Sinolink: A-share "imperfect bottom" rebound front-run; recommend allocation around three approaches including oversold rebound

Sinolink released a research report stating that after 19 trading days of choppy decline from September 21 to now, the market finally welcomed a large intraday rebound this Friday. Amid the rebound, the bank recommends responding with three approaches: (1) oversold rebound in sub-sectors of electronics, communications, machinery and equipment, and power equipment; (2) low-level value stocks: biological products, electronics sub-sectors, education, papermaking, chemical fibers, etc.; (3) broad-based heavyweight directions benefiting from the ETF "backstop" effect, mainly non-bank financials. From a medium-term perspective, the bank still recommends strategic allocation to gold, an asset that benefits from interest rate reversals, and to the energy chain (coal, crude oil, oil shipping) undergoing this round of supply constraints and landscape restructuring. Sinolink's main views are as follows: 1 A rebound that was front-run This week (October 19-23, 2026), the market rebounded after a sharp decline. The Wind All A intraday low on October 23 dipped to 5,481.76 points, and the index climbed in the afternoon, with an amplitude of 5.16%, recording the week's largest gain of 2.02% for the full day. This strong rebound raises a question: has the market already reached a phased bottom? The bank's conclusion, drawn from two dimensionsimplied volatility of broad-based index options and the maintenance guarantee ratio for margin financing and securities lendingis that panic sentiment in the three broad-based indices (ChiNext Index, CSI 1000, STAR 50) has approached historical high percentiles (90%), but the degree of chip clearing is slightly insufficient. This means the market may rebound in the short term, but under unchanged external conditions, deleveraging is still needed in the medium term. Specifically, the current rising-volatility decline state corresponds to a median return of 1.55% over the next 20 days, with a win rate of 54.43%. If IV can break through the 90% percentile threshold, the median return will rise to 5.79%, and the win rate will also increase to 79.05%. From the perspective of chip clearing, the current average market guarantee ratio is 257.6%, with a rolling 3-year percentile of 25.9%, down 16.4% from the one-year high. The margin balance continues to decline, but there is still a gap versus historical clearing bottom conditions. This will cause the rebound magnitude and duration to be significantly weaker relative to an ideal fully cleared scenario, and the probability of a second bottom breach has reached 75%. Looking ahead, if the intervention of exogenous variables is strong enough, it will also break the precondition that the market needs to stabilize spontaneously: inflows into institution-dominated ETFs are positively correlated with the CSI 300 ERP; the 10-year mean +1 standard deviation is the starting point for net inflows, while the 10-year mean +1.5 standard deviations is the peak of institution-dominated ETF inflows. This week, the CSI 300 ERP touched the threshold of the 10-year mean +1 standard deviation. Whether institution-dominated ETFs will begin sustained inflows in the future is an important indicator to watch; high-intensity inflows still require the ERP to continue rising. 2 If there is a rebound, allocate around three approaches The first approach: oversold rebound. Although the overall market has not "perfectly" hit the bottom range signal, some sub-sectors have already reached positions with sufficiently deep declines and sufficient chip clearing. These are the directions that funds will first return to after the market rebounds. The bank set thresholds of a decline of more than 15% since June 30 and a composite crowding level below 40%, screening out 23 oversold rebound industries, concentrated in four directions: electronics (semiconductors, consumer electronics), communications (communications equipment), machinery and equipment (general equipment, automation equipment), and power equipment (grid equipment). The second approach: after the collapse of the previous main-line crowding, quality stocks at valuation bottoms may attract market attention. The bank screened out 44 sub-sectors, typical examples being: biological products, other electronics, optics and optoelectronics, etc. The third approach: if institution-dominated ETFs continue to see large inflows, broad-based heavyweights will be the direction benefiting from the ETF "backstop." 3 Where is the bottom? Signposts for a major cycle reversal Since July, the direct manifestations of the market's twists and turns have been: new highs in US Treasury yields, rising geopolitical risks, and cracks in the AI narrative. Behind this is the contradiction between technology investment demand led by the United States and insufficient savings outside China. For some time, economic systems outside AI have been continuously squeezed, while within AI the circle has also been constantly narrowing. To break this unsolvable cycle, what is actually needed is a renewed decline in US Treasury yields, the anchor of global capital costs. Although the current 10Y US Treasury yield has retreated from its high, it remains at a high level of 5%. Since the 21st century, sharp declines in both real and nominal US Treasury yields have been able to prompt a rapid recovery in global gross fixed capital formation growth and its share of GDP. The mechanism behind this is that investment is more sensitive to interest rates than consumption. Currently, the US Treasury real yield is 2.66% and the nominal yield is 5%, both in the high range of the past two decades, similar to the levels in 2008, thus also suppressing investment other than the AI industry. If a simple analogy is made, there may be two scenarios in the future: one is a "crisis mode," where economic stall prompts monetary policy easing and rates fall rapidly; the other is a "steady-state mode" similar to 2013-2019, where investment can remain stable without continuous rate cuts, but this requires rates to at least return to a reasonable threshold level. Either way, from a medium-term perspective: a real opportunity requires a significant decline in interest rates, and the first half of a significant decline in US Treasury yields is often agonizing. 4 A front-run bottom and a weak rebound The market finally welcomed a large intraday rebound this Friday. But precisely because of the large intraday rebound, the "bottom" has not been fully consolidated. A flawed bottom reduces the magnitude and duration of the rebound and brings the hidden concern of a second bottom breach. Amid the rebound, the bank recommends responding with three approaches: (1) oversold rebound in sub-sectors of electronics, communications, machinery and equipment, and power equipment; (2) low-level value stocks: biological products, electronics sub-sectors, education, papermaking, chemical fibers, etc.; (3) broad-based heavyweight directions benefiting from the ETF "backstop" effect, mainly non-bank financials. From a medium-term perspective, the bank still recommends strategic allocation to gold, an asset that benefits from interest rate reversals, and to the energy chain (coal, crude oil, oil shipping) undergoing this round of supply constraints and landscape restructuring. Risk warnings: Overseas monetary policy expectations tighten significantly; the AI industry trend sees a major breakthrough.