Since the start of this year, the A-share market has experienced multiple style rotations and significant volatility. In the third quarter especially, growth sectors underwent rapid corrections following earlier gains. Since July, technology sectors like electronics and telecommunications, which had rallied substantially, have seen major pullbacks, while defensive sectors such as dividend-yielding stocks and pharmaceuticals, which had corrected earlier in the first half, have shown relative strength during this adjustment.

Looking ahead to the fourth quarter, what is the outlook for the A-share market? Which sub-sectors deserve attention? What risks and uncertainties should investors monitor? China Fund News invited four fund investment chiefs to share their perspectives on the Q4 market: Zou Hui, General Manager of the Equity Investment Department at Xingye Fund and fund manager of Xingye Research Select Mixed Fund; Liu Yuanhai, Chief Investment Officer and General Manager of the Equity Investment Headquarters at Soochow Fund; Wu Hao, Head of the Research Department at CITIC Prudential Fund; and Zhu Hong, Investment Director at Lord Abbett Fund.

Here are their key insights: Zou Hui noted that given the transitional nature of Q4, he will focus on sectors with potential for fundamental reversals next year, including defense, pharmaceuticals, and AI applications. Liu Yuanhai believes this correction reflects valuation compression and shifts in market sentiment rather than a fundamental reversal in corporate earnings trends. Looking from Q4 to around the Spring Festival, market opportunities may still outweigh risks, but a broad-based rally is unlikely, with structural characteristics remaining prominent. Wu Hao observed that recent overseas macro disturbances have increased with the Fed's rate hike decision, repeated geopolitical conflicts, and rising oil prices, yet US tech assets have shown resilience. The relative weakness in the domestic market is more likely related to micro-level trading structures and changes in risk appetite, with the AI industry trend itself not showing a significant reversal. Zhu Hong expects market style to gradually become more balanced. As tech sector valuations are fully digested and low-position sectors complete their recovery, the market will likely return to industry prosperity trends, company quality, earnings growth, and valuations.

Market Opportunities from Q4 to Spring Festival May Still Outweigh Risks

When asked about the Q4 outlook after a volatile first three quarters, Zou Hui said the third quarter of this year was the most challenging quarter for investing since September 2024. Looking ahead to Q4, he highlighted three points: First, with the Fed's rate hike finally landing, concerns about macro uncertainties such as Fed credibility and upward pressure on Treasury yields may ease in the short term. Second, the tech rally continues, and the market may refocus on sectors with confirmed earnings and industry trends. Third, while the domestic economy faces significant pressure in Q3, even if this persists into Q4, its impact on the equity market is expected to diminish marginally.

Liu Yuanhai noted that from a fundamental perspective, this adjustment reflects valuation compression and sentiment changes rather than a reversal in corporate earnings trends. On one hand, excluding financials and the "three barrels of oil," A-share corporate earnings growth has improved compared to expectations at the start of the year, with corporate profits still in a recovery phase. On the other hand, with the Shanghai Composite Index back near the 3,800-point level (data source: Wind, as of September 16, 2026), approaching the lower bound of the past year's range, market safety margins have improved. Therefore, systemic downside risk is relatively limited, and the rapid Q3 correction has released some valuation pressure. From Q4 to around the Spring Festival, market opportunities may still outweigh risks, but a broad rally is unlikely, with structural characteristics remaining prominent. After value sectors completed a round of valuation recovery in July-August, if fundamentals in banking, consumer, baijiu, and petrochemical sectors do not further improve, the momentum for value style to significantly outperform may be limited. In contrast, some growth and tech sectors, after adjustments, have valuations back to relatively reasonable levels. Combined with continued industry prosperity and earnings growth support, growth style may regain an edge before year-end.

Wu Hao said recent overseas macro disturbances have increased with the Fed's rate hike, repeated geopolitical conflicts, and rising oil prices, but US tech assets have shown resilience. The relative weakness in the domestic market is more related to micro trading structures and risk appetite changes, with the AI industry trend itself not showing a clear reversal. Domestically, the economy shows structural divergence. Industrial value-added, retail sales, fixed asset investment, and other data are marginally weak, PPI continues to decline, and industrial enterprise profit growth has slowed. Exports remain growing, but growth may moderate in H2 as the base rises. Policy continues to emphasize accelerating fiscal spending, and August PMI performed better than seasonal trends. Further observation is needed on whether economic data can continue to improve. At the industry level, cloud vendor spending, computing power, and optical communications remain worth tracking. Additionally, earlier events impacted market risk appetite, but with tech asset adjustments and reduced trading congestion, market sentiment has shown signs of marginal recovery.

Zhu Hong noted that the A-share market in Q3 exhibited a pattern of volatile adjustment and structural divergence. This round of sector rotation is more likely a phase of valuation rebalancing and chip restructuring within a volatile environment rather than a reversal of industry trends. Within the tech sector, the AI industry continues to iterate and upgrade, and the core logic of the state's push to develop advanced manufacturing such as semiconductors and high-end equipment has not ended. The Q3 adjustment was more about releasing risks from crowded trades and overextended valuations. Going forward, market style will likely become more balanced. As tech valuations are fully digested and low-position sectors complete their recovery, the market will probably return to industry prosperity trends and company fundamentals, including earnings growth and valuations.

