CICC Strategy: A new upswing is gathering momentum in October.

One, a new round of upward momentum is building up in October We predicted at the beginning of September that after the accelerated rise and structural differentiation since August, the market would be in a phase of consolidation and volatility in the near future. However, the index has limited room for fluctuations, and the volatility in pace can be addressed through structural rotation diffusion, which is not simply based on position or switching from high to low based on odds, but rather based on economic logic and industry trends to explore opportunities for diffusion of advantageous styles and main lines. This week, the market is still in a phase of consolidation and volatility since September, with a focus on strong varieties with high cost performance. Looking ahead, we believe that after a period of consolidation and digestion since September, a new round of upward momentum is building up, and the central point of the market in October is expected to rise to new levels: Firstly, after the consolidation and digestion brought by the previous period of volatility, many sectors are now crowded at medium or low levels, and the overall market crowding pressure has significantly eased, laying the foundation for a new round of upward momentum. Secondly, as October enters the window for the release of third-quarter reports, it is expected to drive the market to focus on economic clues and form new consensus, becoming an important factor in market "breakthrough." On one hand, we have analyzed the correlation between the market's performance rankings and earnings growth rankings in each month of the year, with the effectiveness of economic investment improving as the deadline for releasing third-quarter reports approaches at the end of October. After the gradual digestion of cost performance issues in some sectors, economic advantages may once again become the core focus of the market in the near future. On the other hand, from the calendar effect of industry rotation intensity, as the market focuses on economic clues, October is also a stage where industry rotation intensity converges throughout the year, with consensus on economic mainlines expected to converge once again. Furthermore, based on historical experience, the period after the National Day holiday is traditionally a window for increased market risk appetite, which this year is further catalyzed by a series of heavyweight meetings. Before the holiday, some investors choose to "take profits" out of caution, leading to a lower overall market win rate. However, as economic data reflecting post-holiday consumption expectations are gradually released, combined with potential catalysts from technological advancements and the reflection of Hong Kong and US stocks, the market's risk appetite is expected to increase, leading to a clear need for catch-up post-holiday, significantly improving the market's win rate, particularly in the technology and growth sectors represented by TMT and advanced manufacturing. Looking ahead, with major policy expectations catalyzed by meetings such as the "Fifteenth Five-Year Plan" at the end of October, the Political Bureau meeting, and the Federal Reserve rate decision meeting, the market's risk appetite is expected to have further anchors for increased uplift. Therefore, we believe that after the consolidation and volatility since September, with the easing of crowding pressure, third-quarter reports once again forming consensus around economic mainlines, and expectations buoyed by a series of heavyweight meetings in October, a new round of upward momentum is building up, and the central point of the market in October is expected to rise to new levels. Structurally, the core focus remains on economic and industrial trends, with emphasis on economic clues from third-quarter reports and industries benefiting from the "Fifteenth Five-Year Plan," including innovative drugs, AI (computing power, games), defense industry, batteries, and "anti-inward rotation." Focus: Economic clues from third-quarter reports, industries benefiting from the "Fifteenth Five-Year Plan" (1) Economic clues from third-quarter reports: innovative drugs, AI (computing power, games), batteries, "anti-inward rotation" Since September, industries with the most upward revisions in profit expectations are mainly concentrated in: technology (games, computer equipment, communication equipment, components), advanced manufacturing (motorcycles, aerospace and navigation equipment, home appliance components, batteries, etc.), cyclicals (precious metals, glass fibers, steel, industrial metals, etc.), consumption (beverages, dairy products, seasoning and fermented products, education), finance (securities and insurance, city commercial banks). For strong sectors represented by technology and manufacturing, after intensive catalysis of industrial trends in the third quarter, the third-quarter reports are still an important window for verifying the new momentum's economic advantages. Among them, the technology growth mainlines represented by AI, innovative drugs, and new energy have mostly seen their crowding levels fall to reasonable levels, with cost-performance issues gradually being resolved, resonating with industrial trends and economic advantages, and likely driving the market to continue focusing on economic mainlines. For cyclical, consumption, and financial sectors represented by cyclicals, the third quarter has also seen important policy catalysts such as "anti-inward rotation," and some sectors' economic prospects have been revised upwards, indicating that the third-quarter reports may see economic validation. Sectors that have seen relatively low gains since September include: minor metals, securities and insurance, education, agricultural chemicals, home appliances, chemical raw materials, and breeding. (2) Industries benefiting from the "Fifteenth Five-Year Plan": defense industry Firstly, the defense industry sector's crowding levels have fallen to low levels, as an industry closely related to national strategic deployment, the upcoming "Fifteenth Five-Year Plan" meeting at the end of October is expected to provide a significant boost: On one hand, the overheated sentiment brought by the military parade earlier has been largely digested, and the crowding in various directions of the defense industry chain has dropped to low levels, making it a stage where specific directions for layout can be sought. On the other hand, the upcoming "Five-Year Plan" meeting is also expected to provide a significant boost to the defense industry sector's market performance. Looking back at the performance of various primary industries in the 20 trading days before the 20th Central Committee plenary session since 2000, the defense industry sector, as an industry closely related to national strategic deployment, ranks first in terms of win rate and median gain. Therefore, the upcoming Fourth Plenary Session in October is also expected to support the bullish sentiment in the defense industry sector. Lastly, the intersection of the domestic "Five-Year Plan" and the enhancement of global competitiveness are strengthening the expectation of a new round of defense industry order releases, providing long-term logical support for the continuous improvement of the defense industry's fundamentals: Internally, the defense industry is a highly planned industry, and the Five-Year Plan plays an important role in shaping industry sentiment and market expectations. Referring to historical experience, from the start of Five-Year Plan drafting to the first year of formal implementation, the defense industry typically sees significant excess returns. This year, as the final year of the "Fourteenth Five-Year Plan" and the preparatory year of the "Fifteenth Five-Year Plan," with the implementation of the "Fourteenth Five-Year Plan" entering a crucial period of capability integration and delivery, combined with the progress and implementation of the "Fifteenth Five-Year Plan," the industry's guidance for future development will gradually become clear. The pent-up downstream demand is expected to see significant release as a new order cycle opens up, promoting overall industry recovery. Externally, the world is facing major changes that have not been seen in a century, with a global arms race underway. As Chinese weapons continue to demonstrate strong competitiveness worldwide, China's market space in international arms trade is expected to further expand. Since February, the trade war escalated under the Trump administration, tensions in global geopolitical hotspots such as India-Pakistan and the Middle East have intensified, and governments around the world are increasing their focus on national security. The opening of the global arms race is underway. With the debut of China's sixth generation aircraft at the end of last year, the naval vessels circling Australia in March, joint exercises in the Taiwan Strait in the second quarter, and the impressive performance of the J-10CE in the India-Pakistan conflict, China's weapons continue to demonstrate global competitiveness. Under the backdrop of geopolitical conflicts, the traction of national security in the long-term arms trade demand market, China's market space in international arms trade is expected to further expand. Risk Warning Economic data fluctuations, policy easing below expectations, and the Federal Reserve's rate cut below expectations.