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The previous week had only three trading days, and all three major A-share indices closed lower on a weekly basis. The Shanghai Composite Index, Shenzhen Component Index and ChiNext Index fell 1.19%, 3.22% and 4.67% respectively, while the average share price across the whole A-share market declined 2.43%, making the profit-making effect relatively weak.
On the macroeconomic front, the central government provided interest subsidies on commercial personal housing loans for the first time, starting from October 1, with a tentative implementation period of one year and no cap on total funding. The central bank lowered the one-year pledged supplementary lending (PSL) rate by 0.25 percentage points to 1.5%, expanded the areas supported by PSL, and increased the relending quota for technological innovation and industrial upgrading as well as the relending quota for agriculture and small businesses.
Investment Logic and Strategy Outlook
The previous week had only three trading days, and all three major indices closed lower on a weekly basis. The Shanghai Composite Index, Shenzhen Component Index and ChiNext Index fell 1.19%, 3.22% and 4.67% respectively, while the average share price across the whole A-share market declined 2.43%, making the profit-making effect relatively weak. At the sector level, only real estate, banking and agriculture, forestry and animal husbandry sectors closed higher, while all other sectors declined, with technology sectors such as communications and electronics leading the losses.
In terms of fundamentals, positive and negative factors are intertwined both domestically and overseas. The Chinese and U.S. heads of state held a successful meeting and reached many consensus points; the central bank lowered the one-year PSL rate by 0.25 percentage points to 1.5%, expanded the areas supported by PSL, and increased the relending quota for technological innovation and industrial upgrading as well as the relending quota for agriculture and small businesses; the central government provided interest subsidies on commercial personal housing loans for the first time, aiming to further stabilize housing prices. However, overseas, the uncertain situation between the U.S. and Iran continued to cause oil price fluctuations, and rising U.S. Treasury yields continued to weigh on global capital markets.
Regarding recent market conditions, affected by the "pre-holiday effect" of the National Day holiday, some funds had a strong risk-aversion sentiment, causing A-share trading volume to shrink significantly. However, as funds gradually return after the holiday, greater opportunities may also be brewing. After the holiday, close attention should be paid to changes in trading volume. If it can continue to expand moderately and gradually stabilize above 2 trillion yuan, then the sustainability of the market rebound will be assured; if trading volume shrinks again, it indicates the market may still need to consolidate through fluctuations.
From a medium-term perspective, the structural slow bull pattern of A-shares remains unchanged. First-half performance was mainly driven by valuation, while in the second half, earnings are expected to take over as the core driver. The domestic liquidity environment remains friendly, policy signals for stabilizing growth are clear, the potential for residents to enter the market has not been fully released, and fundamental repair provides solid support for the market. Investors can adopt a barbell allocation strategy, taking a "offensive when possible, defensive when necessary" posture to better cope with future market conditions.
Technical Perspective
Currently, the three major indices have weakened again. Going forward, close attention should still be paid to changes in trading volume and whether a new main line emerges after the holiday to create profit-making effects. If trading volume cannot continue to expand steadily and there remains a lack of a main line with good sustainability, then the market will most likely continue to maintain a fluctuating pattern.
Market Direction
On September 29, the Ministry of Finance, the People's Bank of China and the National Financial Regulatory Administration issued a notice clarifying that eligible residential mortgage loans can enjoy 1 percentage point of interest subsidy support, with a maximum subsidy period of 5 years and a maximum loan scale eligible for subsidies of up to 1 million yuan. The tentative implementation period is 1 year. Data shows that in August 2026, baijiu production reached 191,000 kiloliters, up 2.1% year-on-year, the first positive turn since July 2024. Meanwhile, the Ministry of Culture and Tourism launched the National Day consumption month, issuing over 310 million yuan in consumption vouchers, covering late September to the end of October, which, combined with the concentrated consumption scenarios of the Mid-Autumn Festival and National Day, is expected to significantly improve terminal sales. On September 18, the Ministry of Industry and Information Technology, the National Development and Reform Commission and eight other departments jointly issued the "15th Five-Year Plan for Pharmaceutical Industry Development," explicitly proposing that during the 15th Five-Year Plan period, the operating revenue of pharmaceutical industry enterprises above designated size should exceed 3.5 trillion yuan, with the innovative drug industry scale growing at an average annual rate of over 20%. The following three directions can be watched next week:
(1) Banking sector: In the first half of the year, listed banks saw both revenue and profit recover simultaneously, with net interest margins stabilizing at the margin for the first time after years of decline, asset quality remaining stable, and the earnings bottom basically confirmed. The systematic restructuring of the real estate credit system and the implementation of the new first-home mortgage interest subsidy policy both improve expectations for bank asset quality and open up space for credit extension. Combined with the intensive implementation of interim dividends and prominent high-dividend attributes, in an environment of low market risk appetite, long-term allocation funds continue to flow in, and there is still room for sector valuation repair.
