Shenwan Hongyuan Group: Adjusting cashing out is a high probability event after October, technology growth trend is dominant.

1. The judgment that the small-scale adjustment wave of A-shares is not over is being validated. There is no downward risk in the medium term, and the short-term adjustment is not on a large scale. After the adjustment is realized, "Red October" is highly probable: the long-term policy layout period is approaching, technological catalysis is still ongoing, and short-term cost-performance adjustments may quickly fall into place. We pointed out last week that the short-term market is still in a small-scale adjustment wave since early September, and this week the market continued to adjust. The core of the adjustment is that the structural main line driving the central level of the index has not yet formed a consensus. The space and time for the bullish trend of the technology sector are limited, becoming a consensus expectation in the short term. This has led to obstruction in the market's upward movement, starting to digest cost-performance issues and interpret the adjustment trends. As the adjustment continues, we suggest that there will be no large-scale adjustments in the short term, with the core being no real downward risk in the medium term. The economy has yet to improve in 25H2 + further policy efforts are needed, which will not affect the expectation of a turning point in the supply and demand structure towards 26. The disturbance of US tariffs has reappeared, but as long as the US cannot isolate the trade frictions between China and its trading partners, the incremental impact of US tariff disturbances on A-shares will be limited. In addition, the narrative of the bull market is still deepening, time is already a friend of the full bull market, and at the current stage, it is still a stage of "the bull market is not afraid to wait", with the core being that it is currently at the bottom of the residents increasing their allocation to equity + the improvement in cyclical fundamentals, and the future possibilities are only "continued grinding at the bottom" and "marginal improvement." After the adjustment, "Red October" is highly probable: 1. October is another critical policy layout window, and after the adjustment is realized, it will be more conducive to stabilizing the capital market expectations. 2. Evaluating potential catalytic sources, dynamically thinking about market changes. We believe that cyclical catalysis still needs to wait, and the focus on the demand side will look towards the deducing from the new round of "policy bottom" to "economic bottom" in 26, the supply-side will be cleared in 26. But the cyclical catalysis in 25Q4 is relatively weak. The catalysis of the technology industry is still trending upward, with overseas AI industry trends on the rise and have not reached their limit, while the domestic AI industry trends are also progressing. At present, it is a period of continuous increase in the technological industry highlights, since the September adjustment period, the small-scale structural highlights have continued. In October, the industry highlights and the resonance of long-term policy layouts, the structural heat may rekindle. 3. As the rhythm of the short-term adjustment accelerates, the downward trend of the cost-performance index also accelerates. Weekly-level adjustments may significantly improve the overall short-term cost-performance, and the "Red October" market may unfold after initially digesting the short-term cost-performance issues. 2. Mid-term market outlook: Before the spring of 2026, technological industry catalysis will be significantly greater than cyclical catalysis, and technological growth may face short-to-medium-term cost-performance issues, but there is still a gap from the long-term low-cost performance zone. Technological growth may continue the trend market, ultimately deducing to the long-term low-cost performance zone. Spring 2026 may be a phase high point (a high point in a structural market), by then the A-share market may face challenges from three issues: 1. The critical verification period for the demand side is approaching, after the supply growth rate returns to a lower level, the supply-demand structure is likely to improve, but if the demand remains weak, it may still delay (it will not "disprove" but may only "postpone") the turning point in the supply-demand structure. 2. New structural highlights may still need to wait, the decisive catalysis of the domestic technology industry trends + the verification period of the anti-hollowing effect will take time, and the spring of 26 may still lack new main themes. 3. The long-term cost-performance of the technological industry trend market may reach a low point (similar to the end of the ChiNext market in late 2013 and the end of the food and beverage market in 2019), and the market interpretation may thus enter a mid-term consolidation period. Spring 2026 may be a phase high point, most likely not the high point for the entire year of 2026, and certainly not the high point of the current full-scale bull market. The bull market still has depth, and with the passage of time, the conditions for the full bull market to unfold will become more and more sufficient. 3. Subsequent structural outlook: Technological growth trends are favorable, with internal switching between high and low in technology better than the switching between growth and value. There will still be a high elasticity in new catalytic directions in the future, and sectors that have already accumulated certain gains (overseas computing power, innovative drugs, energy storage, solid-state batteries, Tesla Siasun Robot&Automation, lithography machines) still have space for mid-term market trends. Anti-hollowing is a key structural transition from a structural bull market to a comprehensive bull market, an important mid-term structure (photovoltaics and chemicals). The mid-term outlook for Hong Kong stocks remains unchanged, with mid-term Hong Kong stocks likely to continue to benefit from the increasingly strengthened "Trump easing call options" + the fermenting trend of the new economic industry, and the strong representation of leading Hong Kong stocks. Before the spring of 2026, technological growth catalysis is likely to continue to be significantly greater than cyclical catalysis, with a favorable outlook for technological growth trends. Internal switching in technology, sector rotation is normal, but it is challenging for the high switch between growth and value markets to deduce a trend. There will be high elasticity in new catalytic directions in the future. Directions that have already generated optimistic expectations will still have absolute profit space in the medium term, including overseas computing power, innovative drugs, energy storage, solid-state batteries, Tesla Siasun Robot&Automation, and lithography machines, which still have space for the narrative of industrial trends to ferment. Anti-hollowing is a key structural transition from a mid-term structural bull market to a comprehensive bull market. It is continued to emphasize that the key focus of anti-hollowing is high global market share in photovoltaics and chemicals, through mergers and acquisitions > industry concentration > pushing price alliances, united defense of price. In the mid-term, Hong Kong stocks are still favored, with the disturbance of the post-September easing being realized. The strengthening influence of Trump on the Fed is the core narrative in the mid-term, and the gradual formation of the "Trump easing call option", loose currency, weak dollar, strong gold and physical assets, which constitute the mid-term support factor for Hong Kong stocks, and will also support the mid-term market trends of gold and other nonferrous metals. Meanwhile, Hong Kong stocks will continue to benefit from the fermenting trend of industrial trends in the mid-term + the strong representation of leading Hong Kong stocks.