During the past week, the Shanghai and Shenzhen stock markets fluctuated within a certain range. Most major indices experienced declines, except for the SME 100 index and SSE Science and Technology Innovation Board 50 index, which closed higher. 7 sectors rose while 24 sectors fell in the Shenwan first-level industries. The top three gainers were electronics (+4.9%), automobile (+3.38%), and pharmaceutical biology (+2.0%), while the top three losers were social services (-5.23%), decoration&furnishings (-4.42%), and trade&retail (-4.22%). The data shows that the market is still dominated by structural trends, with capital flowing into technology and biopharmaceutical industries and moving away from sectors such as tourism and real estate.

In the Chinese market, the government continues to stabilize the market and has recently rolled out a host of policy measures aimed at addressing local government debt, managing large private corporate debt, and resolving the substantial amount of outstanding receivables. The National Development and Reform Commission (NDRC) established the Private Economy Development Bureau as part of the effort to strengthen policy coordination and safeguard the development of the private sector. Previous initiatives by the China Securities Regulatory Commission (CSRC), including the halving of stamp duty on stock trades, tightening IPO regulations, regulating shareholder capital reductions, and reducing the margin ratio for financing, have proven effective in invigorating the capital market. The Ministry of Commerce has pledged to accelerate the implementation of policies to boost consumption in sectors such as automobile, household consumer goods, and electronics. China’s year-on-year profit growth of industrial enterprises above designated size has significantly exceeded expectations. The manufacturing Purchasing Managers' Index (PMI) rebounded and returned to the expansion zone in September, confirming the stable economic recovery under strong policy support. Also, Central Huijin Investment Ltd has recently raised its stakes in China’s four major state-owned banks, which is considered great news based on historical experience. The market is also anticipating the entry of the stabilization fund, as influx of new capital can help rescue the market and act as a mainstay. International investment banks have raised forecasts for China's economic growth, indicating a more positive outlook on China's economic prospects. These favorable factors can promote the stability of A-shares.

In the global market, the US CPI data continues to rise and exceed expectations, reinforcing market expectations that the Fed will maintain high interest rates for longer and tighten monetary policy by raising rates at least once this year. The situation in the Middle East is deteriorating as a  large-scale military operation breaks out between Israel and Palestine. This raises concerns about the potential impact of rising oil and gas prices on inflation. If the Fed further tightens its monetary policy, the continued sell-off in US bonds will lead to rise in yields, potentially causing a downgrade in the US credit rating again. The US banking industry, holding a substantial amount of government bonds, may face operational challenges, and a wave of volatility may hit the U.S. financial market and ripple into the global financial market. More Fed officials are likely to express dovish views in order to shift market expectations and shore up the capital market. Meanwhile, there are expectations for improvement in Sino-US relations given the current tension in the international order. Companies like Samsung, SK Hynix, and Taiwan Semiconductor Manufacturing Company (TSMC) have been granted extensions to its exemption from U.S. trade sanctions on China. Furthermore, international investment banks have released favorable reports on the Chinese economy and Chinese assets. These events will lead to the market's reassessment of Sino-U.S. relations, the international order, and inflation and interest rates, contributing to the stability of both the U.S. and Chinese markets.

Overall, The global market shows multiple positive signs. China’s policies to recue the market have become clearer and more forceful, favoring a short-term rebound in A-shares after the oversold bottom. However, the market is still being affected by the high U.S. interest rates and the lack of significant progress in Sino-U.S. relations, thus limiting the overall extent of the rebound. In terms of strategy, we should focus on technological innovations related to the Huawei industrial chain and domestic substitution, such as semiconductors, smart driving, and consumer electronics, etc.