China Securities Co.,Ltd.: Why has the A-share market performed below expectations after the holiday?

China Securities Co.,Ltd. released a research report stating that the A-share market performance after the holiday fell below expectations, with the technology sector becoming the center of the adjustment. In the short term, it was directly hit by FCC restrictions on optical modules and OpenAI's revenue falling short of expectations; the fundamental reason is that A-shares are in the second wave of leverage structure adjustment, compounded by overseas liquidity tightening and Middle East geopolitical disruptions, continuously weighing on risk appetite. However, positive signals have begun to accumulate: overseas geopolitical tensions are easing, domestic market stabilization mechanisms are in place, and the technology sector's earnings remain robust. If macro disturbances subsequently ease and are confirmed by third-quarter earnings, market expectations are expected to reverse. In terms of allocation, defense takes priority, with dividend assets as the core holdings; for growth-oriented directions, focus on laying out AI computing power, chemical resources and other profit-improving segments around third-quarter earnings, as well as the new energy sector under the logic of European energy security. The main viewpoints of China Securities Co.,Ltd. are as follows: A-share market performance after the holiday fell below expectations, with the technology sector becoming the center of the adjustment. After the September FOMC rate hike was implemented, global markets briefly enjoyed a window of prosperity recovery, with the Nasdaq reaching a historic high, but A-share technology continued to adjust under strong capital market pressures. The direct reasons for the below-expectations performance were the combination of two industry negatives: the U.S. FCC's plan to restrict Chinese optical modules and OpenAI's revenue realization falling short of expectations; fundamentally, first, A-share capital structure is fragile, being in the second wave of leverage structure adjustment; second, overseas liquidity is tightening, with bond yields in major global economies continuing to rise, and the upward shift in the risk-free rate center suppressing growth sectors through three channels: valuation discount, stock-bond attractiveness, and financing costs; third, Middle East conflicts are recurring, and unstable oil price expectations are exacerbating global inflation uncertainty. But overall, positive signals have begun to accumulate, and prioritizing defense while waiting for a turnaround is the optimal strategy at this stage. Overseas, Trump stated he would not take military action against Iran before the midterm elections, and the G7 announced coordinated release of strategic petroleum reserves; domestically, the technology sector's earnings remain robust, and after sufficient prior adjustments, market stabilization mechanisms are in place. If tightening expectations and geopolitical tensions further ease, combined with third-quarter earnings verification, market expectations are expected to gradually reverse. In terms of industry allocation, the defensive direction centers on dividend assets as the core holdings, with focus on banks, coal, utilities, and Hong Kong dividend stocks; the growth direction focuses on certainty around third-quarter earnings, including AI hardware computing power and basic chemicals and resource products; the new energy direction focuses on the restart of the European energy security logic amid rising oil prices. Key focus: banks, coal, utilities, Hong Kong dividend stocks, AI computing power hardware, basic chemicals, new energy, etc. Risk warnings (1) Domestic demand support policies may have less effect than expected. If subsequent domestic real estate sales, investment and other data remain difficult to recover, inflation remains sluggish, consumption shows no significant boost, corporate profit growth continues to decline, and the economic recovery is ultimately disproven, then the overall market trend will come under pressure, and overly optimistic pricing expectations will face correction. (2) Risk of deterioration in the Middle East geopolitical situation. Watch for further escalation of the U.S.-Iran conflict, with the international oil price center rising, increasing global inflation pressure and constraining monetary easing space for central banks at home and abroad. If inflation develops malignantly, it could drag down aggregate economic demand, exacerbate the risk of global economic recession, and also impact equity markets. (3) U.S. stock market volatility exceeding expectations. If the U.S. economy deteriorates more than expected, or the Federal Reserve's easing falls short of expectations, it could cause significant volatility in the U.S. stock market, which would also spill over to domestic market sentiment and risk appetite.