Industrial: The increase in internal positive factors is the main contradiction in the domestic market. Focus on two major directions in layout planning for the new year.

Industrial released a research report stating that the market has experienced volatility again recently. On one hand, the continued unfolding of the "Trump 2.0" trade has led to a significant increase in the US dollar and US treasury bonds, dragging down the performance of global risk assets and causing disturbances domestically. On the other hand, after a significant increase in the market in the previous period, there is now pressure for some profit-taking in the short term as a series of important events both domestically and internationally unfold. Looking ahead, the impact of the Trump trade on global asset classes will gradually be absorbed, and the increase in positive internal factors will be the main contradiction in the current domestic market. Looking towards the future, actively positioning for the new year is recommended, focusing on two major directions: the new quality productivity represented by the "new half-army" and potential mergers and restructurings. Key points of Industrial's views are as follows: Grasp the main contradiction and maintain a bullish mindset Recently, the market has experienced volatility again. On one hand, the continued unfolding of the "Trump 2.0" trade, with the significant increase in the US dollar and US treasury bonds, has dragged down the performance of global risk assets and caused disturbances domestically. The re-inflation expectations brought about by Trump's reelection, combined with the recent statement by Federal Reserve Chairman Powell that there is no rush to cut interest rates, has led to a rapid increase in the US dollar index from 103.4 on November 5 to 106.7 on November 15, reaching a new high since last November. At the same time, the yield on the 10-year US treasury bonds has risen to above 4.4%. As a result, market risk appetite has seen a decline, with global risk assets experiencing a widespread decline. On the other hand, after experiencing a significant rise in the market in the previous period, there is now pressure for some profit-taking in the short term as a series of important events both domestically and internationally unfold. It is evident that, with the market gambling on loose monetary policy in early November, the Shanghai Composite Index surged rapidly from 3272 points and even broke through 3500 points at one point. After the sharp rise, some periodic fluctuations are inevitable. Previous indications suggest that this round of upswing may be characterized by multiple stages of "rapid rise" and "large volatility", with the bottom gradually rising step by step. Looking ahead, while the impact of the Trump trade on global asset classes will gradually be absorbed, the increase in positive internal factors will be the main contradiction in the current domestic market. Since the end of September, it has been emphasized repeatedly that under the new policy direction of "grasping key points and taking initiative", the market logic has reversed. The continuous combination of policies will bring about a virtuous cycle in the stock market environment and the Chinese economy. This logic is still being continuously validated. Firstly, with the continuous implementation of countercyclical policies, macroeconomic data in October indicates that the economy is consolidating the recovery achieved in September and adding multiple bright spots. The Chinese stock market and economy are gradually entering a virtuous cycle. In terms of consumption, policy stimuli coupled with the "Double 11" sales promotion activities led to a rise in consumer goods consumption in October, driving a rapid increase in social retail growth; in terms of investment, the demand for equipment upgrades rebounded in October and the infrastructure manufacturing industry maintained rapid growth, continuing to optimize the industrial structure; in the real estate sector, sales and prices of real estate in October continued to improve, with the sales area of real estate year-on-year rising close to zero and the sales prices of second-hand residential properties in first-tier cities increasing for the first time in nearly 13 months. In terms of financial data, the growth rates of M1 and M2 in October have significantly increased, indicating an initial signal of "loose credit". Specifically, the improvement in medium and long-term loans for residents, with the addition of fiscal deposits weaker than seasonal, points to accelerated fiscal spending. Market expectations indicate that the manufacturing PMI for October has returned to the expansion range on the corporate side, the non-manufacturing business activity expectation index has entered a high business prosperity range, the employment market on the resident side continues to show improvement, and the consumer confidence index has risen by 1.2 percentage points compared to the previous month, marking the first increase after six consecutive months of decline. In addition, various measures to stabilize growth are intensifying, continuously confirming that this round of policy changes is a sustained tailwind. On November 11, the Ministry of Natural Resources issued a notice on the use of local government special bonds to recollect and purchase surplus idle land, requiring local governments to actively screen land parcels and reserve projects to accelerate the implementation of special bond funds. This policy signals the first shot of fiscal support to stabilize and revitalize the real estate market. On November 12, the State Council announced the amendment to the "National Annual Holiday and Memorial Day Rest System", adding two days to statutory holidays starting from 2025, which will help further stimulate consumer demand. On November 13, the notices on tax policies related to promoting the stable and healthy development of the real estate market and reducing the lower limit of the pre-collected land value-added tax rate were successively issued. Through measures such as increasing stamp duty exemptions in housing transactions and lowering the lower limit of the pre-collected land value-added tax rate, the tax burden on homebuyers and real estate enterprises is reduced, effectively stimulating housing transactions. On November 15, the Ministry of Housing and Urban-Rural Development and the Ministry of Finance jointly issued a notice, expanding the support scope of the policy for the renovation of urban villages from the initial 35 super-large and mega cities to nearly 300 cities at the prefectural level and above. Therefore, within the framework of the reversal logic, what needs to be focused on is how long this round of market trends will last. Faced with periodic fluctuations, it is still recommended to maintain a bullish mindset and actively respond. The key factor under the reversal logic is for the capital market, balance sheet, and the Chinese economy to form a positive cycle, requiring a longer-lasting trend rather than short-term profits. However, the turnaround of the Chinese economy is not an overnight process, so the turbulence and differentiation after the rapid rise in the short term is actually a