Special Topic: Maintaining High Risk Appetite - Institutions Expect September-October to Be a Macro Tailwind Period

"This round is an 'expectation bull market' driven by valuation repair and sentiment reversal."

Investors showed no post-holiday blues, only anticipation for the market opening.

On the first trading day after the long holiday, the market surprised everyone with a sea of red: the Shanghai Composite Index consolidated for 41 minutes after opening before surging rapidly, quickly breaking through the 3900-point threshold.

This marks the Shanghai Composite Index's return to 3900 points for the first time in 10 years.

From 3800 points to the current 3900, each step up the index ladder brings mixed emotions to investors alongside excitement: with such gains, some naturally feel current levels are already high and consider "profit-taking," while others believe bull markets know no ceiling and advocate buying more as prices rise, and still others choose to remain "zen-like."

As one netizen put it: "If the stock market continues to rise, there's nothing we can do about it; if it stops rising, there's still nothing we can do about it. The conclusion is 'love it or leave it.'"

Today's article provides a small "review" at this juncture, screening for market warning signals while synthesizing various perspectives.

**Reaching 3900 Points - All Thanks to the "Golden Week"?**

First, a short-term summary. Yesterday's A-share surge to 3900 points was directly attributed to numerous positive developments during the just-concluded long holiday.

The most important positive was the rise of "real gold and silver."

This National Day holiday was truly a "golden" week, with heightened risk-aversion sentiment in financial markets. London spot gold and COMEX gold futures both broke through $4,000 per ounce, setting new historical highs. Riding on gold's surge, prices of silver, copper, aluminum, and other commodities also rose accordingly.

Consequently, after A-shares opened, the precious metals sector remained at high levels throughout the day, surging 8.3% to become yesterday's best-performing sector.

Additionally, positive news from certain technology sectors also influenced market sentiment.

On October 1st, the Compact Fusion Energy Experimental Device (BEST) project in Hefei, Anhui achieved key construction progress, signifying China's crucial advancement in controlled nuclear fusion - yesterday the controlled nuclear fusion sector gained 6.97%, becoming the market's second-largest gaining sector.

Furthermore, the Ministry of Commerce strengthened rare earth controls.

Yesterday, the Ministry of Commerce issued Announcements No. 61 and 62 of 2025, respectively announcing decisions to implement export controls on relevant overseas rare earth items and rare earth-related technologies.

Guojin Securities believes that with price increases, supply-side reform implementation, supply disruptions, and enhanced strategic sector attributes, the rare earth sector will continue evolving with both valuation and performance improvements, ultimately driving the rare earth permanent magnet sector up 5.05%.

**"Bull Market Observation" - Has Fundamental Change Occurred?**

Despite reaching 3900 points, market characteristics remain evident - it's still the familiar "slow bull" that maintains three major features.

First, this is a bull market maintaining "structural differentiation" rather than "universal gains."

Yesterday's trading exemplified this: on one side, new energy, semiconductors, precious metals, and other sectors surged ahead; on the other, major consumer sectors like cinema chains, tourism, and liquor collectively retreated, with multiple film sector stocks hitting limit down.

Moreover, despite strong index performance, while 3,115 stocks rose across both markets, 2,186 stocks still declined - this "ice and fire" scenario truly represents today's A-share reality.

Second, this bull market currently maintains a "valuation-driven" rather than "earnings-driven" momentum.

Stock index gains stem from two factors: companies earning more (EPS improvement) or markets willing to pay more for the same earnings (P/E ratio improvement).

Yintai Securities believes A-share market strength since the third quarter stems from confidence repair and continuous incremental capital inflows. This A-share rally clearly represents valuation repair driven by policy and capital.

From an earnings perspective, everything is just beginning.

On the last day before the holiday, National Bureau of Statistics data showed industrial enterprise profits above designated size fell 1.7% year-over-year from January to July, only reversing to 0.9% growth after August data release.

**October 9th Close: Shanghai Index Up 1.32%, Firmly Above 3900 Points**

Third, most importantly, this bull market's anchor remains "policy expectations."

