with solid development logic. Therefore, asset declines caused by external conflicts and disturbances actually present buying opportunities. Geopolitical shocks and adjustments are inevitable but will not last long, with controllable magnitude, representing opportunities to increase Chinese holdings.
▶ Calmly Address Market "Knee-Jerk Reactions": Trade risk boundaries may be clearer. Although valuations were low after April adjustments, most investors' sentiment was not optimistic then. In risk shock environments, what matters is expectations of risk prospects and boundaries, not valuations, as assessing valuations based on current cyclical bottom earnings has limitations. Trade risk boundaries are clearer compared to April: Unlike April's gradual escalation of "reciprocal tariffs" between China and the US, China's current countermeasures using rare earths and lithium battery measures are precise, powerful, and hit pain points, indicating China's more systematic and composed approach to countermeasures. The US announcement of 100% tariffs on China, if implemented, would approach "trade stagnation," making further trade conflicts practically meaningless. Conversely, the US faces inflation and Christmas season reality constraints. Therefore, risk boundaries are relatively clear.
▶ Calmly Address Market "Knee-Jerk Reactions": Domestic financial stability conditions are also clearer. 1) Recent sequential economic softening and new China-US trade risks adversely affect apparent economic performance, while the other side of trade risks is potential strengthening of domestic fiscal and monetary easing support positions. 2) Stabilizing capital markets plays a key role in building social consensus, boosting public expectations, promoting economic transformation, stabilizing balance sheets, and attracting overseas capital. Since 2025, leadership has continuously expressed positions and deployed capital market stabilization measures. The July 30 Politburo meeting newly proposed "enhancing flexibility and foresight," the August 29 CSRC again mentioned "consolidating capital market recovery momentum," and on September 23, the central bank pointed out "exploring normalized institutional arrangements to maintain capital market stability." Therefore, with advancing capital market reforms, financial stability conditions are also clearer.
▶ Sector Comparison: Style will not switch; emerging technology is the main theme, cyclicals and financials are dark horses. Given complex geopolitical and economic situations, sectors easily falsifiable by data and policies remain poor choices. We believe style will not switch, focusing on industrial development, anti-involution, and stable value. 1) China's AI innovation and localization progress accelerate, with a new round of capital expenditure expansion cycles emerging. Domestic semiconductor equipment "DeepSeek moments" may be approaching. Recommendations: Hong Kong internet/electronics & semiconductors/defense & military/media/robotics, etc. 2) Financial sectors, after adjustments, show improved dividend returns and stable value. Recommendations: securities/banking/insurance. 3) Behind anti-involution lies changes in economic governance thinking, helping break or correct previously fully-priced deflationary expectations. We favor cyclical products with improving patterns: non-ferrous metals (rare earths)/chemicals/steel/new energy, etc.
▶ Risk Warning: Overseas economic and geopolitical risks, individual stock performance falling short of expectations.
Guotai Haitong Strategy October 2025 Stock Portfolio