CMSC: After the market rebound, where do we go from here?

CMSC released a research report stating that after the market rebound, the core of allocation has shifted from long-term upside to earnings-side fundamental realization. The core approach for industry allocation over the next 3-6 months is: during the high interest rate phase, focus on earnings-side advantages, followed by whether the chip structure is healthy; when interest rates turn lower, prioritize tech breadth; and wait for subsequent domestic policy relay before further expanding into domestic demand. There are mainly three major opportunities. Opportunity 1: Tech breadth repair after 10Y yields confirm a downturn the highest-certainty trade; Opportunity 2: Domestic demand and pro-cyclical expansion under internal-external resonance a re-examination of the September 2024 experience; Opportunity 3: Counterintuitive brokers policy value after index pullback. CMSC's main views are as follows: After the market rebound, the core of allocation lies in the earnings-side prosperity premium under high interest rates. In the short term, use tech leaders with the strongest earnings and clean chip structures plus dividend assets as the foundation, waiting for tech breadth repair after US Treasury yields turn. This week's market was a mild rebound supported by micro-level liquidity, with broad-based ETFs seeing increased net inflows and pulse-style net buying on the afternoon of October 9, pointing to market stabilization operations. Externally, the US-Iran negotiation window has reopened, China-EU trade frictions have seen substantive easing, and geopolitical risks have declined in the short term; however, 10Y US Treasury yields remain at the 5.2%-5.3% high level, the Fed's September minutes were hawkish, and a October rate pause is the baseline scenario. Term premium upward pressure makes interest rate judgment more difficult. On the industry front, AI prosperity has not seen systemic deterioration, and capital is further concentrating in leaders with the strongest earnings and cash flow; combined with the Q3 earnings window, allocation criteria should shift from long-term upside to current-period prosperity realization. In the short term, priority should still be given to areas where Q3 earnings are expected to grow strongly or improve, such as the AI industry chain, resource products, mid-to-high-end manufacturing, pharmaceuticals, securities, and textile manufacturing. This week's A-share market saw increased volume adjustment after the holiday, with a bottoming-out rebound on Friday. Main reasons include: (1) The Fed's September meeting minutes and officials' statements retained the possibility of further rate hikes, long-end US Treasury yields remained high, overseas semiconductor stocks came under pressure and weakened, combined with tech realization pressure, suppressing growth valuations. (2) Hormuz Strait navigation risks persist, whether US-Iran tensions ease remains unclear, international oil price increases drove energy sector activity, and the actual supply recovery of shipping capacity remains uncertain. (3) The battery chain continued to be active, media, software and other AI applications strengthened on Friday, the National Climate Center confirmed El Nio has formed, climate risks drove agricultural trading, Q3 earnings previews drove repair in some chemical stocks, and market hotspots spread to applications and earnings lines. National Day travel demand remained resilient, and August global semiconductor sales year-over-year growth expanded. This week's areas of prosperity improvement mainly include: 1) Among resource products, coal, crude oil, and most chemical product prices rose; 2) TMT continued high prosperity, DDR5 memory prices continued to rise, August North America PCB shipments three-month rolling year-over-year growth expanded, August global semiconductor sales year-over-year growth expanded; 3) Baijiu price index and fresh milk prices rose; 4) BDTI rose rapidly. Recommend petrochemicals, building materials, semiconductors, transportation, agriculture, forestry, animal husbandry and fishery, and pharmaceutical biology with relatively high or improving prosperity. ETF net subscription, margin net inflow. Margin funds totaled a net inflow of 4.15 billion yuan; newly established equity-biased public funds were 1.18 billion shares, down 6.19 billion shares from the previous period; ETFs saw net subscription, corresponding to a net inflow of 40.82 billion yuan. Margin funds net bought pharmaceuticals, power equipment, non-bank financials, etc.; information technology ETFs saw more subscriptions, consumer ETFs saw more redemptions. Major shareholders shifted from net reduction to net increase, and planned reduction scale decreased. OpenAI ARR attracted attention, AI vendors explore differentiated development paths. Recently, OpenAI ARR "decline" triggered market concerns about AI commercialization sustainability, but subsequently the revenue statistical caliber was clarified, and market focus further fell on the actual growth momentum of model vendors. Currently OpenAI and Anthropic's ARR continues to grow, but the former's month-over-month growth rate marginally rebounded, while the latter slowed, and commercialization competition gradually intensified. At the same time, Google and Musk's Agent platform successively introduced the Claude model, and leading vendors began competing for enterprise AI application entry points and model scheduling rights. This week's overall A-share valuation level declined compared to last week. The Wind All-A index PE (TTM) was 16.5, down 0.2 from last week, at the 57.7% percentile of historical valuation levels. This week, most index valuations declined, among which agriculture, forestry, animal husbandry and fishery, media, and coal rose the most, while electronics, defense and military, and machinery equipment fell the most. Risk warnings: Economic data below expectations, incomplete policy understanding, overseas policy tightening beyond expectations.