Under a series of heavy-weight policy releases, the A-share market rebounded strongly. From September 24th to 27th, it surged for four consecutive days on heavy trading volume. September 30th was the last trading day before the holiday, with A-shares continuing to soar on heavy volume, with a total trading volume exceeding 2.6 trillion yuan throughout the day.

The hot stock market has also raised higher requirements for the trading system. Prior to the 'burst order' frenzy in the morning session of September 27th, the trading system of the Shanghai Stock Exchange experienced a 'crash' situation. Following the test on September 29th, the SSE will conduct a full-network test again on October 7th.

According to CCTV Finance reports, the Shanghai Stock Exchange will organize a system start-up connectivity test on October 7th to provide a connectivity test environment for relevant institutions for start-up verification. At the same time, the Shenzhen Stock Exchange will also conduct related tests on the same day. It is understood that this test is a routine test after the holidays, but in the current situation where the daily trading volume exceeds 2.5 trillion yuan, it appears especially important.

It is understood that the participating units in this test include the SSE Technology Company, SSE Information Company, relevant core institutions, and financial institutions such as brokerages. The securities accounts, trading units, designated trading, and other elements used in the test are based on production environment data after the close of trading on September 30th, simulating one trading day. There are also reports that as the market trading volume continues to grow, the SSE is also studying equipment expansion with specific plans under discussion.

On September 30th, due to the hot market situation in the A-share market and the surge in trading volume, some brokerage apps experienced local login and slow trading in the morning. In response, several brokerages have activated backup sites for trading emergencies to ensure that the resources and performance of the backup sites can meet the current demand. Journalists attempted to contact customer service representatives of the relevant brokerages several times, but the lines were busy.

Hong Kong stocks surge during the holiday.

From October 2nd to October 4th, the Hong Kong stock market continued to soar, with the Hang Seng Index rising by 7.59%, and the Hang Seng Tech Index surging by 10%.

Since September 11, the Hang Seng Index rebounded more than 28% within a range, with a year-to-date increase of 33.37%. It is worth noting that after consecutive large gains recently, the annual performance of the Hong Kong stock market ranks first among major global indices, outperforming US stocks, Japanese stocks, and others. Many industry insiders believe that the continuous sharp rise in the Hong Kong stock market during the National Day holiday may help boost the post-holiday trend of the A-share market. In addition, actively managed equity funds that have allocated more Hong Kong stocks, as well as Hong Kong-themed funds, may benefit from the strong performance of the Hong Kong stock market during the Golden Week holiday, with fund net asset values possibly experiencing significant rebounds and potentially leading in performance rankings.

Chinese concept stocks listed on US stocks continue to show strength, with the Nasdaq China Golden Dragon Index rising 3.05% on Friday. If we count from the day A-shares led the surge in Chinese assets on September 24, this index has surged 39% in the past two weeks, rising by 2256 points.

Institution: There may be nearly 300 billion yuan inflow into Chinese stocks in the future.

On October 5, China International Capital Corporation released a research report stating that during the holiday period, Hong Kong stocks and Chinese concept stocks continued to rise sharply, with accelerated passive foreign capital inflows, but the proportion of existing stock size is not large; there is a certain overdraw in transactional funds, with active foreign capital turning into inflows this week, but the scale is not significant yet. The future direction of active foreign capital is worth watching, but sustained inflows will require more policies and more optimistic expectations to drive.

Specifically, active foreign capital has turned into inflows this week, but the scale is not significant yet. Active foreign capital accounts for 80%, far exceeding passive funds, making them more important and representative of long-term institutional investors. Overseas active funds have turned into inflows of $0.19 billion in A-shares this week, inflows of $0.12 billion in Hong Kong stocks and ADRs. Although the scale is not large, this is the first time in 65 consecutive weeks since the end of June 2023 that there has been a net inflow after continuous outflows. In terms of regions, the main focus is on funds investing in China and the Asia region, with funds investing in emerging markets and global markets yet to flow in. This is related to our speculation that some active funds, as the market continues to rise, are forced to reduce their underweight positions to avoid falling too far behind. The future direction of active foreign capital is worth watching, but sustained inflows will require more policies and more optimistic expectations to drive.

As of the end of August, global active funds allocated 5% to Chinese stocks (the peak in early 2021 was 14.6%), underweight by 1 percentage point. We estimate that if the underweight position shifts to a neutral position, correspondingly, nearly $40 billion (approximately RMB 280 billion) will flow in, equivalent to the total outflow since March 2023.

Dai Kang, Chief Asset Research Officer at GF Securities Development Research Center, believes that the Hong Kong stock market is in the second stage of a bull market, which is the stage of value revaluation; the third stage depends on continuous improvement in fundamentals, including a clearer landscape for profit realization. A-shares are experiencing the most intense rebound since entering a bear market. On the one hand, domestic policies have cleverly utilized the window of the Fed’s interest rate reduction cycle, with a rate cut cycle expected over the next two years. On the other hand, the upward shift in policy intensity has exceeded the market's original expectations. Dai Kang believes the direction of this round of prescriptions is correct, similar to someone having a cold--previously taking medicine, but now getting an IV infusion.

Dai Kang suggests dividing funds into stable and high-resilience assets in the current bull market atmosphere. Regarding high-resilience assets, Chinese assets and pan-Southeast Asian assets are advantageous in terms of debt cycles and population structure, which are worth paying attention to. In the Hong Kong stock market, a strategy of buying low and selling high should be adopted, while the A-share market may be more emotional and needs to focus on trading volume and market sentiment changes. In addition, the AI industry chain and technology innovation sector are also high-resilience asset choices. At the start of a bull market, the first high-resilience assets to surge are likely brokerage sectors, but moving forward, they may shift to more imaginative sectors such as technology innovation. In asset allocation, close attention needs to be paid to market trends and changes to seize better investment opportunities.

Looking at different industries, the sectors with the highest gains are consumer services, household appliances, non-banking financials, electronics, petroleum and petrochemicals, military industry, building materials, and real estate, mainly focused on optional consumption, advanced technology, and real estate chain sectors.

The strategy team of Minsheng Securities released a report stating that both individual and institutional investment sentiments are clearly on the rise. This combination of investor sentiments implies that the market may continue to rise. It is worth noting that institutional investment sentiments have reached near the highest point since 2018, second only to October 2018. Overall, the trend of declining risk appetite among A-share investors has been reversed. Institutional and individual investors are currently in a phase of collaboration, with institutional sentiments having limited upside potential at this stage, which may pose a variable for future markets. Industry investment sentiment indicators show that most sectors are showing clear upward signals at this stage. Specifically, sectors such as petroleum and petrochemicals, non-ferrous metals, food and beverages, non-banking financials, real estate, and telecommunications may enter a stage of divergence in the upward trend, while the rest of the sectors are still in an upward trend. Weighted shareholder numbers indicators show that recently, more investors have flowed into sectors such as consumer services, food and beverages, non-banking financials, real estate, and media.

Editor/Somer