The second trading day after the holiday saw A-shares stage a dramatic low-open, high-close session.

The three major indices opened lower across the board in the morning and plunged deeply, with the Shanghai Composite Index briefly losing the 3,800 level and touching a low of 3,754.14 points intraday, the Shenzhen Component Index falling more than 2.7% at one point, and the ChiNext Index dropping below 3,000 points, while more than 4,300 stocks across the market declined by midday.

In the afternoon, the market repaired itself level by level, with brokerages and gold stocks moving first, and broad-based ETFs tracking the CSI 300 and CSI 1000 seeing synchronized volume increases, before the three major indices all turned positive by the close, with the Shanghai Composite recovering 3,800 to close at 3,813.79 points, up 0.05%, the Shenzhen Component closing at 12,641.86 points, up 0.17%, and the ChiNext closing at 3,043.33 points, up 0.22%.

Structurally, defensive and price-increase sectors led throughout the day: in the morning, coal, precious metals, grains, and banks bucked the trend to trade in the green, while electronics and telecommunications pulled back sharply; in the afternoon, catalyzed by AI video developments, film and cinema stocks surged, with precious metals, seed stocks, consumer sectors, brokerages, and lithium batteries following suit, while the semiconductor supply chain, wind power, and PCB sectors remained under pressure all day.

Total market turnover expanded to 1.92 trillion yuan, a volume increase of more than 220 billion yuan from the previous day, and individual stocks went from broad declines at midday to more than 3,200 advancing by the close, with volume and market breadth reversing in tandem.

Over the two trading days following the National Day holiday, the market did not price in overseas tech fundamentals as expected, but rather priced in and concentrated on digesting surging oil prices and persistently elevated US Treasury yields.

On the first day of trading after the holiday, A-share broad-based indices continued to decline with sharp structural divergence, as risk assets such as tech and pharmaceuticals reacted violently to negative events with steep pullbacks, while energy-related sectors like oil and coal performed relatively well, with capital undergoing a dramatic rebalancing between growth and cyclicals.

The main logic for this week's trading still lies in the retreat of risk appetite and the digestion of crowded positioning, with the macro environment offering only reasons for defense, as the double pressure of high US Treasury yields and oil prices suppresses the discounting space for high-valuation assets, while internally there are constraints from share lock-up expirations, profit-taking, and prior gains; holiday travel and consumption data were stable, and the reality of weak demand also caps upside imagination.

Capital flows and volume also remained weak, flowing toward low-valuation, high-dividend sectors and price-increase chains.

However, today's low-open, high-close session with sharp volatility suggests that there may indeed be willingness to absorb selling around the 3,800 level, as 3,800 was breached twice and reclaimed twice within two trading days, with the absorbing parties being substantial capital rather than just sentiment-driven funds, and the nature of the decline is also changing, shifting from stampede and liquidity risk at the individual stock level to structural rebalancing under index-based absorption.

That said, such capital is more of a low-volatility left-side stabilizing force, and while the bottom area may be gradually confirmed, the confirmation process could still involve some back-and-forth rather than signaling the start of a market reversal.

Looking ahead, valuations and sentiment have fallen back to low ranges, policy and liquidity continue to provide support, and the third-quarter earnings season and the 15th Five-Year Plan policy window are approaching, but external factors such as US Treasury yields and Brent oil prices may remain suppressive, and combined with the FOMC rate decision window, the period around October may present a state of oscillating repair with structural divergence.

At the specific operational level, in terms of style, an environment of elevated rates plus risk aversion may still favor value and heavyweight stocks, and during the third-quarter earnings window, earnings certainty is also concentrating toward leaders, but amid sharp market volatility, small-cap themes such as AI applications may also frequently offer short-term trading opportunities with relatively high elasticity, though risks are also elevated and chasing highs requires strict caution.

For long-term capital, the current position may offer opportunities for staged deployment, with the center of gravity of a "barbell" structure perhaps leaning more toward the defensive end first, but dividend stocks have also risen for multiple consecutive days and the cost-effectiveness of chasing highs is declining; high-risk-appetite sectors such as tech and pharmaceuticals, where prosperity remains intact, may still be worth monitoring, and staged participation in elastic trades may still be possible after trading volume and breadth stabilize and third-quarter earnings provide more clues.

Based on the current market conditions, the CSI A500 ETF (159338) features "industry balance plus a concentration of leading companies," and in an environment where market direction remains uncertain but the bottom is supported, the balanced attributes of a broad-based index may offer greater error tolerance than a single sector.

Turning to overseas markets.

During the holiday, US equities were relatively strong, with the S&P 500 rising about 2% and the Nasdaq gaining about 2.5% to set another record high amid strong tech narratives and falling rate hike expectations, but on October 8 they immediately fell 0.47% and 1.25% respectively.

Rates remain the main constraint: the 10-year US Treasury yield continued to trade above 5.2% before and after the holiday, briefly touching 5.36% intraday, and while October rate hike expectations have fallen sharply due to economic data readings, the Fed minutes show hawkish views remain the mainstream narrative, and the discounting pressure of long-end rates on high-valuation assets has not been lifted.

Oil prices are another constraint, with ICE Brent crude rising to $105 per barrel, and the EIA also raising its fourth-quarter average price forecast to $105 per barrel, as Middle East tensions and oil shipping supply chain disruptions continue to add fuel to inflation concerns.

In Hong Kong, during the holiday the Hang Seng Index fell 1.96% and the Hang Seng Tech Index fell 1.40%, and on the first day after the holiday the Hang Seng Index fell another 1.43% while the Hang Seng Tech Index dropped 2.89% to a new low since 2025; during the holiday, pharmaceuticals and utilities were relatively resilient while internet stocks came under pressure, and after the holiday innovative drugs saw profit-taking, with defense and locking in gains being the main tone for Hong Kong stocks.