(2) Baijiu sector: After more than two consecutive years of negative growth, industry production turned positive for the first time, the wholesale price index stopped falling and edged up, channel inventory is gradually being depleted, and supply-demand relations are improving at the margin. With the Mid-Autumn and National Day holidays overlapping, banquet consumption scenarios are being released in a concentrated manner, and sales are expected to exceed expectations. Entering a low base period in the second half of the year, the year-on-year pressure on liquor company performance has significantly eased. The consumption expansion plan continues to exert force, and the goal of raising the household consumption rate provides long-term support for the industry. Currently, sector valuations are at historically low levels, defensive attributes are prominent, and under risk-aversion demand, valuation repair is expected.
(3) Innovative drug sector: The "15th Five-Year Plan" for the pharmaceutical industry has for the first time set clear industrial growth targets for innovative drugs, with policy support covering the entire chain from R&D to commercialization. The new version of the essential drug list has established a normalized selection mechanism for innovative drugs for the first time, with multiple blockbuster innovative drugs selected, opening up grassroots medical sales channels; the medical insurance list continues to be dynamically adjusted, making the channel for innovative drugs to enter medical insurance smoother. At the same time, domestic innovative drug outbound licensing transactions are frequent, continuously validating the internationalization logic. Industrial capital is pouring in, pessimistic industry expectations have been fully repaired, and under the resonance of policy bottom and earnings bottom, the sector's upward trend is expected to continue.
Recent Market Review
A-share Market
Last week, with the long holiday approaching, market risk-aversion sentiment heated up, and major broad-based indices all recorded negative returns. In terms of market cap style, during the market pullback, large-cap stocks were relatively more resistant to declines. The super-large-cap style Shanghai 50 fell 0.68% during the week, the large-cap style CSI 300 fell 1.84%, the mid-cap style CSI 500 fell 2.48%, and the small and micro-cap style Guozheng 2000 fell 3.40%, a relatively larger decline. In terms of style, growth style clearly underperformed value style, with the STAR 50 and ChiNext Index, representing growth style, falling significantly by 5.66% and 4.67% respectively, notably larger than the declines of the CSI 300 and Shanghai 50, which represent value style.
At the industry level, most industries came under pressure last week. Among Shenwan first-level industries, only 3 industries rose while the other 28 declined. On the gainers' side, real estate, banking and agriculture, forestry and animal husbandry sectors rose 2.84%, 0.07% and 0.02% respectively. Driven by the introduction of the real estate interest subsidy policy, the real estate sector posted a relatively large gain; last week, market sentiment was weak, capital risk appetite declined, and defensive sectors such as banking and agriculture, forestry and animal husbandry attracted capital.
On the decliners' side, communications, electronics and machinery equipment sectors led the declines, falling 7.27%, 4.12% and 3.56% respectively. Affected by strong pre-holiday risk-aversion sentiment and declining risk appetite, the market continued to shrink in volume, and technology growth sectors such as communications and electronics came under obvious pressure. Overall, last week a total of 10 sectors saw gains expand or losses narrow, and the market's profit-making effect was poor.
Fund Market
In the fund market last week, all categories except money market funds recorded negative returns. The equity market was suppressed by the pre-holiday effect, with the market shrinking and pulling back. Equity funds and mixed funds fell 2.38% and 2.63% respectively, performing poorly; QDII funds, affected by the weak and fluctuating Nasdaq Index, recorded a 1.73% decline during the week; bond funds fell 0.06%; money market funds edged up 0.01%, maintaining steady returns. In terms of broad-based fund indices, the CSI Fund, Fund Index, Guozheng Fund and Lefu Index fell 1.06%, 1.52%, 1.59% and 1.63% respectively, with overall poor profit-making effects.