Focus on Defense, Pharmaceuticals, AI Applications

Regarding which sectors or sub-tracks deserve attention in Q4, Zou Hui said that the main direction remains sectors with industry prosperity and earnings certainty, primarily in hardware, including both overseas and domestic computing power. Given Q4's transitional nature, he will focus on sectors with potential for fundamental reversals next year, mainly defense, pharmaceuticals, and AI applications. Additionally, although the domestic demand pro-cyclical direction has not shown a clear inflection point, he will closely track changes in sub-industries.

Liu Yuanhai said he currently favors tech growth sectors with clear industry trends, order or revenue support, and the potential to enter an earnings delivery phase, with the focus remaining on the AI computing power supply chain. The certainty of overseas AI computing power is relatively high, with global cloud vendors' AI capital expenditure still growing rapidly and transmitting to servers, optical modules, PCBs, and other segments. After adjustments in July-August, valuation pressure on some core companies has been released, while order and earnings trends have not shown clear inflection points, so these deserve continued focus. On the domestic computing power side, he currently prefers storage and related semiconductor equipment. Domestic AI chips have significant long-term potential, but short-term they are affected by HBM material supply and earnings delivery pace. In contrast, the fundamental clues for storage prosperity and semiconductor equipment localization are clearer. Looking to next year, if supply constraints ease and orders and revenue gradually materialize, domestic AI chips may present new investment opportunities. AI applications may be an important direction to watch, including on-device AI, intelligent driving, humanoid robots, and AI transformation of internet platforms. However, most application companies' business models and earnings inflection points are not yet clear. His attitude is long-term optimism, but at this stage, it is necessary to wait for user growth, revenue quality, and profit delivery rather than investing based solely on thematic expectations. Across broader industry trends, new energy, power batteries, advanced manufacturing, and innovative drugs may also present structural opportunities, but supply-demand improvement, earnings inflection points, and valuation levels need careful observation.

Zhu Hong said that in the long term, China's economy will remain in a stage of structural optimization and upgrading driven by innovation. New economy sectors represented by AI technology, advanced manufacturing, and innovative drugs remain strongly supported by policy, with broad long-term development prospects and significant growth potential. Following recent price adjustments that released risk, some quality companies now offer good investment value. Some companies in consumption and dividend sectors have good free cash flow and high dividend yields. After prolonged adjustments, their stock prices are in low ranges, pessimistic sentiment is fully priced in, and there is potential for expectation recovery.

Wu Hao noted that macro liquidity currently faces certain constraints, and the market may continue to experience volatility pressure in the short term, but medium-to-long-term industry trends may not have fundamentally changed. In terms of allocation, he will continue tracking core assets with clear industry trends that are gradually showing safety margins after adjustments. He will also focus on opportunities from potential improvements in macro liquidity expectations while strengthening comparison of distressed-reversal assets to find products with earnings improvement elasticity.

Focus on Internal and External Uncertainties

Regarding risks and uncertainties to monitor going forward, Zou Hui highlighted three areas: First, if the US-Iran conflict remains unresolved, there is a possibility of more hawkish-than-expected Fed rate hikes. Second, from a market perspective, attention should be paid to the IPO pace of several large model companies in Q4 and whether it will impact market liquidity. Third, for the AI industry trend, indicators such as cloud vendors' cash flow, capital expenditure, EBITDA, and data center construction progress need close monitoring.

Liu Yuanhai said he focuses on two potential risks. First, the risk of oil price increases from geopolitical conflicts. With external tensions persisting, if conflicts escalate or spill over to major oil-producing regions, crude supply will be significantly impacted, and international oil prices may rise more than expected. Oil is an important variable in global inflation, and a sharp rise could transmit through transportation, chemicals, and other supply chains to core goods prices, potentially interrupting the US inflation decline or even triggering a阶段性 rebound. This would directly affect Fed policy pace. If rate cut expectations cool and the easing cycle is delayed, combined with fiscal deficit pressure from high oil prices, long-end US Treasury yields would likely remain elevated or rise further. Sustained high or rising 10-year Treasury yields could raise the discount rate benchmark for global asset pricing, suppress growth stock valuations, and potentially exacerbate capital outflows and currency volatility in emerging markets, creating systemic pressure on global risk assets. Second, as AI model capabilities improve, concerns about AI potentially threatening human safety have intensified, which may slow or delay frontier model training and release timelines, thereby affecting the slope of AI industry development. A slower model iteration pace would weaken market confidence in large-scale AI application deployment and commercial monetization, putting pressure on earnings delivery and valuation support for related supply chain companies. Overall, he remains relatively positive on the market and tech industry trends but will not ignore the high volatility characteristics of growth sectors. Portfolio management will continue to adhere to "industry trends plus fundamental verification," closely tracking industry prosperity, corporate earnings, valuations, and trading congestion while retaining room for dynamic adjustment.

Zhu Hong noted that externally, geopolitical situations may repeat and remain uncertain, potentially pushing up commodity prices. Some countries have imposed trade barriers and tightened supply chain access, disrupting the original global division of labor system, and trade frictions may intensify. The domestic economy remains in a phase of structural transformation and upgrading. Based on data such as total retail sales of consumer goods and consumer confidence index, the pace of domestic demand recovery is relatively moderate, and overall market risk appetite may be difficult to sustain. Approaching year-end, some funds have profit-taking needs, and the market may mainly remain a stock-rotation game. In this context, sectors or stocks with high institutional concentration and elevated valuations face adjustment risks if marginal industry positives slow or Q3 earnings disappoint.

Wu Hao said attention should be paid to the Fed's subsequent policy pace and expectation changes, repeated geopolitical conflicts and oil price trends, domestic economic structural divergence and subsequent data improvement, AI industry trends, and changes in overseas AI capital expenditure.