The market is highly likely to turn warmer after recent fluctuations. Leading private equity firms are looking ahead to the fourth quarter, pointing out that the technology sector will remain the core investment main line. "But from an objective perspective, the undervalued sectors in the market are seeing weak prosperity, while the sectors with strong prosperity are not cheap, making stock selection increasingly challenging."

Well-known private equity firms look ahead to the fourth-quarter market: the probability of a warming trend amid fluctuations is high, and technology remains the core main line

Since the beginning of this year, the A-share market has seen volatile movements. In particular, the technology sector, which surged ahead in the first half of the year, experienced obvious fluctuations in the third quarter, and the market style has also changed to some extent. Entering the fourth quarter, where will the market go? Will the technology rally continue? Will the domestic demand sector see a rebound or a trend reversal?

China Fund News interviewed four well-known private equity investment professionals, namely Ding Ying, Founder and Chairman of Commando Capital, Pan Huanhuan, Founder and General Manager of Hengli Fund, Kou Zhiwei, Partner of Chongyang Investment, and Fang Lei, Deputy General Manager of Starstone Investment. They believe that the A-share market in the fourth quarter may maintain a positive volatile trend, with a high probability of further warming, and technology companies with certain performance and growth prospects will still be the main axis of future investment.

Ding Ying, Founder and Chairman of Commando Capital

Pan Huanhuan, Founder and General Manager of Hengli Fund

Kou Zhiwei, Partner of Chongyang Investment

Fang Lei, Deputy General Manager of Starstone Investment

First three quarters: prominent structural market trends

China Fund News: What are your gains and losses in operation in the first three quarters? What is your judgment on the general market trend in the fourth quarter?

Ding Ying: As of the close on September 24, the Shanghai Composite Index fell by 2% compared with the beginning of the year, with extremely obvious structural differentiation. The communication and electronics sectors rose by nearly 40%, while the commercial retail and automobile sectors fell by about 20%. To sum up, the gain lies in the direction — we took AI computing power and domestic substitution as the main axis, and the loss lies in the rhythm — the pullback of technology in the third quarter was deeper and faster than expected, and we were not decisive enough in reducing positions.

It is expected that the index will continue to consolidate through fluctuations in the fourth quarter, and structural opportunities will be better than those in the third quarter. The profitability of the technology sector is on the rise, exports are a solid support, and interest rate hikes have been implemented. However, it should be noted that retail sales of consumer goods in August only increased by 0.4%, and investment in real estate development still recorded negative growth, so a market rally driven by domestic demand may not be seen in the fourth quarter.

Pan Huanhuan: The market saw a broad-based rally in 2025. At the beginning of this year, we judged that this year would experience a volatile adjustment in the mid-bull market period, and we continued to be optimistic about the sustainability of the boom in industries related to AI computing power, which has been verified by the market. However, the extreme level of K-shaped differentiation in the market in the first three quarters and the prosperity of the AI industrial chain exceeded our expectations, and our response was insufficient.

About to enter the fourth quarter, we believe that external turbulence is likely to continue, the domestic economy is expected to stabilize at the bottom, the GDP growth rate will rise again in terms of aggregate volume, fiscal efforts will accelerate, and counter-cyclical adjustment policies will be gradually implemented. On the whole, we are relatively optimistic about the A-share market.

Fang Lei: Since the beginning of this year, our investment portfolio has been relatively balanced. We not only focus on investment opportunities brought by industrial trends such as AI, but also pay attention to core Chinese assets with mid-term investment cost-effectiveness.

The market may maintain positive volatility in the fourth quarter, and the market style may continue to remain balanced. We can focus on investment opportunities supported by corporate profitability in industrial trends, as well as valuation repair opportunities for core Chinese assets.

Third-quarter technology stock fluctuations: valuation "payback", the underlying logic remains unchanged

China Fund News: How do you view the fluctuations of the technology sector in the third quarter? Can it continue its strong performance in the market outlook?

Kou Zhiwei: From the perspective of fundamentals, the focus of investors in the third quarter is whether the huge capital expenditure in AI can achieve a reasonable ROI (Return on Investment). In the first half of the year, with the improvement of Agent capabilities of cutting-edge models and the explosion of demand in Coding scenarios, the global computing power demand was in severe shortage. However, this imbalance between supply and demand was caused by the rhythm mismatch between capital expenditure and demand. In the third quarter, the iteration of cutting-edge models slowed down, the penetration dividend of Coding scenarios peaked, and cutting-edge model vendors were forced to fall into a price war.

