Investment Highlights

🔷 Historical review shows October A-share performance tends to be volatile, primarily influenced by policy and external events, liquidity, and fundamentals. (1) October A-share market performance leans toward consolidation: In the 15 years since 2010, the Shanghai Composite Index rose in October 8 times. (2) Policy and external events, liquidity, and fundamentals are the main factors affecting A-share October trends. First, policy and external events are core influencing factors: When policies and external events are positive, A-shares may rise, particularly in years when "Five-Year Plans" are implemented - the Shanghai Composite rose in October during 2010, 2015, and 2020. Conversely, when policies tighten or negative external shocks occur, A-shares may weaken. Second, liquidity is also a major influencing factor: Loose liquidity may drive A-shares higher in October, such as US QE2 expectations in 2010, central bank RRR and interest rate cuts in 2015, and Fed rate cuts in 2019. Conversely, tight liquidity may cause weak October performance. Third, Q3 earnings reports significantly impact October A-share performance.

🔷 Currently, A-shares in October this year may continue the slow bull trend with volatile strength. (1) Positive policy expectations may rise in October, with geopolitical relations somewhat tightening. First, the upcoming Fourth Plenary Session may boost positive policy expectations. Second, geopolitical relations may tighten: Trump has indicated tariffs will be imposed on China, potentially leading to renewed US-China trade friction; however, October escalation of Russia-Ukraine and Israel-Palestine conflicts may be difficult, and negative impacts from Japan's new Prime Minister may be less than market expectations. (2) October liquidity may further loosen. First, macro liquidity may remain loose in October: The Fed will likely continue rate cuts in October; domestically, the central bank may increase reverse repo operations. Second, micro funds may continue flowing into A-shares in October: Historically, October sees high probability of fund inflows; this October, with further overseas liquidity easing, foreign investment, margin trading, and new fund launches may increase further. (3) October economy may continue weak recovery, with earnings potentially showing structural improvement. First, October economy may continue weak recovery. Second, Q3 earnings disclosures in October may show structural earnings improvement: Technology and cyclical sector earnings growth may recover in Q3 reports.

🔷 Sector allocation: October's technology-led growth style advantage unlikely to change; continue selective allocation to technology, core assets, and cyclical sectors. (1) "15th Five-Year Plan"-related technology growth sectors may outperform relatively in October. First, historical review shows Five-Year Plan-related sectors typically outperform in October and the month following meetings. Second, currently, the "15th Five-Year Plan" may emphasize technological innovation and domestic demand stimulation, making related technology and consumer sectors relatively advantaged; sectors with rising industry trends and prosperity remain concentrated in technology and cyclicals, while consumer sector prosperity remains low. (2) Against the backdrop of Q3 earnings disclosures in October, technology growth and cyclical sectors may relatively outperform. First, historical review shows that during October Q3 earnings disclosure periods, sectors with better Q3 performance and higher prosperity relatively outperform. Second, this year, sectors with higher expected Q3 earnings growth include computer, media, defense, new energy, and electronics among technology growth sectors, and steel, building materials, non-ferrous metals, and chemicals among cyclical sectors; high-prosperity sectors may also be technology and cyclicals. (3) Under the Fed rate-cutting cycle, technology growth and some cyclical sectors may relatively outperform. First, historical review shows that during Fed rate-cutting cycles, sectors with rising industry trends or high prosperity relatively outperform. Second, currently, technology growth and some cyclical sectors may relatively outperform in October. (4) Calendar effects show computer, automotive, home appliances, and electronics technology growth and core asset-related sectors have higher probability of leading gains in October. (5) October recommendations continue selective allocation to: First, sectors benefiting from policy and rising industry trends including communications (computing power), machinery (robotics), electronics (consumer electronics, semiconductors), media (gaming), computers (AI applications), non-ferrous metals, and chemicals; Second, sectors with potentially improving fundamentals including new energy (solid-state batteries, energy storage, wind power), pharmaceuticals (innovative drugs, CXO), food, and defense.

🔷 Risk warnings: Historical experience may not apply to future conditions, policy changes may exceed expectations, economic recovery may fall short of expectations.

Main Content

I. October Slow Bull Trend Remains Intact

(I) Core factors affecting October market trends are policy and external events, liquidity, etc.

