The last trading week before the National Day holiday this year, the Chinese market is in an unprecedented boom. Funds are flowing in rapidly, hot sectors are rising one after another, and investors' enthusiasm is at an all-time high. The market seems to be warming up for the upcoming holiday in this way.

As of the time of publication, the Hang Seng China Enterprises Index has risen by 34% year-to-date.

The Hang Seng Index has risen by 27%, outperforming both the 20.3% increase in the S&P 500 Index and the 18.9% increase in the northbound fund index.

Last Friday, the trading volume of the Hong Kong Exchanges reached $45 billion, hitting a historical high, 23% higher than the previous record, and three times the average trading volume from the beginning of the year.

At the same time, the A-share market has seen trading volume exceed 1 trillion yuan for four consecutive days.Margin tradingThe significant increase in volume indicates that the participation of retail investors is constantly increasing.

The key issue is, in the current market, which funds are continuously increasing their positions, and what sectors and stocks are they mainly buying?

LO focuses on consumer and financial stocks, while HF performs particularly well in financial stocks.

Goldman Sachs Asia FICC and equities trader and vice president Fred Yin pointed out in a blog post on September 30 that last week, the capital flows in the A-share and H-share markets were unusually active, with the total portfolio trading volume increasing by 148% compared to the three-week average, client executions increasing by 41%, and the inflow of funds reaching 3.8 times the three-week average level, setting at least a one-year record.

Long-term investors (LO) net purchased $0.56 billion, mainly focused on consumer and financial stocks, while hedge funds (HF) net purchased $0.218 billion, showing particularly good performance in financial stocks.

Both types of investors are showing clear 'fear of missing out' (FOMO) sentiment, especially nearing the National Day holiday, with the market heat showing no signs of weakening. Foreign hedge funds are intensifying their pursuit of highly liquid large cap Chinese stocks, with a focus on baijiu and electric vehicle battery sectors.

In addition, long-term investors are operating in both directions in the Hong Kong internet plus-related sector, with foreign funds buying while regional investors are selling.

It is worth noting that Chinese stocks in the US initially had a relatively flat reaction, but saw a surge of capital inflow last Friday, with long-term investors, general funds, diversified investors, and hedge funds participating, driving the market's uptrend.

Multiple sectors have all seen increases, especially in financials, technology, real estate, and consumer stocks.

Yin stated that there has been a significant increase in northbound fund activity. The $90 billion in trading volume last week was the highest single-week turnover since the market rebound peak in May, with funds flowing into China dedicated funds showing a growth trend.

Looking at the performance of A-shares, H-shares, and Chinese concept stocks as of September 27, financials, TMT (technology, media, telecommunications), real estate, and consumer stocks have all risen. It is noteworthy that the worst-performing stock fell by only 3%, which belongs to a small-cap ADR.

The derivatives market is also active. Hedge funds have been buying call options on the Hang Seng China Enterprises Index year-end, as well as call option structures on the CSI 300 and CSI 1000 indices.

Yin mentioned that Volarb Fund focuses on the upside of the Hang Seng H-Share Index, buying upside gamma (indicating the rate of increase in Delta of options as the underlying asset price rises), and by buying a large quantity of the Hang Seng H-Share Index at-the-money volatility, selling downside gamma (indicating the rate of decrease in Delta of options as the underlying asset price falls).

Last week, the term structure of H-shares tended to normalize, with forward quotes about 3 volatility points higher than the previous months. As the Hong Kong stock market surged significantly this week, the 1-term structure underwent a drastic change, with volatility on October 24 rising by 10 volatility points.

Finally, Goldman Sachs has provided the target price for Chinese stocks in the next 12 months, with the potential upside of the CSI 300 index being the largest, reaching 8% to 4000 points, and relatively high EPS growth forecasts for the next two years.