Before the "9.24" rally began, CSI 300 valuations were at historical lows. When markets touched the "policy bottom," investors widely expected strong economic and capital market reform measures. Policies didn't disappoint, continuously releasing positive signals over the past year.

With less than two weeks until the Fourth Plenary Session of the 20th Central Committee, this becomes the market's new expectation focus.

Overall, this bull market's foundation combines low valuations with policy support - an "expectation bull market" driven by valuation repair and sentiment reversal. As long as these characteristics persist, the "slow bull" portrait remains.

**Hold or Sell? That is the Question**

Understanding current market logic brings the 3900-point "mystery" - perhaps also the future 4000-point mystery (if possible) - should investors rush into markets or exit?

On one hand, frankly speaking, market profit effects aren't friendly to newcomers.

With markets in a structural bull phase, capital flows between sectors create "sector rotation" - previously favoring bank stocks, now clustering in tech stocks. Novice investors easily chase rises and sell on dips, facing uncontrollable risks.

On the other hand, markets show some noteworthy warning signals.

For instance, yesterday multiple brokerages adjusted nine A-share listed companies' margin trading "conversion rates to zero." After adjustment news broke, related company stock prices plunged.

Conversion rates allow account stocks to be converted into margin deposits. According to exchange rules since 2016, once individual stock static P/E ratios exceed 300 times, conversion rates become zero. At this point, brokerages can no longer treat these stocks as collateral.

Nine companies' zero conversion rates mean their dynamic P/E ratios all exceed 300 times, with some reaching 947 times.

While not indicating tech bubble collapse, the news directly caused STAR Market to retreat quickly after surging 9%, showing some used this as a signal for corresponding decisions.

Additionally, we observed several signals often considered market top indicators:

◎ Signal One: Desperate latecomers flooding in. When relatives and friends who never discuss stocks start rushing in, and market sentiment shifts from divergence to unanimous frenzy, risk peaks. While investor account openings have increased significantly, trading volumes haven't reached historical peaks, with observers and hesitators still predominating.

◎ Signal Two: Major positive news at high levels. When indices reach dazzling heights and various "positive" news fills the air, these often represent smoke screens for major capital exits.

◎ Signal Three: Junk stocks rising universally. At bull market ends, capital loses rationality, ignoring fundamentals to speculate on low-priced junk stocks, grasping final madness. Yesterday's gains remained highly concentrated in core sectors with performance, logic, and futures.

In other words, these three indicators currently aren't particularly evident.

**Investors Focus on Market Index**

**Will 4000 Points Be Far Away?**

With 3900 points reached, how far is 4000? Here are latest views from selected institutions and brokerages:

◎ Industrial Securities strategy team believes "Red October" could give A-share markets a good start, whether from liquidity or risk appetite perspectives.

◎ CSC Financial and other brokerage strategy teams cite third-quarter earnings trading windows and dense major policy benefits from the "15th Five-Year Plan."

◎ Zheshang Securities' fourth-quarter macro strategy mentions: Q4 A-shares may switch from tech growth to low-volatility dividend sectors, continuing structural trends, particularly as Q4 equity assets likely shift from offense to defense.

◎ Pacific Securities believes tech stock positions are crowded, making further tech sector pursuits cost-ineffective. If tech temporarily cools, long-declining banking sectors might perform.

◎ Yintai Securities mentions opportunities for A-share core asset value revaluation amid long-term capital inflows, recommending high-dividend value sectors and industry leaders.

Notably, three brokerages' recent strategic reports mentioned high-dividend and low-volatility dividend opportunities, signaling: current offensive approaches offer poor cost-effectiveness compared to "defensive" importance.

Style switching breeds opportunities but brings risks.

At the 2015 Berkshire Hathaway shareholder meeting, Munger evaluated Chinese investors: "Chinese people have always been entrepreneurial, but they 'gamble' whenever they get chances, bringing huge volatility to Chinese stock markets."

As indices rise, more sideline investors may flood markets. According to Munger's view, investors should emphasize value investing rather than indulge in speculative waves.