Historical review shows October A-share performance tends toward consolidation, mainly influenced by policy and external events, liquidity, and fundamentals. (1) October A-share market performance leans toward volatility, with the Shanghai Composite rising in October 8 times out of 15 years since 2010. (2) Policy and external events, liquidity, and fundamentals are main factors affecting A-share October trends. First, policy and external events are core factors: When policies and external events are positive, A-shares may rise, with Five-Year Plan implementation years seeing Shanghai Composite gains in October, such as October 18, 2010 when the 17th Central Committee Fifth Plenary Session passed the "12th Five-Year Plan" proposal leading to 12.2% monthly gains, October 29, 2015 when the 18th Central Committee Fifth Plenary Session approved the "13th Five-Year Plan" proposal with 10.8% gains, and October 29, 2020 when the 19th Central Committee Fifth Plenary Session passed the "14th Five-Year Plan" with 0.2% gains. Additional examples include October 10, 2011 when Huijin increased holdings in major banks (4.6% gain), September 30, 2016 when the Ministry of Finance and central bank established treasury bond market-making support mechanism (3.2% gain), and October 10, 2019 during the 13th round of high-level China-US trade consultations (0.8% gain). Conversely, when policies tighten or negative external shocks occur, October A-shares may weaken, such as intensified China-US trade friction in October 2018 (-7.8%), Nord Stream pipeline explosion in September 26, 2022 causing European energy crisis (-4.3%), outbreak of Israel-Palestine conflict on October 7, 2023 (-3.0%), and regulatory prohibition of credit funds illegally entering stock markets in October 2024 (-1.7%). Second, liquidity is also a major factor: Loose liquidity may strengthen October A-shares, such as rising US QE2 expectations in October 2010, US QE3 launch on September 13, 2012, central bank RRR and rate cuts on October 24, 2015, RMB inclusion in SDR basket effective October 1, 2016, central bank targeted RRR cuts on September 30, 2017, and Fed rate cuts in mid-to-late September and end of October 2019. Conversely, tight liquidity may weaken October A-share performance, such as rising US QE3 exit expectations in 2013 and Fed rate hikes in late September 2018. Third, Q3 reports significantly impact October A-share performance, with greater impact during weak fundamentals, for example: October 2019 and 2020 saw manufacturing PMI decline from September, but with A-share Q3 earnings growth improving compared to interim reports, October Shanghai Composite strengthened; conversely, October 2021-2024 saw manufacturing PMI or industrial enterprise profits decline, with Q3 earnings growth declining or remaining low, leading to weak October Shanghai Composite performance.

(II) This year's October A-shares may continue volatile but strong slow bull trend

October positive policy expectations may rise, with geopolitical relations somewhat tightening. (1) The upcoming Fourth Plenary Session may boost positive policy expectations. First, the 20th Central Committee Fourth Plenary Session will convene October 20-23, 2025 in Beijing, reviewing the "15th Five-Year Plan" which may focus on technological innovation and domestic demand stimulation, potentially further boosting medium-to-long-term economic growth expectations. Second, around the Fourth Plenary Session, short-term growth-supporting policies may accelerate implementation, with closer fiscal and monetary policy coordination expected, and capital market policies expected to accelerate, maintaining overall positive policy momentum. (2) Geopolitical relations may tighten. First, Trump has indicated tariffs will be imposed on China, with potential renewed China-US trade friction: The US Senate passed bipartisan legislation called the Guaranteeing American National AI Access and Innovation Act (GAIN AI Act), requiring advanced AI chip manufacturers (like Nvidia and AMD) to prioritize US domestic customers (including SMEs and startups) before exporting advanced chips to "countries of concern" including China; Trump stated on October 10 that 100% tariffs on Chinese imports would begin November 1, showing renewed China-US trade friction trends. Second, October Russia-Ukraine and Israel-Palestine conflicts may be difficult to escalate, with negative impacts from Japan's new Prime Minister potentially less than market expectations: Recent Russia-Ukraine conflict shows no escalation signs, with Russia's Defense Ministry stating 185 captured military personnel returned from Ukraine in exchange for 185 captured soldiers returned to Ukraine; Israel and Hamas representatives held new Gaza ceasefire negotiations on the 6th, and despite disagreements on key issues, geopolitical relations show some easing signs; Japan's new Prime Minister may soon take office, with Takaichi Sanae viewed as inheriting Abe Shinzo's line, belonging to right-wing conservatives within the LDP with relatively aggressive political positions that may impact short-term market risk appetite.

