During the National Day holiday, overseas capital markets staged a scene of "Chinese investors on vacation while markets race ahead." Driven by AI technology, the Nasdaq and S&P 500 hit record highs once again, while Japanese and Taiwan region stocks also put in impressive performances. South Korean and Hong Kong stocks lagged behind those indices but still showed structural highlights. Tomorrow, A-shares will reopen. Specifically, what has been happening in overseas markets during these days? What are the supporting factors? And how will they affect tomorrow's A-share trading?

Overseas markets: broad gains with localized divergence

The AI technology theme has run through overseas market performance from start to finish. On the US side, as of October 6, the S&P 500 Index and the Nasdaq Composite closed at 7,818.93 points and 27,599.89 points respectively, both hitting record highs. From October 1 to October 6, the S&P gained 2.19% and the Nasdaq rose 2.75%. In terms of sectors, AI technology stocks rose collectively, with NVIDIA, Amazon, Microsoft, Tesla, AMD, and Broadcom all moving higher. Overnight, NVIDIA's market capitalization briefly approached the $6 trillion mark. Japanese and Taiwan region stock markets, similar to the tech-driven US market, also benefited from AI technology. Taiwan region's weighted index in particular, buoyed by TSMC's heavy weighting, has risen more than 70% year-to-date, firmly holding the top spot globally. During the National Day holiday, the Nikkei 225 rose 5.89% and Taiwan region's weighted index gained 3.93%, both outpacing the S&P and Nasdaq. However, Asian markets did not rise across the board. South Korean and Hong Kong stocks were relatively weak. South Korean stocks in particular essentially moved sideways, which is puzzling given that the country hosts two major AI memory chip giants, SK Hynix and Samsung Electronics, which are absolute beneficiaries of this round of AI infrastructure buildout. Hong Kong stocks performed even weaker, with the Hang Seng Index and Hang Seng Tech Index both declining compared to before the holiday. On one hand, this reflects Hong Kong's longstanding issue of lacking AI chip stocks similar to those in the US market, resulting in a weaker ability to absorb US market sentiment — a fundamental factor. On the other hand, the southbound capital channel was closed during the National Day holiday, which affected capital flows into Hong Kong stocks — a liquidity factor. Meanwhile, persistently rising US Treasury yields are not favorable for Hong Kong stocks, which still rely on overseas liquidity. That said, the Hong Kong market is not without structural opportunities. On October 6, the biopharmaceutical sector was lifted by Vaxcyte's 30% surge in the US, with Viva Biotech rising nearly 20% and CanSino Biologics gaining about 13%. In commodities, COMEX gold futures moved sideways, fluctuating mainly between $4,100 and $4,200, while Brent crude oil remained above $100. Both showed limited price movement, mainly because geopolitical tensions did not worsen further.

Key supporting factors to understand clearly

To understand overseas market movements during the National Day holiday, two points are essential. The first is the AI industry chain, as it remains the most core pricing anchor for global stock markets. US AI computing giants, South Korean AI memory chips, TSMC's advanced processes, Japanese semiconductor equipment and materials, as well as related competitive supporting industry chains globally (setting aside artificially created geopolitical and trade barriers), continue to benefit from massive global AI capital expenditure, because these expenditures bring tangible profit growth to relevant companies. This fundamental factor is extremely rigid and strong. Although overheating behavior may occur during market movements, as long as the pullback is sufficient, capital will readily launch a new round of rallies. NVIDIA successfully hitting a record high after repeated adjustments is the best proof. This fundamental factor also explains why stock indices have not collapsed as they did in the past even after US Treasury yields continuously broke through ceiling levels. This is not to say that rising US Treasury yields and a global bond selloff have no negative impact — on the contrary, they put obvious pressure on corporate valuations. However, the massive AI capital expenditure and AI computing infrastructure buildout have driven earnings expansion for relevant heavyweight companies that can effectively offset these negative effects. As long as this massive capital expenditure continues and earnings expansion for relevant companies remains underway, it can effectively offset negative factors at the macroeconomic, geopolitical, and liquidity levels. From the current news flow, things seem to lean more toward the positive side. For example, media recently reported that Musk's SpaceX will raise $40 billion for AI computing investment, making it the latest large tech company to ramp up computing capital expenditure. This also proves that the arms race around AI computing will most likely continue. Morgan Stanley estimates that by 2028, AI infrastructure will require $1.5 trillion in external financing. Although this will trigger increasing debate over whether investment and returns are matched, and is often criticized for creating serious debt risks, it depends on who the counterparty is. For companies benefiting from capital expenditure, earnings growth is still guaranteed, valuation expansion remains strong, and stock price upside momentum remains ample. The second factor is monetary policy. After the Fed's rate hike in September, the non-farm payroll data released in early October came in far below expectations with a rising unemployment rate, easing the market's prior anxiety about monetary tightening. Combined with no new deterioration in geopolitical tensions and oil prices not continuing to surge, a rebound rally unfolded accordingly. However, such factors are short-term disturbances, and future trends will depend on subsequent data. On the broader direction, I lean toward believing that inflation needs to be suppressed and that monetary tightening expectations will dominate. Therefore, in the future, investors will see the strong and positive fundamentals of the AI industry constantly grappling with the negative effects of geopolitical tensions, inflation stickiness, and monetary tightening policy in a repeated tug-of-war. It cannot be said which factor will definitely prevail — only that these tugs-of-war and games will cause valuations to expand or come under pressure, and will continue to present volatile investment opportunities. Understanding these two points will make it easier to think clearly about tomorrow's A-share reopening.