From the perspective of return centers, major broad-based indices showed divergence. Last week, the equity market declined on shrinking volume, with the return centers of equity and mixed funds at -4.31% and -3.65% respectively, down significantly by 5.63pct and 4.73pct from the previous period; dragged down by the Nasdaq decline, the return center of QDII funds last week was -1.62%, down 3.31% from the previous period; dragged down by weak and fluctuating gold prices, the return center of commodity funds last week was -3.70%, down 3.48pct from the previous period, with the decline widening compared to earlier; the return center of bond funds was 0.06%, down 0.04pct from the previous period, with gains narrowing; the return center of money market funds was flat at 0.02%. From the perspective of year-to-date cumulative returns, the return center of bond funds rose somewhat, the return center of money market funds remained unchanged, and the annual return centers of all other types of public funds declined to varying degrees.
A-share and Fund Market Capital Flows
A-share Market
Last week, main funds showed an overall net outflow, with a total net outflow of 47.943 billion yuan for the full week. At the industry level, 15 industries received net inflows from main funds, while 16 industries showed net outflows. The top three industries by net inflow scale were pharmaceuticals and biotechnology, automobiles, and power equipment, with net inflows of 17.07 billion yuan, 10.305 billion yuan and 6.02 billion yuan respectively. Driven by policies such as the "15th Five-Year Plan" for the pharmaceutical industry, some funds flowed into the pharmaceuticals and biotechnology sector.
On the net outflow side, electronics, communications and non-ferrous metals sectors ranked at the top, with net outflows of 35.668 billion yuan, 26.397 billion yuan and 6.84 billion yuan respectively. Dragged down by funds avoiding holiday uncertainties, some funds flowed out of technology growth sectors such as electronics and communications for risk aversion; in addition, affected by weak and fluctuating gold prices, some funds also flowed out of the non-ferrous metals sector.
Fund Market
This week, a total of 77 funds opened for subscription, covering 42 fund companies including Fullgoal, Soochow, Essence, China Post, Industrial Bank, and China AMC, with a total new subscription scale of 14.299 billion yuan. In terms of product type distribution, this included 8 equity funds, 22 index funds, 37 "fixed income plus" funds, 5 bond funds and 5 FOF funds. Overall, the number and scale of funds open for subscription this week are at historically high levels.
Market Temperature
From the perspective of PE valuation percentiles over the past five years, the valuation percentiles of major broad-based indices all declined last week but still remain in a historically elevated range overall. Specifically, the STAR 50 valuation percentile is above 90%, the CSI 500, Shenzhen Component Index and Shanghai Composite Index valuation percentiles are above 80%, and the Shanghai 50 and CSI 300 valuation percentiles are above 70%; the Guozheng 2000 valuation percentile is above 65%, while only the ChiNext Index valuation percentile is relatively low, at 59.32%. The current A-share valuation structure shows significant divergence, with growth style valuations notably higher than value style, and small and mid-cap stocks clearly more expensive than large-cap blue chips. Whether the index can break through further upward in the future depends on the pace and strength of listed companies' fundamental repair.
Last week, the valuation percentiles of most Shenwan first-level industries declined. As of the close on September 30, 4 industries saw their valuation percentiles revised upward month-on-month, while 27 industries saw downward revisions, with the average valuation percentile across all industries falling 1.392pct. Among them, real estate, banking and petroleum & petrochemical sectors led the upward revisions in valuation percentiles; basic chemicals, household appliances and light manufacturing sectors saw relatively large declines in valuation percentiles. The median valuation percentile across all market industries fell in the petroleum & petrochemical sector, at 30.98%, slightly lower than the previous period.
From the perspective of the 3-year stock-bond cost-performance indicator, as of September 30, the ratio of the inverse of the Wind All A P/E to the 10-year government bond yield (1.68%) was 2.85, up 0.11 month-on-month. The historical average of this indicator is 2.67, and it is currently at a relatively high level over the past 3 years, with a historical percentile of 73.19% (meaning cost-performance is better than 73.19% of historical periods), up 5.92pct month-on-month. The historical percentiles of the stock-bond cost-performance for the CSI 300, CSI 500, CSI 800 and CSI 1000 were 83.88% (up 3.44pct month-on-month), 55.79% (up 8.82pct month-on-month), 80.44% (up 3.44pct month-on-month) and 77.27% (up 9.09pct month-on-month) respectively. Overall, affected by the equity market pullback, the stock-bond cost-performance of major broad-based indices all rose this period. The current probability of making a profit by buying and holding A-shares for 3 years is 85.31%, up significantly by 16.32pct month-on-month; the 10-year government bond yield rose 0.15BP month-on-month. Note: Markets carry risks, and investment requires caution.