October liquidity may further loosen. (1) October macro liquidity may remain loose. First, overseas: The Fed will likely continue rate cuts in October, with September monetary policy meeting minutes showing that due to weaker-than-expected employment data and rising employment downside risks, Fed officials generally expect further rate cuts, though opinions differ on tariff impacts on inflation, but most Fed officials expect at least two more rate cuts before year-end; with US government "shutdown" and weak employment and economic data impacts, the dollar index may maintain low-level consolidation with minimal overseas impact on domestic liquidity easing. Second, domestically: Historical experience suggests the central bank may increase reverse repo operations in October with expanded funding scale; the central bank's Q3 regular meeting proposed strengthening monetary policy regulation and grasping appropriate policy implementation strength and pace, with October domestic macro liquidity potentially further easing. (2) October micro funds may continue flowing into A-shares. First, historical experience shows that in the 10 years since 2015, October saw foreign capital net inflows 5 times and financing net inflows 8 times, indicating high probability of October stock market fund inflows. Second, this October with continued Fed rate cuts and further overseas liquidity easing, foreign capital may continue inflows in October, while sustained slow bull trends may maintain high financing inflow levels, with October new fund launches also potentially rising further.

October economy may continue weak recovery, with earnings potentially showing structural improvement. (1) October economy may continue weak recovery. First, low base effects may maintain some resilience in October export growth: Last October's export amount base was relatively low, with low base effects potentially boosting this year's export growth; October tariff deferral continuation may lead to early overseas order placement amid uncertain November tariff policies, and approaching overseas consumption peak season may support continued export growth recovery. Second, holiday consumption preferences may boost October social retail growth: This year's National Day holiday consumption data was positive, with Ministry of Commerce big data monitoring showing comparable growth of 2.7% for national key retail and catering enterprise sales during the National Day Mid-Autumn Festival holiday, and 6.0% growth for monitored key commercial streets during October 1-7; policy-supported new consumption and green consumption demand remained hot, with green organic food sales up 27.9%, smart home products up 14.3%, and domestic trendy clothing up 14.1% during holidays, with peak season catalysis potentially maintaining high October social retail growth. Third, with accelerated Q4 growth-supporting policy implementation and anti-involution policies driving cyclical sector profit recovery, October infrastructure and manufacturing investment growth may rise, while October real estate investment growth may remain weak: Manufacturing and infrastructure investment growth likely maintains some resilience, with anti-involution and "dual emphasis" policies boosting manufacturing investment, plus September PMI recovery reflecting potential manufacturing prosperity improvement, combined with accelerated special bond issuance and approaching construction peak season potentially accelerating infrastructure investment implementation; real estate investment growth likely remains weak, with National Day holiday commercial housing transaction area growth of only -7.3% in 30 major cities showing continued weak residential purchase intentions, plus continued decline in new housing construction and completion area growth rates, with overall real estate sector still in destocking.

(2) Overall A-share Q3 earnings may show structural improvement. First, industrial enterprise profit growth correlates somewhat with overall A-share profit growth, with August industrial enterprise profit growth surging to 20.4%, while PPI and leading indicators may rise under anti-involution policy promotion, with industrial enterprise profit growth expected to peak at high levels. Second, October A-share Q3 earnings disclosures may show structural profit improvement: 19 companies have disclosed earnings forecasts with overall comparable growth of 63.7% versus actual Q3 2024 profit growth of -0.62%, indicating earnings in recovery trend; as of October 9, 2025, among 31 SW sectors, single Q3 Wind consensus expected earnings rankings show higher-performing sectors including steel, computers, media, defense, new energy, building materials, electronics, and non-ferrous metals among cyclical and growth sectors, with only coal negative, suggesting Q3 technology and cyclical sector earnings growth may recover.

