As China's mainland National Day holiday draws to a close, and with A-shares markets closed, weakening US nonfarm payroll data has cooled expectations for Federal Reserve rate hikes, Hong Kong stocks first pulled back before rebounding, and the Nasdaq continued to hit new highs. Combining overseas market performance during the holiday with recent relatively stable domestic economic data, and with third-quarter earnings reports expected to provide some earnings support, we believe investor confidence after the holiday is likely to gradually improve, and A-shares may see a "good start."

Specifically, during the A-share market closure, Hong Kong stocks dipped before rising, while US stocks continued to reach new highs. Before the holiday, the A-share market pulled back significantly due to external factors, including Middle East tensions, US Treasury selling pressure and US rate hike expectations, and concerns over potential escalation of external restrictions in the optical module sector. On September 29, a residential mortgage interest subsidy policy was announced and the People's Bank of China adjusted and improved several monetary policy tools, with pro-growth policies helping to boost market confidence, leading to a modest rebound in A-shares in the two days before the holiday. From September 28-30, the Shanghai Composite Index fell 1.19%, the large-cap blue-chip CSI 300 dropped 1.84%, and the growth-oriented ChiNext Index and STAR 50 fell 4.67% and 5.66% respectively. In terms of trading, average daily turnover was approximately 1.53 trillion yuan, continuing to shrink from the previous week. At the sector level, real estate, pharmaceuticals and biologics, and banking led gains, while telecommunications, electronics, and machinery equipment underperformed.

On the Hong Kong side, markets opened on October 2, 5, and 6, with the Hang Seng Index down 1.35% and the Hang Seng Tech Index down 0.72% over the three days, though the Hang Seng Index rebounded 1.29% on October 5-6 amid easing US rate hike expectations. In overseas markets, in the US, lower September nonfarm payrolls led to easing market rate hike expectations, and US stocks continued to rise during the A-share closure, with the S&P 500 up 2.2% and the Nasdaq up 2.8% from October 1-6, reaching a record high. Affected by Middle East tensions, crude oil prices continued to fluctuate at high levels, with Brent crude up 3.1% from October 1-6. US Treasury yields continued to climb, touching 5.35% on October 5, the highest since 2002.

Domestic Economy and Policy: Holiday Travel and Box Office Data Stable, Pro-Growth Policies Densely Released Before Holiday

Holiday data: 1) Holiday travel data was basically flat year-on-year. According to data released by the Ministry of Transport's official account, from September 30 to October 5, cross-regional personnel flows nationwide reached 1.77 billion trips, down 0.2% year-on-year. Among these, road personnel flows were 1.62 billion trips, down 0.9% year-on-year; railway passenger volume was 130 million trips, up 9.7% year-on-year; civil aviation passenger volume was 14.4 million trips, up 0.7% year-on-year; and waterway passenger volume was 9.46 million trips, up 4.3% year-on-year. 2) National Day box office revenue declined year-on-year. As of October 6, National Day box office exceeded 1 billion yuan, a significant gap compared to the 2024 National Day total of 2.104 billion yuan and the 2025 National Day total of 1.835 billion yuan. 3) Holiday consumption data. According to Ministry of Commerce big data, in the first three days of the National Day holiday, foot traffic and revenue at 78 pedestrian streets (business districts) under key monitoring by the Ministry of Commerce grew 3.4% and 5.3% year-on-year respectively. Consumer goods trade-in programs drove 19.63 billion yuan in sales, benefiting 3.483 million person-times.

Macro indicators: 1) China's September manufacturing PMI was 50.1%, up 0.3 ppt from August, rising for two consecutive months and moving into expansion territory in September. 2) August industrial enterprise profit growth slowed. For January-August, profits of industrial enterprises above designated size grew 15.7% year-on-year, down 1.9 ppt from January-July, declining for three consecutive months since the May peak; August alone grew 4.2% year-on-year, down 7 ppt from July.

Domestic policy: 1) The Ministry of Finance, the People's Bank of China, and the National Financial Regulatory Administration issued a notice on implementing a residential mortgage interest subsidy policy nationwide, easing the commercial personal housing loan interest burden for families newly purchasing their first home. Effective from October 1, 2026, with a tentative implementation period of one year, during which eligible first-home commercial personal housing loans newly issued by handling banks will receive interest subsidy support from fiscal authorities at an annualized rate of 1 percentage point for a term not exceeding 5 years, with a maximum loan amount eligible for subsidy of 1 million yuan per household. 2) The People's Bank of China adjusted and improved several monetary policy tools, including lowering the pledged supplementary lending (PSL) rate by 0.25 percentage points; expanding PSL support areas to include "six networks" construction; increasing the re-lending quota for technological innovation and technological upgrading by 200 billion yuan and raising the support ratio for this re-lending from 60% to 100%; and increasing the re-lending quota for agriculture and small businesses by 500 billion yuan, of which 300 billion yuan is additional re-lending for private enterprises.

