On October 25th, a research report from China Merchants Securities highlighted that, following a sharp downturn, various indicators of the A-share market are now nearing historical lows. Key observations include: a significant contraction in trading volume, with turnover rates hovering near all-time lows; a surge in inflows of medium- to long-term funds, particularly ETFs; enhanced market-stabilizing measures and increasingly institutionalized mechanisms to maintain stability; and a policy environment that is gradually solidifying its supportive stance. Market bottoms generally precede fundamental bottoms. At present, both profit conditions and the Producer Price Index (PPI) are showing signs of improvement, offering positive momentum for A-shares. In the external environment, leverage ratios in the Japanese and South Korean markets have substantially decreased, making the transmission of overseas risks more manageable. However, the pricing logic within the U.S. stock AI sector is shifting from "input expansion" to "verification of capital returns." Coupled with elevated U.S. Treasury yields and rising oil prices, which are squeezing the room for accommodative policies, the high-interest-rate environment continues to weigh on valuations.

Given the increased likelihood of a market rebound once ETF inflows stabilize the market, the short-term outlook suggests a focus on consolidation and structural opportunities. We recommend maintaining a balanced allocation strategy while closely monitoring key developments over the next two weeks. The core investment logic for sector allocation over the next 3-6 months is as follows: during periods of high interest rates, prioritize sectors with strong molecular-end advantages (referring to robust earnings or cash flow drivers) and healthy balance sheets; when interest rates decline, emphasize breadth within the technology sector; and following further domestic policy initiatives, shift focus toward sectors tied to domestic demand.