Recently, the Sino-Canada Fund stated that the current market volatility continues to decrease, and the oscillating bottom market continues (incremental funds are still available, although the market is shrinking in volume, the absolute numbers are still large, and the overall sentiment is still better than before the political bureau meeting). With the United States election and important domestic meetings approaching, market hot spots are scattered, and there is intense chip speculation. The medium and large-cap style driven by 25 years of trading prosperity and the small-cap style driven by active funds are pulling each other, and both styles have experienced a lack of incremental funds. Further development of the market requires new catalysts. It is recommended to observe the market's bottoming situation and policy expectations at present, and retain a certain position to replenish and adjust the position. 1. Market Review and Analysis Main index situation Last week, the A-share main indices showed mixed gains and losses, with increasing divergence in funds. [Figure 1: Weekly gains and losses of major A-share indices] (Source: Wind, Statistical period: 2024/10/28-2024/11/01) Industry situation Among the 31 industries in the Shenwan first-level industry classification, real estate (6.01%), steel (4.65%), and commercial trade (4.56%) had the top three increases. [Figure 2: Weekly gains and losses of Shenwan first-level industries] (Source: Wind, Statistical period: 2024/10/28-2024/11/01) 2. Strategic Viewpoints Macro events and data The manufacturing Purchasing Managers' Index (PMI) was 50.1 (up 0.3 percentage points month-on-month); non-manufacturing was 50.2 (up 0.2 percentage points month-on-month). PMI returned above the boom-bust line after 6 months. The production operation expectation index rose by 2 percentage points from 52% in September, mainly reflecting the recent implementation of stable growth policies and improved corporate expectations. Large and medium-sized enterprises continued to differentiate, with the October PMI for large and medium-sized enterprises rising by 0.9/0.2 percentage points to 51.5%/49.4% compared to September, while the PMI for small enterprises dropped by 1 percentage point to 47.5%. This indicates that it will take some time for policies to trickle down to small businesses. Among the manufacturing PMI sub-indices, the new order index rose marginally by 0.1 percentage points to 50% in October compared to September. Demand in emerging industries such as pharmaceuticals, automobiles, machinery, electronics, etc., is relatively strong, while traditional industries such as wood processing and furniture, chemical raw materials and products, petroleum, and coal have weaker demand. On the other hand, external demand continued to weaken with the new export orders index falling from 47.5% in September to 47.3%, due to the downturn in the European economic outlook and the impact of trade protection policies. Both domestic and external demand growth dynamics have shifted. Moreover, the BCI index for October (China Enterprise Operating Condition Index released by Cheung Kong Business School) was 48.1, higher than September's 46.0. The BCI sales and profit outlook index improved month-on-month, and the corporate financing environment index showed a significant increase, indicating an improvement in financial conditions, which is a positive signal for the future economy. It remains to be seen whether other data such as the Producer Price Index (PPI) will also rise. In October, the U.S. non-farm payroll only added 12,000 jobs, significantly lower than the market's expectations of 100,000 jobs. The non-farm payroll for August was revised down from 159,000 to 78,000, and for September, it was revised down from 254,000 to 223,000, a total downward revision of 112,000 jobs. However, the unemployment rate remained at 4.1%, and wage growth increased from a month-on-month 0.3% to 0.4%, indirectly confirming the resilience of the U.S. economy. The significant revisions to economic data reflect the Democratic Party's efforts to stabilize asset prices ahead of the elections and have once again raised market expectations for a rate cut in November. Outlook Last week, the trading sentiment in the A-share market continued to decline from a high level. From a fundamental perspective, domestic demand remains weak, and policy expectations have fallen from extremely high levels. In terms of funds, the Northbound data is now published quarterly. In other aspects, new funds, margin trading funds, and ETF data all showed a slight week-on-week decline. Looking ahead, with third-quarter reports still weak amid strong expectations but weak realities, policy factors are crucial. This week, the U.S. election and important domestic conferences will take place. Currently, the market has high expectations for increased U.S. trade protection measures and China's policy efforts to respond (fiscal space is available), but it should be noted that policy implementation takes time. The announcement of interim policy results may trigger some profit-taking at certain points, but it may also lead to temporary opportunities in a high market sentiment. It is recommended to observe the market's bottoming situation and policy expectations at present, and retain a certain position to replenish and adjust the position. In terms of industries, for defensive dividend-oriented industries, it is suggested to moderately increase allocations on a low position basis in the short term (but positions should be lower than those for offensive industries). The uncertainty of dividends comes from expectations of an improvement in economic fundamentals (including economic fundamentals and policies related to long-term bond rates) and weakening dividend-paying capacity. Returning to market fluctuations could be a good time to add to dividend stocks to gain absolute returns or smooth out volatility. However, in a market with strong expectations but weak realities, it may be difficult to achieve relative returns. Short-term allocations are recommended for related themes such as construction real estate chains, mergers and acquisitions, and buybacks (short-term trend opportunities, long-term evaluation depends on the repair of the balance sheets and cash flow statements of construction and real estate chain companies) with low valuations and stable cash flows in the energy utilities, precious metals, and other industries. For most aggressive stocks, focus on finding opportunities with low positions, good certainty, and strong emotional appeal. Key areas to focus on include A-share technology stocks (currently a market trend, with funds flowing in but also showing divergence; theme opportunities continue to emerge, and there is a need to find targets with fundamental support and high probability of future catalysts), pro-cyclical resilient assets (the market's focus on bonds is gradually shifting towards buybacks and mergers and acquisitions, benefiting from policy expectations, with good resilience, watch for short-term profit-taking after policy implementation), advanced manufacturing and pharmaceuticals (look for targets approaching an economic turning point and observe if Trump's trade policies will bring oversold opportunities).