China International Capital Corporation: In September, the allocation strategy focuses on a bottom-up approach, overweighting sectors such as communications equipment, machinery, and chemicals.

CICC released a research report stating that looking ahead to September, after previous repairs, external uncertainty has increased, and investors should pay more attention to bottom-up structural opportunities: 1) Within tech growth, there is notable internal differentiation; AI infrastructure (such as optical communications, PCBs, etc.) shows strong certainty in prosperity, while in semiconductors, attention should be paid to valuation matching. Innovative drugs are entering a data verification phase; 2) Considering geopolitical factors and capacity cycles, its important to focus on areas with improving performance and supply-demand situations, such as engineering machinery, grid equipment, and petrochemicals; 3) The fundamental recovery of purely domestic demand industries is relatively slow and still needs observation. Configuration suggestions: Overweight on communication equipment, machinery, basic chemicals, pharmaceuticals, and banks; underweight on sectors such as construction and engineering, textiles and apparel, education, light industry and home goods, and retail. CICC's main viewpoints are as follows: From late July to the end of August, the A-share market showed overall recovery, but the tech style was relatively weak. As of September 1, the Shanghai Composite Index was up 6%, bringing year-to-date returns back into the positive. During this period, small-cap stocks and dividend-paying stocks outperformed in style dimensions, while the tech sector was weak and exhibited significant differentiation. In September, the domestic market faces a performance vacuum, with rising external uncertainties. Recent overseas geopolitical risk events continue to occur frequently, and the global macro environment is quite complex. Due to supply disruptions, oil prices maintain a high fluctuation pattern. At the Jackson Hole Global Central Bank Conference, Powell gave a hawkish speech, with the US PCE up 3.7% year-on-year, exceeding the Fed's target level. The probability of interest rate hikes by the Federal Reserve has increased for the year, and global investors are highly focused on the subsequent US non-farm payroll data, CPI data, and the Fed's interest rate meeting in September. As the US midterm elections approach, the increase in related episodic factors may also affect market sentiment. On the internal front, the reporting of mid-term results for A-share listed companies has concluded, and Q2 corporate earnings showed strong performance, marking one of the best earnings periods in the past five years. Industries with outstanding earnings performance concentrated in energy materials, AI, and export fields. In Q2, the CSI AI Index constituent earnings rose by 95% year-on-year, while semiconductors, components, and optical modules grew by 202%, 65%, and 140% respectively. By mid-2026, sales revenue from white goods, engineering machinery, photovoltaic equipment, optical optoelectronics, shipping ports, other electronics, other home appliances, small appliances, and overseas game businesses is expected to exceed 40%, with gross margins overseas being higher than those in the domestic market. Looking to September, following the previous market repair period and facing an environment of heightened uncertainty, investors at this point may focus more on bottom-up discovery of industries and individual stocks. From the recent performance of major industry sectors: 1) Energy and basic materials: Oil prices fluctuate at high levels, and the Federal Reserve's monetary policy faces uncertainty. In August, crude oil (down 1%) and chemical prices (up 3%) saw high volatility. Ongoing negotiations between the US and Iran have introduced uncertainties surrounding the actual traffic flow and expectations through the Strait of Hormuz, compounded by supply disruptions from local geopolitical conflicts in regions like the Red Sea and Black Sea. Crude oil inventory consumption led to a spike in crude oil prices, which overall exhibited a fluctuating state. CICCs commodity team believes that if disruptions in strait trade continue, land inventories of crude oil may still face depletion pressures in September. In terms of non-ferrous metals, in August, prices for gold (up 10%), copper (up 3%), aluminum (up 1%), and zinc (up 7%) rebounded. The US Federal Reserve's ambiguous stance on monetary policy has caused market concerns over US fiscal deficits and interest issues. Yields on 10-year and 30-year US Treasury bonds remain high. On August 19, the US Treasury announced an expansion in long-term treasury buyback programs to provide liquidity support. Regarding coal, prices for thermal coal (up 8%), coking coal (up 46%), and coke (up 27%) significantly rebounded due to regional events and stricter safety inspections tightening domestic coal supply, with coal production significantly decliningJuly raw coal production fell 10% year-on-year. In the short term, recovery in supply is expected to be limited, as the summer peak demand for coal is gradually transitioning. We believe that demand is likely to show moderate growth. Related products in the domestic real estate chain, such as rebar (up 4%), iron ore (up 2%), the Nanhua glass index (down 1%), and cement price index (down 0%), are still showing relatively flat price performances. 2) Industrial products: Domestic real estate investment remains lackluster, lacking incremental demand for upstream. Infrastructure investments mainly play a stabilizing role. The traditional busy season of "Gold September and Silver October" has yet to show robust signs. Demand in the AI infrastructure capital expenditure supply chain, along with the new energy manufacturing sector, demonstrates stronger resilience. The machinery team reviews that high-prosperity sub-sectors are concentrated in the Siasun Robot & Automation, the shipbuilding industry chain, and AIDC equipment. Domestic and overseas sales of engineering machinery continue to maintain high growth, with domestic excavator sales in July up by 19% year-on-year and export sales up by 32%. The latest monthly sales growth has slightly slowed, possibly impacted by previous phased disruptions around the mid-year mark. Looking ahead, demand in overseas construction terminals and mining is expected to continue strengthening. In the power equipment sector, due to a high baseline from previous rush installations before May 31, 2025, new generating capacity dropped 46% in the first half of the year. In recent months, the declines in new generating capacity for wind power and CECEP Solar Energy have gradually narrowed, reaching -12% and -61% in July, respectively. Demand for lithium battery storage is relatively strong, though the squeezing effect of rising raw material prices on midstream industries is yet to be observed. In the automotive sector, sales of domestic fuel vehicles and new energy vehicles in July decreased by 37% and 4% year-on-year, with the demand downturn already transmitted to the component sector. 