Maintain the forecast that the 10-year U.S. Treasury yield will shift from a sharp rise to high-level volatility and subsequent retreat. As quarter-end trading factors fade, high U.S. bond yields are beginning to attract allocation demand. Overseas liquidity conditions warrant attention to four developments: U.S. inflation and employment data, FOMC decisions, U.S. midterm elections, and the Treasury’s re-financing announcement. The rapid rise in U.S. Treasury yields is expected to slow down or even turn into volatile retreat, supporting the late autumn market rally in U.S. and emerging markets: last week, the proportion of S&P 500 components trading above their 50-day moving average rose from 24.7% to 36.3%. If yields experience volatile retreat in the fourth quarter, U.S. market funds may spread to a broader range of sectors with attractive earnings and valuation trade-offs, allowing more quality companies to achieve a double expansion (the so-called “Davis Double Play”). The strong U.S. dollar trend may also ease temporarily, benefiting a “late autumn rebound” in Chinese equities.
II. China’s fundamental outlook for the late autumn rebound: focus on “expectation gaps” in economic policy and “value-for-money” in market fundamentals and valuations
Maintain the view that Hong Kong stocks are likely to rebound in October: sentiment indicators have recovered from extreme lows, but risk appetite remains weak; domestic capital will continue to be the main driving force, with southbound funds recording seven consecutive weeks of net inflows. There are currently two major “expectation gaps” regarding countercyclical policy: first, overall expectations remain low; second, foreign investor confidence is even lower than domestic investors. Direction matters more than timing; policy support will continue through the fourth quarter to achieve the full-year GDP target, forming the fundamental basis for a rebound in China’s stock market. The “Guidelines on New Quality Productive Forces” will support a rebound in the AI industry chain; fiscal expansion has been intensified, with an additional 550 billion RMB in local government debt quota to be utilized. On the earnings front, focus on sectors with strong fundamental improvements such as AI-driven pharmaceuticals and biomedicine, upstream dairy, oil shipping, gold, and copper mining.
III. Investment Strategy: Participate in the late autumn rebound with a “defensive counterattack + barbell strategy,” selectively targeting dividend value and technology growth
Catalysts: volatile retreat in long-term U.S. Treasury yields and a turning point in overseas liquidity; continued diffusion of super-intelligent applications in the U.S. and sustained policy stimulus in China. We maintain our bullish outlook on both U.S. and Chinese stock markets in the fourth quarter, with Hong Kong stocks likely to experience initial weakness followed by a strong rebound in October. Employ a barbell strategy to participate in the late autumn rally: focus the offensive side on technology and growth, and anchor the defensive side on deep-value dividend assets. Theme One: Technology and Growth—The AI rally is expected to be led by AI applications, focusing on secure, reliable, and inference-based application expansion, while also including a rebound in AI hardware: the importance of cybersecurity, model governance, and enterprise private deployment will continue to rise; the integration of the AI ecosystem will open new monetization avenues for existing traffic, data, and customer relationships; on the hardware side, focus on opportunities in domestic computing power, semiconductor equipment, and advanced packaging. Theme Two: Value-oriented Assets—China’s core assets are “the essence forged through endurance”: allocate to dividend-yielding value assets in sectors such as telecom operators, power grids, electricity, coal, energy refining, chemicals, and finance; growth-value assets offer greater elasticity during a rebound, with attention on non-ferrous metals, insurance, Hong Kong local stocks, and traditional internet sector leaders supported by strong cash flows.
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