process of waiting for a sound interaction between the stock market and the economy. Only by moving upwards in the fluctuating trend can the market go further. Actively position for the new year, focus on two main themes that can withstand turbulence The odds of going long at the end of the year and the beginning of the year, focusing on the direction of new quality productivity represented by the "new half-army" From historical experience, the end of the year and the beginning of the year are traditional windows for going long in the market. Liquidity easing and an increase in risk appetite are the main driving forces. Looking back at the market in the past 16 years, the uptrends started in the fourth quarter for 10 years. The major broad-based indices recorded negative returns on a monthly basis in August and September. Starting from October, the market performance gradually saw a reversal and the winning rate of indices significantly increased. The key drivers of the market's volatility at the end of the year and the beginning of the year include loose liquidity, the proximity of important year-end meetings with growth stabilization expectations, as well as the increase in risk appetite brought about by the lack of corporate earnings during the period. For this year, with the release of third-quarter reports leading the market into another period of earnings emptiness, coupled with various measures to stabilize growth, and the increase in risk appetite brought about by the lack of listed company earnings, are the key drivers of market volatility at the end and beginning of the year. Therefore, within the context of the reversal logic, it is important to focus on how long this trend will last. Faced with periodic fluctuations, it is still advisable to maintain a bullish mindset and actively adapt. Surrounding the reversal logic, a sound cycle in the capital market and balance sheet and the Chinese economy requires a longer-lasting trend rather than short-term profits. However, the positive turn in the Chinese economy will not be achieved overnight, so the turbulence and differentiation after a quick rise in the short term is actually a process of waiting for a healthy interaction between the stock market and the economy. By riding the upward fluctuations, the market can go further.Various policies have been intensively strengthened so far, and it is expected that the upcoming December political bureau meeting and central economic work conference will provide clearer planning and guidance for future economic work. The market prospects for the new year are worth looking forward to.In terms of structure, before the potential incremental policies are further implemented and the fundamentals substantially improve, the focus should be on varieties benefitting from loose liquidity and year-end/early-year trading expectations. Among them, new quality productivity directions represented by the "new half-army" serve as a combination point for long-term promotion of economic momentum transition and short-term policy support. Furthermore, next year's performance also has a high probability of reversing the predicament and is expected to become the main focus of the market. Potential directions for mergers and acquisitions: revitalizing "dormant" assets through policies, boosting the stock market, and serving as important leverage for high-quality debt and high-quality development. This year, against the backdrop of continued tightening of IPOs, mergers and acquisitions have been continuously improved and optimized as an important way to optimize resource allocation and stimulate market vitality. From the beginning of the year with the China Securities Regulatory Commission holding a forum to support mergers and acquisitions, releasing multiple policies supporting listed companies to enhance investment value through mergers and acquisitions, to the State Council's issuance of the new "National Nine Articles" for the capital markets in April further encouraging mergers and acquisitions, to the "Eight Articles of the Science and Technology Innovation Board" issued by the China Securities Regulatory Commission in June, and then the "Sixteen Articles on Mergers and Acquisitions" since September 24 and the publication of the draft "Reorganization Measures", which emphasize mergers and acquisitions as an important way for listed companies to manage market value, it is evident that the country attaches great importance to the significant role of mergers and acquisitions in high-quality development, resource allocation, and industrial integration. With continuous policy optimization, the pace of mergers and acquisitions and restructuring of domestic listed companies has significantly accelerated this year, especially in the second half of the year. The structure mainly focuses on new quality productivity directions such as machinery, pharmaceuticals, electronics, chemicals, and new energy, as well as the acceleration of industrial integration. As of November 15th, A-share listed companies have disclosed 1,189 mergers and acquisitions since the beginning of the year, with a total transaction amount exceeding 570 billion yuan. The progress of mergers and acquisitions and integration has been continuously accelerating in the second half of the year, and the current transaction amount is already comparable to that of the first half of the year. In terms of industries, the bidding parties are mainly focused on industries such as machinery, pharmaceuticals, electronics, chemicals, and new energy where industrial integration is accelerating, and industries with large transaction amounts include defense, transportation, and non-banking, among others. On the other hand, as mergers and acquisitions develop towards specialization and high quality, the mergers and acquisitions market presents the following two trends: 1) Speeding up of mergers and restructuring of state-owned enterprises: The proportion of transaction amounts from state-owned enterprises as bidding parties has increased from 47.2% in 2016 to 70.7% this year (as of November 15); 2) Increasing proportion of mergers and acquisitions by innovative and technology-driven companies: The proportion of mergers and acquisitions involving companies listed on the Innovation and Technology Exchange and the Beijing Stock Exchange as bidding parties has increased from 6.4% in 2010 to the current 39.3%. Therefore, looking ahead, new quality productivity and industrial integration are expected to become the two main core clues of mergers and acquisitions. Under the current theme of "strong regulatory control to prevent risks and promote high-quality development," technological innovation and industrial adjustment will become important targets for mergers and acquisitions. Paying attention to new quality productivity directions represented by industries such as defense, TMT, biomedicine, new energy vehicles, advanced manufacturing, as well as potential industry integration directions dominated by central state-owned enterprises including brokerages, steel, non-ferrous metals, and utilities. Risk Warning Economic data fluctuations, policy easing lower than expected, and Federal Reserve interest rate cuts falling short of expectations, etc.