3) Consumer products: The internal driving force of consumption requires improvement. The consumer sector is at one end of the "K-shaped differentiation," where overall demand needs to be boosted. Currently, the positive signals released by steady growth policies are mainly concentrated on the investment side, with the effect on the consumption side yet to be observed. Sales data we tracked show that in July, sales volumes for washing machines, refrigerators, and air conditioners fell year-on-year by 0%, 4%, and 10% respectively. Among the retail subcategories of social retail, catering income and retail goods saw year-on-year increases of 1.4% and 0.5%. As of the end of August, the factory price and wholesale price of Moutai rose by 8% and 1% respectively compared to the previous month, indicating that the liquor industry is in a phase of solid bottom clearing. The average purchase price for live pigs stands at 12 yuan/kg, remaining essentially flat month-on-month, while supply in the live pig market is at historic highs. 4) Technology: Demand for AI data centers still exists rigidly. In July, Anthropics ARR growth fell short of expectations. NVIDIA released its Q2 fiscal year 2027 results and provided guidance for the next fiscal year, with company revenue and net profit exceeding expectations, confirming the rigid demand for AI data centers. Leading cloud vendors in the US are under pressure concerning free cash flow, and the long-term investment intensity in computing power remains to be seen. Chinas AI data center construction is also in a period of rapid expansion, with some companies recently announcing plans to further strengthen AI infrastructure. Although the narrative focus on AI is gradually shifting towards applications, and related sector stock prices have reacted positively, the actual profitability of companies at the application end is yet to be verified. In terms of consumer electronics, in July, domestic sales of smartphones, laptops, and computer hardware/monitors/peripherals rose year-on-year by 2%, while sales dropped by 12% and 15%, respectively. Demand for semiconductors remains strong, with global and Chinese semiconductor sales in June rising by 124% and 113% year-on-year, respectively. 5) Finance: The short-term trading activity in the stock market has seen a decline, with the stock market's performance in July potentially affecting the non-bank sector's performance in the third quarter. As of July, the insurance industrys premium income grew 2% year-on-year, with total assets up 11% year-on-year. In August, the average daily trading volume of all A-shares was 1.3 trillion yuan, a decrease of 1.4 trillion yuan compared to the previous month. By the end of the month, the balance of margin trading was 2.6 trillion yuan, an increase of 0.06 trillion yuan compared to the previous month. The decrease in trading volume and turnover reflects a rising wait-and-see attitude among investors regarding the stock market's performance. 6) Real Estate: A new model for real estate development has undergone institutional reforms. In July, the sales area of commercial housing in 30 key cities fell by 12% year-on-year and by 14% month-on-month, totaling 5.65 million square meters. Regarding housing prices, in July, the sales price index of new and second-hand houses in 70 large and medium-sized cities continued to show declining trends, down 3.4% and 5.4% year-on-year, respectively. A Politburo meeting in July called for "stabilizing the real estate market." On August 28, the Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources, and the Financial Regulatory Bureau jointly issued a notice on improving the sales system for commercial housing. The Peoples Bank of China and the State Financial Supervision Administration jointly issued opinions on reforming and improving real estate credit management to promote a new model for real estate development. The China Securities Regulatory Commission released opinions on capital market support for establishing a new real estate development model. A series of policy documents touch upon the sales system for commercial housing, real estate credit management, and capital market financing support, aiming to reform foundational systems regarding housing development, financing, and sales, and to establish a new model for real estate development. In terms of configurations, seize structural opportunities under prosperity clues. 1) The future performance of tech growth may show differentiated trends, requiring careful selection: Segments related to AI infrastructure, such as optical communications and PCBs, still demonstrate strong certainty in prosperity this year, with hopes for rebounds after sharp declines. In sectors like semiconductors and computing power, many companies still require attention to the matching degree between fundamentals and valuations; many innovative drug companies are entering the clinical data verification stage, worthy of bottom-up focus. 2) Considering geopolitical situations and the cyclical position of capacity, pay attention to fields with improving performance and supply-demand patterns, such as engineering machinery, grid equipment, and petrochemicals. The fundamental recovery progress of purely domestic demand industries remains relatively slow and requires further observation. Overweight sectors in September: communication equipment, machinery, basic chemicals, pharmaceuticals, and banks. Underweight sectors in September: construction and engineering, textiles and apparel, education, light industry and home goods, and retail.