Looking ahead, the core of external contradictions remains US Treasury yields and oil prices, with one key lying in the progress of US-Iran negotiations (viewed by institutions as a critical observation window over the next one to two weeks), another in the speed of cooling in oil shipping and geopolitical tensions, and China-Europe trade and exchange rate negotiations also advancing.

Before these two variables show clear turning points, external disruptions may intermittently suppress risk assets.

On fundamentals, the new quarterly earnings previews for internet leaders are basically in line with domestic expectations, but the point of fundamental inflection confirmation has not yet been reached.

The judgment on Hong Kong stocks remains neutral to cautious, waiting for signals.

Back to domestic structure, the resource chain performed relatively prominently this week, with coal, oil and gas, non-ferrous metals, and gold stocks leading the market against the trend.

On coal, supply-side constraints persist, with high-pressure safety inspections combined with local leadership transitions keeping operating rates in the major producing areas of Shanxi, Shaanxi, and Inner Mongolia persistently low, and with the Daqin railway line starting autumn maintenance on October 7 limiting port inflows, northern ports accumulated only 250,000 tons of inventory during the holiday, far below the 1.56 million tons in the same period last year.

On the demand side, autumn coal chemical operating rates have increased, and with Brent above $100, coal chemicals' cost advantage relative to oil chemicals has become prominent, while the northern heating season will take over from late October, and looking further ahead, the coal trading conference in early to mid-November may restart new annual long-term contract negotiations, with the benchmark long-term contract price expected to shift upward amid a tight supply pattern.

Oil and gas, also part of the resource chain, have their own story: first, the restructuring of Middle East logistics has systematically lengthened shipping distances, keeping effective capacity persistently tight, with oil shipping freight rates hitting historic highs; second, oil price expectations have been revised upward, with the EIA raising its oil price forecast, inventories continuing to draw down, and the oil price bottom being relatively clear.

But investors also need to be reminded that factors such as the pace of G7 strategic reserve releases, Middle East export recovery, and the Strait of Hormuz navigation process could all keep freight rates and oil prices highly volatile.

In addition to the Coal ETF (515220), the Oil ETF (561360) may also warrant appropriate attention, but market volatility should be noted and chasing gains should be approached with caution.

In agricultural products, there are also certain price signals, with the UN Food and Agriculture Organization food price index rising to 136 points in September, up 1.5% month-on-month and 5.8% year-on-year, a new high in more than three years and a cumulative gain of nearly 10% from the start of the year; structurally, wheat prices rose to their highest since August 2023, corn is at a three-year high, and ICE No. 11 raw sugar rose more than 11% cumulatively over the five trading days around the National Day holiday.

On the expectation side, forecasts from China's National Climate Center and overseas institutions point to a super-strong El Niño, with the sea surface temperature peak likely to appear around November at an intensity possibly significantly higher than historical extremes, and likely to persist until February 2027, disrupting global supply through droughts and abnormal precipitation in major producing areas, with the US corn good-to-excellent rating already falling from 64% last year to 54%, India's rice production estimated to decline by about 10 million tons, and Brazil's sugar production forecast also being downgraded; combined with limited Black Sea logistics and uncertainty in Hormuz shipping, food and freight costs are being repriced, and institutions are beginning to discuss the possibility of global grains shifting from ample inventories to production cuts and inventory drawdowns.

On the equity side, positioning in the agricultural sector is not yet crowded, and on the policy front, food security plans under the 15th Five-Year Plan are taking shape, potentially offering longer-term support.

Interested investors may appropriately consider the Food ETF (159033) as a tracking tool for staged participation.

Finally, regarding high-risk-appetite assets, on the tech side, reports about OpenAI's annualized revenue caliber have repeatedly disturbed sentiment, rumors that the overseas FCC plans to set thresholds for 3.2T optical modules are still being debated, and combined with share lock-up expiration windows and profit-taking pressure, the resonance of short-term variables has amplified the fragility of crowded trades.

Yet industry prosperity has not stopped: TSMC's third-quarter revenue was 1.49 trillion New Taiwan dollars, up 50% year-on-year, Samsung expects third-quarter operating profit to grow about 783% year-on-year, Micron gave a revenue guidance of $61.5 billion for the next quarter, and the GPU rental price index has rebounded; there were also signs of easing overnight, with some optical module companies responding to FCC concerns and third-quarter earnings previews coming in better than expected.

The Communications ETF (515880) and Semiconductor Equipment ETF (159516) can still serve as observation tools, though operations should still not be overly aggressive.

The pharmaceutical sector gave back its late-September gains after the holiday, triggered by a global Phase III clinical trial for a heavyweight STAR Market innovative drug failing to meet its endpoint, compounded by profit-taking demand after holiday gains.

But this is a point-specific clinical event, not a reversal of industry logic, and at the ESMO congress in late October, overseas data for major domestic products will be read out successively, while multinational pharmaceutical companies taking strategic stakes in domestic innovative drug assets for $2 billion are also endorsing the industry; externally-facing CDMOs benefit from commercial supply of new molecules such as peptides and ADCs, with high third-quarter earnings certainty; preclinical CROs continue to take on AI pharmaceutical orders, and the "shovel seller" logic is still playing out.

This pullback is more like a clearing of crowding and sentiment, and the STAR Market Innovative Drug ETF (589720) and Hang Seng Biotech ETF (520930) can still serve as observation tools, provided the pace is controlled.

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