CICC forecasts strong A-share opening after Golden Week, citing three reasons

A robust reopening of mainland markets is expected to reignite southbound Stock Connect purchases, offering support to Hong Kong-listed Chinese stocks after a week of trading without mainland participants. CICC's focus on third-quarter earnings favours companies with improving profits over overall market trends. This could benefit sectors that declined before the holiday if their earnings prove resilient. The forecast faces risks from the global environment: rising bond yields, the Fed's inclination toward additional rate increases, and renewed tensions with Iran could limit gains if international sentiment weakens. The yuan and China-sensitive commodities like copper could also be influenced by the confidence of returning domestic investors.

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CICC anticipates that mainland investors will return from the holiday with a willingness to buy, supported by more stable data and forthcoming earnings, providing motivation to reverse the pre-break pessimism.

Summary of the report:

• China International Capital Corporation (CICC) anticipates a strong start for A-shares when mainland markets reopen on Thursday after the National Day holiday
• The brokerage noted that weakness before the holiday was due to various external headwinds
• It pointed to three supporting factors: generally higher overseas markets during the break, fairly stable domestic economic data, and third-quarter earnings reports scheduled after the holiday
• CICC forecasts that investor confidence will rebound in October
• The brokerage also highlighted two investment themes, though these were not elaborated in the report's summaries

China's A-shares are poised for a robust opening when mainland markets resume trading after the week-long National Day holiday, according to China International Capital Corporation (CICC). The investment bank stated that more stable conditions domestically and internationally should boost investor sentiment.

In a research report dated 8 October, the Chinese investment bank stated that the market's decline before the holiday mirrored various external challenges. It highlighted three factors that should aid a recovery when trading restarts at 09:30 Beijing time (0130 GMT).

First, the global environment during the holiday: CICC noted that overseas markets generally advanced while mainland exchanges were shut, providing a stronger base for domestic investors. Second, the domestic economy, which the bank characterized as relatively stable with recent data. Third, earnings: third-quarter results coming after the holiday are anticipated to offer some market support. Overall, CICC expects investor confidence to regain strength in October.

This outlook follows a tough end to September for mainland stocks. Technology hardware stocks experienced a sharp sell-off in the week prior to the holiday, and the Shanghai Composite finished the month near 3,840 after a subdued response to Beijing's latest support policies.

The holiday period itself was mixed. Although Wall Street hit a record high, Hong Kong, the nearest proxy for Chinese stocks during the closure, declined 2.6% on 2 October as it absorbed a global bond sell-off before partially rebounding. Federal Reserve minutes released on Wednesday indicated that most policymakers view another US rate hike as probable by year end, and new reports of potential US strikes on Iran have increased geopolitical uncertainty.

The speed at which southbound and domestic investors re-enter will be the initial test of CICC's outlook. The third-quarter earnings season, together with official data on Golden Week spending, will indicate whether the anticipated confidence improvement can persist beyond the early trading sessions.