II. Sector Allocation: October Technology, Cyclical, and Core Asset Advantages Unlikely to Change

(I) Fourth Plenary Session convening may favor October technology growth relatively

"15th Five-Year Plan"-related technology growth sectors may relatively outperform in October. First, historical review shows Five-Year Plan-related sectors typically outperform in October and the month following meetings: "12th" through "14th Five-Year Plans" emphasized sectors mainly concentrated in computers, pharmaceuticals, machinery, power equipment, automotive, and other emerging technology growth sectors; these emphasized sectors typically performed strongly in October and the following month. Second, currently, the "15th Five-Year Plan" may emphasize technological innovation and domestic demand stimulation, with related technology and consumer sectors potentially outperforming relatively; sectors with rising industry trends and prosperity in October may still concentrate on AI-related TMT, robotics, new energy, pharmaceuticals, and non-ferrous metals, while consumer sector prosperity remains low.

(II) Q3 earnings disclosures may favor October technology growth and cyclical sectors

Against Q3 earnings disclosure backdrop, technology growth and cyclical sectors may relatively outperform in October. First, historical review shows during October Q3 earnings disclosure periods, sectors with better Q3 performance and higher prosperity relatively outperform: Sectors with better Q3 performance led October gains, such as coal in 2016, electronics in 2017, agriculture in 2019, power equipment in 2020, automotive in 2023, and electronics/diversified in 2024. High-prosperity sectors also outperformed, such as computers and communications in 2015, construction and food & beverage in 2016, home appliances, food & beverage, and electronics in 2017, banking in 2018, agriculture in 2019, automotive and power equipment in 2020, power equipment, automotive, and beauty care in 2021, computers and machinery in 2022, electronics and automotive in 2023, and electronics and computers in 2024. Second, this year, sectors with higher expected Q3 earnings growth include computers, media, defense, new energy, and electronics among technology growth sectors, and steel, building materials, non-ferrous metals, and chemicals among cyclical sectors; high-prosperity sectors may still be AI-related technology and price-driven cyclical sectors.

(III) Fed rate-cutting cycle may favor technology growth and some cyclical sectors

Under Fed rate-cutting cycles, technology growth and some cyclical sectors may relatively outperform. First, historical review shows during Fed rate-cutting cycles, sectors with rising industry trends or high prosperity relatively outperform, such as automotive during January 3, 2001-June 5, 2003, agriculture during September 18, 2007-December 16, 2008, electronics during August 1, 2019-March 16, 2020, and communications during September 18, 2024-September 18, 2025. Second, currently, technology growth and some cyclical sectors may relatively outperform in October: The Fed will likely continue rate cuts in October; AI-led technology industry trends may continue rising in October, while non-ferrous metals and chemicals benefiting from price increases and new material demand growth may also see continued prosperity rises in October.

(IV) Calendar effects favor October technology growth and core assets relatively

Calendar effects show computers, automotive, home appliances, and electronics technology growth and core asset-related sectors have higher probability of leading October gains. In the 10 years since 2015, sectors appearing most frequently in top-three October gains include computers (2015, 2022, 2024, total 3 times), home appliances (2017, 2019, 2020, total 3 times), automotive (2020, 2021, 2023, total 3 times), and electronics (2017, 2023, 2024, total 3 times).

(V) October continues selective allocation to technology, some core assets, and cyclical sectors