Objectively speaking, the development of any emerging industry cannot be linear, and the AI industry is no exception, its development trend has not changed. However, after the exponential growth expectations and stock price performance in May and June returned to the linear growth ARR (Annual Recurring Revenue), the fragility of the market trading structure has become the main contradiction.

Pan Huanhuan: The adjustment in the third quarter cannot be regarded as the bursting of the technology bubble, but a rhythm adjustment. The industrial prosperity has not declined, and the certainty of the long-term narrative has instead strengthened. It is expected that the technology sector will most likely move upward amid fluctuations in the market outlook, but the difficulty of investment may increase. Changes in technical routes and competitive dynamics will lead to reshuffling within the sector. If research cannot keep up, even if you follow the right trend, you may "board the wrong ship".

Ding Ying: The essence of the previous decline is to digest valuations. AI capital expenditure is still on the rise, and the net profit of semiconductors in the mid-year report has increased several times, but the stock price rose too fast in the first half of the year, and the congestion of optical modules, copper clad laminates and PCBs once reached historical extremes. It is expected that technology will most likely strengthen through differentiation in the fourth quarter, rather than a comprehensive rally. The screening method is very simple: can the prosperity in 2027 continue to improve compared with this year? For those that can improve, the decline is an opportunity; for those that cannot, the rebound is a window to reduce positions.

Fang Lei: The fluctuations of the technology sector since the third quarter are driven by both fundamentals and capital. On the one hand, no new large-scale application scenarios have emerged for AI, and the market's concerns about excessive financing in the AI industrial chain have increased; on the other hand, capital's pursuit of the AI industrial chain was extremely strong in the first half of the year, and the fluctuations of global tech stocks in July triggered a stampede of capital.

Looking ahead, the extreme market trend where technology stands out alone in the A-share market is unlikely to reappear, and internal differentiation within the technology sector may intensify. At this stage, we need to focus on leading enterprises that truly have innovation capabilities, core technologies and high growth certainty.

Excellent leading domestic demand enterprises have room for valuation repair

China Fund News: How do you view the recent recovery of the large domestic demand sector (real estate, medicine, consumption)? Is it a phased rebound or a turning point?

Fang Lei: The three major domestic demand sectors of real estate, medicine and consumption all benefit from the balance of stock market style and capital return, but the specific reasons for the recovery are somewhat different: the real estate sector is more of a policy-driven valuation repair rebound, the medicine sector is a rebound driven by fundamental delivery, and the consumption sector is more of a rebound on the left side of fundamentals.

From a mid-term perspective, the large domestic demand sector has basically gone through the most difficult stage, and excellent leading companies have room for valuation repair. In the process of policy-driven fundamental repair, leading outstanding companies are expected to benefit first, and it is necessary to increase attention to the large domestic demand sector at present.

Pan Huanhuan: The recovery of the large domestic demand sector varies in reasons for different sub-sectors, with the common point being that the technology adjustment in the third quarter and the rebalancing of capital allocation promote the overall repair of the sector. The difference is that the recovery of the real estate sector is a comprehensive reflection of valuation levels, the slowing decline of the industry, and policy expectations. The supporting factors for the recovery of the medicine sector are more sufficient, including short, medium and long-term logics such as obvious fundamental improvement, valuation bottoming out, institutional allocation at the bottom, and benign shift of industrial policies; the consumption sector is mostly for valuation repair. By comparison, the medicine sector has a higher probability of ushering in a turning point, while real estate and consumption need further tracking of industrial policies and fundamental changes.

Ding Ying: The rise of the real estate sector stems from the positioning of the "stock stage" and policy expectations. Sales and investment are still in negative growth, which belongs to a rebound; for the medicine sector, innovation drug BD, CXO orders, and medical insurance policies are all improving, supported by performance, with a higher-quality turning point; and the improvement of consumption fundamentals requires the improvement of income expectations.

The technology sector remains the main investment axis

China Fund News: What is your current position? What are the main allocation directions, and what is your planned operation idea for the fourth quarter?

Pan Huanhuan: We believe that the probability of further market warming in the fourth quarter is high, but we are currently in the second half of the bull market, the amplitude of fluctuations will also increase, and the hot main lines will switch frequently. In terms of operation, on the one hand, we will maintain a high position, make balanced allocation in industries such as technology, medicine, dividend assets and commodities, and focus on selecting sectors with undervalued value and event catalysts; on the other hand, we will maintain a high proportion of convertible bonds. The CSI Convertible Bond Index has seen a large correction this year with reasonable valuations, and there are more opportunities for convertible bonds in a volatile market.