How will A-shares perform tomorrow?

To summarize in one sentence: based on overseas market performance, macroeconomic news flow, post-holiday capital flow changes, and more, one can maintain confidence in A-shares opening tomorrow. One might even, under the positive sentiment from overseas markets and with pre-holiday trading volume in Shanghai and Shenzhen having shrunk to around 1.45 trillion yuan, look forward to a gap-up opening tomorrow. At the sector level, the following directions deserve close attention. First is the technology sector, especially AI computing, semiconductors, and optical communications. For example, influenced by NVIDIA hitting another record high, the domestic CPO sector — which is deeply embedded in NVIDIA's supply chain — and which experienced a notable decline before the holiday due to renewed trade issues, could be closely tracked to see whether it can ride NVIDIA's rally for a repair move. Other sub-sectors in NVIDIA's supply chain, such as PCB, liquid cooling, and server assembly, whose valuations did not surge too high before the holiday, could also be expected to see upward movement. However, one should not be blindly optimistic, because domestic CPO companies listed in Hong Kong fell today. If the CPO sector wants to rise tomorrow, it will need strong support from domestic capital. Additionally, even if the CPO sector rebounds, one must stay alert to sudden trade restrictions that could deal a blow to valuations and stock prices. Therefore, for A-share NVIDIA supply chain plays, taking a long-term view while trading short-term may be a good strategy. As for other domestic computing industry chains, they also have opportunities to launch a new wave under the optimistic sentiment from NVIDIA's record high. Beyond AI technology, biopharmaceuticals is another direction worth close attention. During the holiday, the Hong Kong pharmaceutical sector was active, with Viva Biotech and CanSino Biologics surging. Combined with the ESMO annual meeting from October 23 to 27, where 31 Chinese company drug studies will be selected, and Nobel Prize expectations as a catalyst, the innovative drug sector may usher in phased opportunities. Sub-sectors such as CXO, ADC, and vaccines all deserve close attention. As for traditional sectors like real estate and consumer chains, many favorable policies were already released before the holiday — mortgage interest subsidies and trade-in programs — leading to expectation-driven rallies. Whether they can continue rising tomorrow will require verification from relevant data during the National Day holiday. It is worth noting that during the holiday, Hong Kong real estate performance was choppy with significant internal divergence — some companies like Shimao and R&F surged dramatically, while others like China Resources Land and Vanke showed small fluctuations. The consumer sector was generally weak with little to speak of, likely also waiting for holiday statistical data. Having discussed directions that may perform well, it is also necessary to be alert to sectors that may come under pressure, such as high-dividend and dividend-focused sectors. After the AI memory sector entered adjustment in July, some capital flowed into high-dividend and dividend sectors for rotation, reflected in decent gains for some power stocks, utility stocks, and bank stocks. But if capital rotates back to AI technology after the holiday, these defensive funds will likely shift back to tech growth directions. Additionally, with the third-quarter earnings disclosure window opening, some companies already issued profit warnings before the holiday, and negative impacts may be concentrated after the market opens. Furthermore, some thematic stocks that were wildly speculated over the past two months due to a lack of clear market direction may face adjustments if overall market volume is insufficient, as capital will prioritize directions with earnings support or clear overseas catalysts. On the capital flow front, northbound capital flows on the first day after the holiday also need attention. If US Treasury yields remain elevated, northbound capital may continue the pre-holiday outflow trend. If the dollar index retreats, northbound capital returning would provide additional support for A-shares. After the southbound channel resumes, domestic capital's absorption of Hong Kong stocks also merits observation, which will indirectly affect sentiment in related A-share sectors. In summary, during the National Day holiday, overseas markets racing ahead provided sentiment support for A-shares' post-holiday opening, but one should not ignore A-shares' own rhythm. For investors, one can remain optimistic before the open, but after the open, one should shift to observing specific signals such as whether trading volume expands, northbound capital flows, and whether leading sectors have sustainability, because these signals will determine whether the market delivers a strong opening, sustained recovery, or a gap-up followed by a fade back into range-bound trading. Overall, the stock market is still dominated by structural opportunities, with no broad-based gains across the board. The core determinant of whether stocks rise or fall still depends on the tug-of-war among earnings growth, economic fundamentals, policy, and liquidity.