A-Stock Market Faces Escalating Long-Short Battles: Positioning Around AI Policy and Oil Price Swings

1. Weekend Macro and Policy Overview

Over the past week, both the global macro environment and China’s domestic policy landscape delivered another round of intensive signals. From the State Council’s top-level design for artificial intelligence development, to sharp swings in international crude oil prices, to the repricing of the Federal Reserve’s monetary policy path, multiple factors are converging to make the near-term logic of the A-share market more complex.

This article reviews key information across four dimensions: policy, commodities, overseas liquidity, and domestic fundamentals. It then traces how these signals may transmit through the market.

2. AI Policy Support Strengthens: From Employment Orientation to Market Implications

On October 23, the General Office of the State Council officially issued the Opinions on Adapting to AI Technology Development and Helping Build an Employment-Friendly Development Model. The document’s significance extends well beyond employment. Its core purpose is to remove institutional barriers to the large-scale deployment of AI technology.

From an industrial layout perspective, the policy explicitly encourages eastern regions to focus on core AI industries, including algorithm development, chip design, and large model training. At the same time, it guides central and western regions to take on supporting activities such as data annotation and intelligent terminal manufacturing. This tiered development approach is essentially designed to build a complete AI industry chain. It leverages the technology concentration advantages of eastern regions while creating new employment opportunities in central and western areas.

For the A-share market, this means that leading companies across different segments of the AI chain, whether upstream computing infrastructure, midstream large models and data processing, or downstream industry applications, are likely to enjoy more certain growth prospects during the policy support period.

The policy also emphasizes financial support for specialized and innovative small and medium-sized enterprises, including access to targeted loans. This sends a clear signal to the market: AI companies with technical barriers and proven deployment capabilities should see a meaningful improvement in their financing environment.

The document also mentions the release of new occupational standards and the expansion of professional title evaluation categories. Over the long term, this should accelerate talent flows into the AI sector and ease the persistent talent bottleneck. This represents a medium-to-long-term positive for AI industry fundamentals.

3. Oil Prices Break Above $117: Geopolitical Premium and Supply-Demand Gap

Brent crude hit $117.45 intraday last week, gaining more than 6% for the week and over 10% for the month. The move reflects a deep interaction between geopolitical risk and fundamental supply-demand tensions.

The supply side is particularly tight. OECD commercial crude inventories have fallen to their lowest level in nearly five years, declining by 27 million barrels in September alone. International Energy Agency estimates indicate a global crude supply deficit of roughly 1.6 million barrels per day in the third quarter, with the gap expected to widen to 2 million barrels per day in the fourth quarter.

At the same time, surging crude transportation costs are compounding regional supply mismatches. Freight rates for very large crude carriers have climbed to ten times their level in the same period last year.

From a pricing perspective, current oil prices already embed a substantial geopolitical risk premium. Institutional stress tests suggest that if key production facilities were damaged by conflict, oil prices could spike rapidly toward $150.

For the A-share market, the transmission path of higher oil prices cuts both ways. Upstream oil and gas exploration and oilfield services should directly benefit from rising prices. However, midstream and downstream sectors such as chemicals, aviation, and logistics will face cost pressures that compress profit margins.

One particularly important issue is that high oil prices tend to raise global inflation expectations. That may indirectly reinforce the Federal Reserve’s hawkish stance and therefore constrain valuations of growth stocks.

4. Federal Reserve Meeting Preview: Three Key Questions Behind a Likely Pause

The Federal Reserve will hold its October policy meeting next week. According to the CME rate tool, markets currently assign a 90.6% probability to the Fed keeping rates unchanged at this meeting, while the probability of a 25-basis-point hike in December has risen to 67.5%.

This expected rate path suggests that markets are shifting away from the optimistic narrative that the hiking cycle has ended and toward a more cautious pricing of higher-for-longer rates.

Because this meeting will not release a quarterly Summary of Economic Projections, the wording of the policy statement and the chair’s press conference will be especially important. Markets are focused on three key questions.

First, how will the Fed chair explain the rationale for pausing? Will it be framed as a wait-and-see approach based on incoming economic data, or as a hint that the tightening cycle is nearing its end? The nuance of this characterization will determine the short-term direction of the US dollar index and Treasury yields.

Second, is there internal disagreement within the Federal Open Market Committee over the nature of the September hike? That move was viewed by some officials as a risk-management adjustment. If more committee members question it at this meeting, market confidence in policy continuity could be shaken.

Third, how many officials will vote against holding rates steady? If more policymakers oppose a pause, or if hawkish members explicitly argue for continued tightening, the probability of a December hike would rise significantly and weigh on global risk assets.

For A-shares, the external constraint from Federal Reserve policy is becoming marginally stronger. If the US dollar strengthens and the renminbi comes under pressure, short-term foreign capital flows may become more volatile, likely amplifying market swings.

5. Third-Quarter Economic Data: Resilience Amid Structural Divergence

Data from the National Bureau of Statistics showed that China’s GDP grew 4.6% year on year in the first three quarters, with third-quarter growth of 4.5%, near the lower end of market expectations. Structurally, the pattern of strong technology manufacturing and weak traditional domestic demand remains pronounced.

Industrial value added rose 5.5% year on year in September, with high-tech manufacturing maintaining relatively fast growth. This corresponds to the continued activity in A-share technology sectors.

Export data remained resilient. September export growth in renminbi terms came in better than expected, providing earnings support for export-oriented companies.

On the consumption side, the recovery slope remains gradual. Retail sales growth recovered to 1.1% year on year, but discretionary consumption still appears weak. In fixed asset investment, infrastructure investment has been constrained by local government debt resolution efforts, and its growth rate has continued to slow, becoming a meaningful drag on aggregate demand.

For A-shares, this fundamental structure suggests that the market will likely continue to show range-bound index movement with sector rotation. Technology growth segments with strong earnings visibility and resource-related sectors benefiting from higher oil prices may continue to attract capital. By contrast, consumption and property chain sectors that rely on domestic demand may remain under pressure.

6. Near-Term Positioning: Focus on Core Themes and Manage Risk

Taken together, the central tension for the market in the coming week is between domestic policy support and overseas tightening expectations. With that in mind, investors may consider the following positioning approach.

First, on position management, maintaining a neutral allocation is advisable. The market faces elevated uncertainty before the October Fed meeting concludes, so keeping sufficient cash to manage potential volatility is prudent.

Second, on sector direction, priority should be given to computing infrastructure and industry application segments of the AI chain that are supported by real orders and earnings. Policy tailwinds may continue to drive valuation recovery. Oil and gas exploration and production may also offer short-term trading opportunities, but investors should be alert to the risk of oil prices pulling back after a sharp rise.

Third, it is important to monitor the impact of high oil prices on midstream and downstream manufacturing profitability. During the earnings reporting lull, investors should review whether portfolio holdings have the ability to pass through cost increases.

Fourth, closely track the Federal Reserve statement and the reaction in US equities. If Treasury yields continue to rise, investors may need to reduce exposure to high-valuation growth stocks and shift defensively toward lower-valuation, high-dividend assets.

Finally, the current macro environment is in a high-volatility phase shaped by multiple converging factors. Any single piece of news may be over-interpreted by the market. Investors should maintain strategic discipline, avoid chasing short-term noise, and wait for better entry points within clearly defined themes.