Ding Ying: The current position in securities assets exceeds 90%, which is a high-level operation. In terms of structure, Hong Kong stocks account for 53% and A-shares account for 40%. There are a number of AI application and "hard technology" assets in the Hong Kong stock market, whose valuations are cheaper than A-share companies, and can also share the opportunities of global capital reallocation. We are more concerned about Hong Kong stock targets in the direction of AI for Science, which refers to artificial intelligence-driven scientific research.

Our idea is not to change the main axis, but only adjust the rhythm. The total position will not be reduced, and the incremental capital will be concentrated in the directions that can multiply in the next five years. Low price is not a reason to buy, growth space is.

Fang Lei: The current portfolio maintains a balanced allocation, taking into account two types of investment opportunities. The first is technology growth sectors driven by industries such as the AI industrial chain and semiconductors, which are in the window period of technological breakthroughs and demand explosion. However, the overall valuation of the technology sector is not low at present, so it is necessary to focus on leading enterprises that truly have innovation capabilities and core technologies. The second is traditional core assets, which are generally undervalued at present. Policy efforts will further consolidate the foundation for profitability improvement. We can focus on traditional leading enterprises with continuously improving supply and demand patterns and deep adjustments, as well as manufacturing enterprises with global competitiveness.

Kou Zhiwei: In the fourth quarter, we are not pessimistic about the market. Under the pattern of "asset shortage", the probability of systemic risk in the market is low. But objectively speaking, the sectors with low valuations in the market are not prosperous, and the prosperous sectors are not cheap, making stock selection increasingly difficult. It is expected that the differentiation of market styles will tend to weaken, and focusing on individual stocks rather than indices is a wise choice.

We still pay high attention to the technology sector, but we prefer to tap opportunities in some non-consensus sub-tracks, and look for companies with continuously improving competitiveness in industries that are temporarily impacted by AI.

Industrial cycles and profitability determine the trend of A-shares

China Fund News: How do you view the impact of external markets such as the Fed's interest rate hike?

Ding Ying: On September 17, the Federal Reserve announced a 25 basis point interest rate hike, which has long been priced in by the market, more like the landing of negative factors. We do not believe this is the starting point of a new round of tightening cycles — the rise in US inflation is largely driven by oil prices and geopolitical disturbances. The high level of US bond interest rates is a reflection of external constraints, not a direction reversal. What determines the trend of A-shares is its own industrial cycle and profitability. We will not reduce positions due to interest rate hikes, nor add leverage during the interest rate hike window.

Kou Zhiwei: The Fed's interest rate hike is a result, a confirmation of the relationship between the economy and capital supply and demand. At present, AI has replaced real estate and become the most important variable affecting the US and even the global economy. We need to look for more growth opportunities to offset the impact brought by AI.

Fang Lei: The Fed's interest rate hike may suppress capital risk appetite and the valuation of risk assets, which in turn affects the A-share market. However, the subsequent impact of the Fed's interest rate hike on A-shares may weaken, and the trading logic in the fourth quarter will gradually return to profitability-driven and industrial narratives.

Pan Huanhuan: The market has anticipated the Fed's interest rate hike in advance. After the event is implemented, the uncertainty is eliminated, and the suppressed risk appetite has increased. As long as the market does not form expectations that the Fed will enter a long interest rate hike cycle in the later period, the impact will be relatively limited.

Focus on the third-quarter reports, Central Economic Work Conference, AI industrial chain, oil prices and inflation, etc.

China Fund News: What aspects need special attention in the fourth quarter?

Ding Ying: First, the third-quarter reports. October is a watershed, where we can see which companies can get valuation premiums in 2027 compared with 2026; second, oil prices and imported inflation, which will affect the profit margin of midstream and downstream manufacturing, and indirectly determine whether the Fed will continue to raise interest rates; third, whether AI applications can truly realize monetization; fourth, the capital side — guard against trading contraction in directions with high congestion.

Fang Lei: We pay attention to several aspects in the fourth quarter: first, the delivery degree of third-quarter report performance; second, the tone of the Central Economic Work Conference in December for next year's economic work and policies; third, whether new changes will occur in the overseas AI industrial chain; fourth, the pace of the Fed's interest rate hike and the upward space of long-term US bond interest rates.

Pan Huanhuan: Many aspects such as the policy trends of overseas central banks including the Federal Reserve, changes in US bond yields, geopolitical conflicts and commodity price trends, the progress of AI capital