Shenwan Hongyuan Group strategy: The spring market is just an opportunity for fluctuations.

Shenwan Hongyuan Group in its macro commentary stated that the main contradictions in the short-term fundamentals have shifted from reflecting the unilateral impact of domestic policy efforts to the relative impact of domestic and overseas policies. The visibility of an inflection point in A-share profitability within 25 years is not high. It is difficult for a market driven by improved risk appetite and fundamental factors to seamlessly connect, and the bull market expectations over the next 25 years may be interrupted. It is recommended not to take a bull market as a premise, and to look forward to the spring market. The structural pattern of a market driven by themes such as pro-cyclical, high dividend stocks, and thematic investments remains unchanged, with the influence of a single structure on the market declining. The spring market may only be a volatile market opportunity. High dividend stocks and core assets may experience pulsating rebounds in the spring, but ultimately the direction of high flexibility remains in small-cap growth and active themes. I. The macro environment facing A-shares in the spring: policies are implemented early and continuously, with a focus on expectation management. Domestic policy expressions are unlikely to exceed expectations, but the implementation and execution of policies will not fall below expectations. Spring is a window lacking decisive data validation. The key to the subsequent fundamentals lies in the internal economic pressures and the relative strength of policy execution effects, with Q2 25 being the critical verification period. The concerns of a rapid escalation in short-term Sino-US frictions are easing. The possibility of initiating negotiations in the Sino-US game remains, and the overseas impact may take some time to manifest. Spring is still a window without obvious downside risks, and can still be actively used for rebounds and structural adjustments. The macro environment facing A-shares in the spring may still be favorable, with limited downside risks from a macro perspective: 1. The Central Economic Work Conference completed policy layout, with optimism based on policy expressions reaching a peak. The difficulty for domestic policy expressions to exceed expectations in Q1 25, but early and continuous policy efforts remain the direction. At the same time, authorities may continue to focus on expectation management. Therefore, the implementation and execution of policies are likely to meet rather than fall below expectations. 2. Decisive data validation is usually not present in the spring. The key to the subsequent fundamentals lies in the internal economic pressures and the relative strength of policy execution effects, with Q2 25 being the critical verification period. 3. Short-term concerns about the rapid escalation of Sino-US frictions are easing. Expectations are rising for the initiation of negotiations in the Sino-US game. The medium-term overseas concerns remain, but their impact may take time to manifest, and Q1 25 may still be a relatively mild window. Therefore, spring is still a window without obvious downside risks. The market operates according to its own rules, and at least can be actively engaged in structural adjustments after internal adjustments. II. Shenwan Hongyuan Group advises not to take a bull market as a premise and to look forward to the spring market. The main contradictions in the short-term fundamentals have shifted from reflecting the unilateral impact of domestic policy efforts to the relative impact of domestic and overseas policies. The visibility of an inflection point in A-share profitability within 25 years is not high. The inflection point in policies, the difficulty of seamlessly connecting a market driven by improved risk appetite and fundamental factors, and the possibility of interrupted bull market expectations over the next 25 years. From the perspective of finding leading sectors for a bull market, the assumption of a bull market can also be loosened. In the short term, the behavior of various funds is fragmented, and structural trends such as pro-cyclical, high dividend stocks, and thematic investments are also fragmented, with the influence of a single structure on the market declining: 1. Expectations for pro-cyclical sectors (including core consumption assets) have been revised downward. In addition to the impact of the main contradictions switching, short-term data validation indicates that the improvement in consumption stimulus may be mainly pulsating. Following high growth, there is additional downside. Fiscal policy can support the economic core at this stage, but the effect of initiating economic cycle improvements is weak. Expectations for the overall economy and pro-cyclical sectors have been revised downward in the short term. 2. Core assets in advanced manufacturing are the direction for a reversal of expectations within 25 years. In the short term, the clear expectations of easing supply pressure, but establishing expectations for improved demand, may only come after the full fermentation of expectations regarding Trump's tariffs. Therefore, these institutions may still be avoided by speculative funds. 