Overseas Economic and Policy Events: US Nonfarm Payrolls Fall, Core PCE Below Expectations, Rate Hike Expectations Cool

Overseas economy: 1) US September nonfarm payrolls declined. The US added 29,000 nonfarm jobs in September, well below the downwardly revised 133,000 in August and below the prior 12-month average monthly gain of 45,000, significantly cooling market expectations for the Fed to continue raising rates in October. 2) US August PCE rose 3.4% year-on-year, below the expected 3.7%; month-on-month it rose 0.3%, in line with expectations. Excluding food and energy, core PCE rose 3% year-on-year and 0.2% month-on-month, below expectations of 3.3% and 0.3%.

Overseas events: 1) The US formed a "Superintelligence Task Force." Trump signed an executive order on September 29 renaming "artificial intelligence" as "superintelligence," and on the same day several US tech company executives signed the "White House Superintelligence Accord: Joint Commitment on Frontier Responsibility" at the White House, which requires companies to commit to strengthening safety controls for frontier AI models. On October 4, Trump announced the formation of a "Superintelligence Task Force" whose mission is to coordinate federal government efforts to "ensure the United States continues to maintain global leadership in the field of superintelligence." 2) China-US "30 billion for 30 billion" reciprocal tariff reduction framework. From September 20-23, China and the US held the eighth round of economic and trade consultations, reaching consensus under the Trade Council framework on a reciprocal tariff reduction framework of 30 billion US dollars. The two sides agreed that on the basis of complying with their respective domestic laws and procedures, they would provide reciprocal tariff reduction treatment for imports valued at approximately 30 billion US dollars each (based on 2024 bilateral trade volumes), with more than 90% of products exempted from all mutually imposed additional tariffs and enjoying most-favored-nation tariff treatment. Based on respective market needs and industrial interests, the US will reduce tariffs on Chinese imports including toys, home appliances, baby products, kitchen and bathroom products, and holiday gifts; China will reduce tariffs on US imports including agricultural products, personal care products, medical devices, and coal.

Outlook: Post-Holiday Investor Confidence Expected to Gradually Recover, A-shares May See "Good Start," Medium-Term Trend Not Pessimistic

Looking ahead to after the holiday, A-shares may see a "good start." Before the holiday, A-shares performed weakly under the influence of multiple external factors, while overseas markets rose more than they fell during the holiday period. Combined with relatively stable recent domestic economic data, third-quarter earnings reports after the holiday are expected to provide some earnings support for the market. We expect investor confidence to recover in October, and A-shares are likely to welcome a "good start" after the holiday. In the medium term, Middle East geopolitical tensions, US Treasury yields, and US midterm elections remain uncertain and warrant continued attention.

Overall, we believe the impact of external factors on A-shares remains阶段性 (periodic), and domestic fundamentals and medium-term logic have not changed. There is no need to be pessimistic about the market's medium-term trend. A-share market overall valuations offer good cost-effectiveness, and the structural overvaluation phenomenon faced in the first half of the year has improved considerably. Meanwhile, A-share earnings growth this year is expected to be higher than in recent years, and solid fundamentals are expected to support market performance. In the medium term, continue to focus on the support for A-shares from global monetary order reconstruction and the technology narrative. The long-term, steady progress trend since "9.24" is still expected to continue.

In terms of sector allocation, the implementation and effects of pro-growth policies released before the holiday remain to be observed, which may subsequently affect earnings expectations and stock price elasticity of cyclical sectors. Approaching third-quarter earnings season, we still recommend focusing on sectors and companies with strong earnings certainty, emphasizing bottom-up discovery at the industry and individual stock level. We suggest focusing on two main lines: 1) Prosperity growth: Earnings in the hardware segment of the AI supply chain are generally high-growth, but as the narrative evolves, divergence may arise in the future. Segments with lower barriers and faster capacity deployment progress face greater risk, while areas with high demand certainty and difficult-to-alleviate capacity bottlenecks are expected to continue benefiting. We suggest focusing on optical communications, semiconductor equipment, and industries related to upstream power bottlenecks. Beyond the AI supply chain, innovative drugs (especially CXO) and power grid equipment have relatively high overall prosperity. 2) Cyclical improvement: Fundamentals in more and more areas are recovering from cyclical bottoms. We recommend paying attention to areas with improving supply-demand dynamics from a capacity cycle perspective, such as chemicals, petrochemicals, and construction machinery. Non-ferrous metals have relatively good fundamentals across various segments, but attention should be paid to the impact of Fed tightening risk on financial attributes.

Chart 1: Global Major Asset Class Price Performance, October 1-6. Source: Wind, CICC Research Department. Chart 2: Global Major Stock Market Price Performance, October 1-6. Source: Wind, CICC Research Department. Chart 3: National Day Holiday Passenger Volume. Source: Ministry of Transport official account, CICC Research Department. Chart 4: Industrial Enterprise Profit Growth Declining in Recent Months. Source: Wind, CICC Research Department. Chart 5: US September New Nonfarm Payrolls Decline. Source: Wind, CICC Research Department. Chart 6: US 10-Year Treasury Yield Continues to Rise. Source: Wind, CICC Research Department.