August witnessed domestic equity markets benefiting from capital inflows and expanding profit effects, with AI and other high-growth sectors driving indices to new highs. "New quality productive forces" represented by artificial intelligence (AI) computing power, semiconductors, and new energy emerged as the absolute main theme, leading A-share gains.

Looking ahead to September, short-term capital trading may increase market volatility, while stable domestic fundamentals and continued external liquidity improvements favor contrarian positioning. Domestic fundamentals remain steady, with production activities showing marginal improvement as extreme weather subsides. The traditional peak seasons of September and October provide support for both production and consumption, while exports maintain resilience amid slow price transmission. Fundamentals pose minimal market disruption.

September's core macro variable centers on liquidity, particularly the anticipated Fed rate cut. The baseline scenario expects a 25 basis point cut, though a 50 basis point reduction remains possible depending on upcoming non-farm payroll data and annual benchmark calibration adjustments. Additionally, Trump's political intervention increases marginal pressure on the Fed, with Governor Cook facing significant dismissal risks. This could enable Trump to influence Fed rate cut timing, challenging Fed independence and opening space for sustainable market pricing of future rate cuts.

Key domestic and international factors warrant attention for their potential A-share market impact:

**1. September 3 Military Parade** Beijing's Tiananmen Square will host a commemoration of the 80th anniversary of victory in the Chinese People's War of Resistance Against Japanese Aggression and World Anti-Fascist War, including military review. Focus on new-generation weapons and equipment debuts, providing important guidance for military development planning in the 15th Five-Year Plan.

**2. Fed Meeting and Trump's Fed Independence Intervention** Following dovish statements at the global central bank conference, markets actively price in three Fed rate cuts this year. Combined with domestic low rates, certain US rate cut expectations, policy support, and household deposit migration, equity market fund inflows are expected to continue growing.

**3. Supreme Court Ruling on Trump Tariff Legality** On August 29, a US appeals court ruled most of Trump's global tariff policies illegal, stating the International Emergency Economic Powers Act doesn't explicitly grant presidential tariff authority. The ruling won't take effect until October 14, allowing Trump to appeal to the Supreme Court. While A-share markets have shown phase resilience to overseas risks, tariff legality could further catalyze market sentiment.

**4. US August Non-Farm Employment Data** July's employment data created significant market volatility and controversy. August's report will be crucial in two aspects: whether it indicates further labor market deterioration, and whether data credibility will be questioned again following Trump's dismissal of the Bureau of Labor Statistics director. This will influence market expectations for Fed rate cut magnitude and foreign capital flows into A-shares.

**Sector Allocation Strategy**

Given elevated short-term market sentiment, recommend focusing on long-term earnings improvement through technology, innovative drugs, non-banking financial, and non-ferrous metals:

**1) Innovative Drugs** Innovative drugs remain in intensive catalyst period, likely maintaining strength short-term. Policy environment has shifted favorably post-procurement policy changes and overseas BD expectations. New support measures for high-quality innovative drug development bring stronger catalysts in medical insurance payments, benefiting from medical insurance data usage in drug R&D. Leading pharmaceutical companies continue securing major BD deals, boosting market performance expectations.

**2) "Anti-Involution" Cyclical Stocks** Mid-year earnings show most listed cyclical industries experiencing continued revenue and profit growth deceleration. Traditional cyclical industry supply-side reform is imperative, with anti-involution progress and sustainability expected to strengthen. Focus on severely loss-making industries like photovoltaic, glass, and steel, along with sectors receiving recent policy guidance.

**3) Technology Manufacturing** Technology manufacturing shows relatively high profit growth rates across industries, with computer, media, and electronics sectors achieving over 25% first-half net profit growth. AI chains remain at trading emotion peaks. In incremental market environments, overseas and domestic AI development aren't contradictory, though focus on AI applications and domestic semiconductor advanced processes with reasonable price-to-odds ratios is preferred. As business models prove viable, earnings realization should accelerate.

**4) Consumption** Following Politburo meeting's economic development contradiction assessment shift from supply-side to demand-side reform, consumption policy intensification has reached strong consensus expectations. 2025 "two new" policy continuity and expansion, post-two sessions State Council consumption promotion action plans, and rapid implementation of consumption support policies by financial regulators,央行, and securities regulators, combined with stable earnings fundamentals in essential consumption during earnings season, suggest continued focus on consumption sector structural opportunities.

**5) Gold, Rare Earths, and Defense** With external risk desensitization and domestic profit effect expansion, short-term hedging value as risk ballast has decreased, though defense maintains short-term order expectation improvement space. Rare earth strategic importance continues rising, with US Commerce Secretary announcing a $550 billion investment plan this week, partially funding rare earth production. Trump stated in joint press conference with South Korean president: "If China doesn't quickly supply rare earths, the US will impose 200% tariffs on Chinese goods." For gold, as US trade agreement uncertainties gradually resolve and global trade patterns return to relative stability with improved predictability, short-term drivers for new spot gold highs may be limited, likely seeking support after high-level retreats absent unexpected turbulence. Additionally, pre-September 3 parade, markets are expected to maintain high attention on military equipment and orders, with the 15th Five-Year Plan release imminent, potentially forming new round order expectations.

**Risk Warning:** Views, analyses, and forecasts referenced herein represent individual opinions under current specific market conditions and certain assumptions, not necessarily suitable for all future market conditions. Past performance of related indices and industries doesn't represent future performance or fund performance under our management, and doesn't constitute investment advice for readers. Fund past performance doesn't represent future performance. Investment involves risks and requires caution. Before making investment decisions, please carefully read fund contracts, prospectuses, and product summaries, fully understand fund risk-return characteristics and product features, seriously consider various risk factors, and based on your investment objectives, timeframe, experience, and asset situation, fully consider your risk tolerance and make rational, cautious investment decisions after understanding product conditions and sales suitability opinions.