3. Thematic investments still have high activity, but the effectiveness of exploring new themes in the short term is weakening. At the same time, thematic trends driven by funds have also shown signs of stagnation in profitability this week. Institutional investors may participate in new themes, but the involvement of funds in momentum trends and themes with already realized high gains will be relatively low. 4. Corporate governance + shareholder returns improvement, high dividend stocks are the long-term correct direction. However, the micro structure of high dividend stocks is also fragmented, with insurance redemptions in active products, and subscriptions in passive products; expansion in OCI account size. But in the short term, the boost from increased insurance holdings on high dividend stocks is limited. The marginal decline in the fundamentals of high dividend stocks (declining interest rates, narrowing net interest margins for banks; concerns about falling prices in coal and oil) will also limit the offensive potential of high dividend stocks. Overall, at the present stage, no clear structural trend that can lead to a bull market level has been found. It is better not to base on the assumption of a bull market for now, but to look forward to the spring market. The spring market may be a volatile market with opportunities. High dividend stocks and core assets may see pulsating improvements, but the ultimate direction of high flexibility remains in small-cap growth and active themes. III. Short-term structures: re-allocation of insurance capital + low interest rates being considered as investment logic, combined with state-owned enterprise market value management, high dividend stocks have pulsating opportunities. With high dividend stocks being favored, themes become more active, with ultimately higher resilience in thematic investments, continuing to focus on AI applications and consumer themes. In the medium term, small-cap growth styles are favored in H1 25, with core assets returning in H2 25. Three specific structural approaches: 1. Rapid clearance of core assets: new energy (power batteries, silicon chips, inverters), consumer electronics, pharmaceuticals and biotechnology (CXO and innovative drugs). 2. Direct beneficiaries of fiscal stimulus on the demand side: building decoration, building materials, toG computers. 3. Focus on merger and restructuring opportunities (state-owned enterprises, local state-owned enterprises, market-oriented mergers: computers, media, pharmaceuticals and biotechnology, advanced manufacturing) and investment opportunities in cancellation-based buybacks. In the short term, the logic of absolute returns of high dividend stocks is smooth. The re-allocation of insurance capital to high dividend stocks at the end of the year is an investment narrative, with increased market attention on the re-evaluation of high dividend stocks in a low interest rate environment. Combined with state-owned enterprise market value management and promotion of corporate governance, high dividend stocks have pulsating opportunities. High dividend stocks set the stage, and thematic activity plays out, with ultimately higher thematic resilience, continuing to focus on AI applications and consumer themes. In the medium term, small-cap growth styles are favored in H1 25, with core assets returning in H2 25. Three specific structural approaches: 1. Rapid clearance of core assets: new energy (power batteries, silicon chips, inverters), consumer electronics, pharmaceuticals and biotechnology (CXO and innovative drugs). 2. Direct beneficiaries of fiscal stimulus on the demand side: building decoration, building materials, toG computers. 3. Focus on merger and restructuring opportunities (state-owned enterprises, local state-owned enterprises, market-oriented mergers: computers, media, pharmaceuticals and biotechnology, advanced manufacturing) and investment opportunities in cancellation-based buybacks.Cancellation of repurchase. Short-term high dividend stocks may have pulse opportunities. After the short-term market consolidation, the market may evolve into a scenario where "high dividend stocks lead the way, and thematic activities are active", ultimately showing a higher thematic elasticity. AI applications and consumer themes are expected to maintain high popularity.In the medium term, Shenwan Hongyuan Group's judgment on the market style is that in the first half of 2025, small-cap growth style continues to dominate, while in the second half of 2025, core assets will return. The rationale behind this judgment is that the visibility of supply clearance in 2026 is high, and the upward inflection point of profitability is more certain. At the same time, core assets (new energy, electronics, and biopharmaceuticals) are the direction where supply is being cleared first. In the medium term, three specific structural choices are to be considered: 1. Focus on core assets where supply is being cleared quickly, waiting for the pessimistic expectations of Trump's tariffs to be cleared. Key sub-industries include: new energy (power batteries, silicon wafers, inverters), consumer electronics components, and pharmaceuticals (CXO and innovative drugs). 2. The balance of domestic policy stimulus and export pressures may offset the overall impact, but there will likely be structural exposures. The direction that benefits more from fiscal stimulus is in construction decoration, construction materials, and toG computers. These areas may experience excess returns during the period when economic downturn pressures appear, and fiscal stimulus expectations heat up. 3. Seeking returns from capital market reforms: Focus on merger and acquisition restructuring (mergers and acquisitions of central and local state-owned enterprises, computers, media, pharmaceuticals, and advanced manufacturing are the directions where market-oriented mergers and acquisitions are improving first) and opportunities for cancellation buybacks. Risk warning: Overseas economic downturn exceeds expectations, and domestic economic recovery falls short of expectations. This article is sourced from "Shenwan Hongyuan Group Strategy", edited by GMTEight: Liu Xuan.