October recommendations continue selective allocation to sectors benefiting from policy and rising industry trends including communications (computing power), machinery (robotics), electronics (consumer electronics, semiconductors), media (gaming), computers (AI applications), non-ferrous metals, and chemicals. (1) Communications: The 11th Global Ultra-Broadband Summit (UBBF 2025) will be held October 13-14, 2025 in Paris, France, themed "AI Prosperity UBB, Inspiring New Growth for Operators," gathering global operators, industry partners, regulators, standards organizations, and industry alliances. (2) Machinery: On October 9, Zhiyuan Robotics announced cooperation with global smart product ODM company Longqi Technology, deploying nearly 1,000 robots in this cooperation, representing one of the largest orders in China's industrial embodied intelligence robotics field. (3) Electronics: First, China's automatic data processing equipment and components export amounts grew in August, increasing 2.29% from July; second, TechG 2025 Shanghai International Consumer Electronics Show will be held October 23-25, 2025 at Shanghai New International Expo Centre, attracting over 400 companies exhibiting AI+, XR, smart home appliances, intelligent connectivity, sports technology, smart health, robotics, and other latest consumer electronics products and technologies; third, Vision China 2025 Shenzhen Machine Vision Exhibition will join NEPCON ASIA and other seven electronic manufacturing industry chain events October 28-30 at Shenzhen International Convention and Exhibition Center Hall 9. (4) Media: According to National Film Administration statistics, 2025 National Day film box office totaled 1.835 billion yuan with 50.07 million viewers, domestic film box office accounting for 98.93%. (5) Computers: First, August software business total revenue recovered with 9.12% year-over-year growth, up 3.96% from July; second, the 7th Artificial Intelligence Application Industry Expo (ACE 2025) was held October 10-12, 2025 at Shanghai New International Expo Centre; third, China Computer Congress 2025 (CNCC 2025) will be held October 22-25, 2025 in Harbin, representing China's annual computing field academic event themed "Digital Intelligence Empowerment, Infinite Possibilities." (6) Non-ferrous metals: International Copper Study Group expects global copper mine production to grow 1.4% in 2025 and 2.3% in 2026, with global refined copper production expected to grow about 3.4% in 2025 and 0.9% in 2026. (7) Chemicals: The 16th China International Petrochemical Conference (CPCIC 2025) will be held October 22-24 in Ningbo, focusing on "15th Five-Year Plan" petrochemical industry policy outlook and AI-driven energy efficiency revolution frontier topics.

October recommendations continue selective allocation to sectors with potentially improving fundamentals including new energy (solid-state batteries, energy storage, wind power), pharmaceuticals (innovative drugs, CXO), food, and defense. (1) New Energy: First, solar cell export quantities rose for two consecutive months, with August export quantities up 105.95% year-over-year, 34.94% from July, and 67.49% from June; second, the 10th New Energy Industry Annual Conference and 20th Anniversary Celebration launched October 9-12, 2025 at Shanghai Pudong Kerry Hotel, with wind power, solar, hydrogen, energy storage, and charging/swapping five core field sub-forums opening simultaneously. (2) Pharmaceuticals: First, the 2025 Traditional Chinese Medicine Preparation Conference convened October 10-13, 2025 in Pengzhou, Chengdu, Sichuan; second, at this year's CIIE, "perfect attendee" Sanofi focuses on cardiovascular, metabolic, respiratory, and oncology four chronic diseases plus immunology, transplantation, and rare diseases, comprehensively showcasing Sanofi's innovative products, with two breakthrough cardiovascular innovative drugs making "global debuts." (3) Food: First, October 3 saw Jiannanchun baijiu (52 degrees, 500ml) price recovery, up 4.78% from previous week; second, Shanghai International Functional Food Conference and Industry Expo will be held October 22, 2025 at Shanghai World Trade Mall 7th floor Golden Hall, themed "Science Empowering Functional Foods, Leading Healthy Industry Future," with the 8th Nutrition and Healthy Aging Scientific Conference held simultaneously October 23; third, the First National Food Industry Channel Summit will be held October 17, 2025 at Nanjing International Expo Center Conference Center, themed "Channel Innovation, Connecting the Future." (4) Defense: First, 2025 China Wuhan Defense Military Informatization and Aerospace Exhibition will be held October 28-30 at Wuhan Culture and Expo Center, themed with informatization, specialization, and internationalization, showcasing China's latest achievements in high-end manufacturing equipment, frontier equipment, and defense military informatization industry chains; second, 2025 China (Xinjiang) Aerospace National Defense Technology Industry Expo will be held October 17-19, 2025 at Xinjiang Urumqi International Convention and Exhibition Center, covering about 33,000 square meters and attracting approximately 800 exhibitors.

III. Risk Warnings

1. Historical experience may not apply to future conditions: Related historical reviews have historical limitations, with different periods' market conditions, industry trends, and global economic environment changes having different investment impacts, with past performance for reference only.

2. Policy changes may exceed expectations: Economic policies may exceed or fall short of expectations due to macroeconomic environment,突发事件, and international relations influences, affecting investment decisions under current analytical frameworks.

3. Economic recovery may fall short of expectations: Due to external interference, trade disputes, natural disasters, or other unpredictable factors, economic recovery processes may fluctuate, affecting investment decisions under current analytical frameworks.