Global rate repricing and domestic sector divergence are the key market themes this week, with US jobs data beating expectations and shifting focus toward inflation risks.

US Treasury yields and the dollar face continued upward pressure in the short term, keeping global equity markets range-bound.

Where to position

China Merchants Securities recommends a balanced allocation between structural growth and dividend-paying stocks, with particular emphasis on AI computing power, export-oriented companies, and undervalued turnaround opportunities.

On the overseas front, the US August nonfarm payroll report significantly exceeded market expectations, while the unemployment rate held steady at 4.1%. Market attention has now pivoted from employment to inflation data, with US Treasury yields and the dollar likely to face persistent upside pressure. Global equity markets are expected to remain volatile, with the next turning point depending on upcoming inflation releases, the September Federal Reserve meeting, and developments in the US-Iran situation.

Meanwhile, energy supply risks have triggered a structural rally in commodities, with crude oil serving as the core anchor. Price increases are now spreading to chemical intermediates, while precious metals and photovoltaic materials face downward pressure.

On the domestic front, A-share revenue and profit growth accelerated in the second quarter, with overseas revenue contribution continuing to rise—yet sector divergence remains pronounced.

Looking at industry trends, overseas large language models are undergoing intensive updates. Despite declining crowding in A-share tech sectors, the market continues to trade on the "hardware-to-software" rotation logic. While the overall narrative space for technology has not been revised upward, profit redistribution along the industry chain appears likely.

Market review

The A-share market experienced volatile adjustments this week due to several factors. First, overseas liquidity pressure intensified as US Treasury yields climbed rapidly, triggering a global bond market correction. The 10-year US Treasury yield approached 4.8%, while the 30-year yield rose to approximately 5.28%. Concerns over US debt levels, inflation expectations, and rising energy prices weighed on global risk asset valuations.

Second, AI hardware trading entered a differentiation phase, with profit-taking emerging in previously high-prosperity sectors. However, AI application segments remained supported by industry catalysts, with media, short-drama, and AI video directions absorbing some capital inflows.

Third, market hotspots rotated rapidly, with low-position sectors such as agriculture and defense strengthening periodically. Pig farming benefited from sow herd reduction expectations and pork price recovery prospects, while defense served as a safe-haven capital destination during the adjustment. However, declining trading volumes suggest limited upward momentum for the broader index.

Sector momentum

August manufacturing PMI improved sequentially, with pork prices moving higher. Sectors showing improvement this week include: coal, crude oil, and most chemical products among resource sectors; continued high prosperity in TMT with DRAM prices rising and North American PCB shipments and orders expanding on a three-month rolling basis; and improving pig prices alongside rising vegetable prices. Recommended sectors with high or improving prosperity include coal, chemicals, pharmaceutical manufacturing, agriculture, semiconductors, and banking.

Capital flows

ETF activity showed net subscriptions, margin financing recorded net outflows, and new fund launches declined. Margin financing saw net outflows of RMB 2.71 billion over the first four trading days, while newly established equity public funds totaled 4.99 billion units—down 740 million units from the previous period. ETFs recorded net inflows of RMB 10.87 billion. Margin traders favored machinery, basic chemicals, and building materials, while IT ETFs attracted notable subscriptions and securities brokerage ETFs saw redemptions. Major shareholder net selling narrowed, with planned reduction scale decreasing.

Thematic trends

Leading AI companies accelerated their model release cadence this week. Major overseas competitors unveiled their latest offerings within a remarkably short timeframe, reflecting escalating competition. Key common trends across these releases include real-world production efficiency becoming a crucial metric for frontier model value, with scientific research capability emerging as a priority focus for flagship models. Product strategies are diverging: one player emphasizes computer operation capabilities, another deepens its agent integration, while a third focuses on balancing performance, speed, and cost through its Flash series.

Valuation perspective

Overall A-share valuation levels declined this week, with the Wind All-A Index PE (TTM) at 17.2—down 0.5 from the previous week—positioning at the 63.4% percentile of historical valuations. Most index valuations declined, with light manufacturing, construction decoration, and media leading gains, while electronics, building materials, and defense posted the largest declines.

Risk factors

Key risks include economic data falling short of expectations, incomplete policy interpretation, and overseas policy tightening exceeding market forecasts.