Broad Strategy: Two key timing patterns of A-share "style shift" at the end of the year and the beginning of the year.

GF Securities issued a research report, stating that in the short term, with the year-end meeting tone and the drive of insurance funds across the year change, it is expected that this trend will continue before the Spring Festival. The market style is balanced, and the center of stock prices for macroeconomic cyclical assets have moved slightly higher (domestic consumption/real estate chain/Hang Seng technology/major financial institutions). At the same time, insurance institutions will contribute incremental funds to dividend assets. In the medium term, referring to experiences from China and the United States, as long as the economic outlook for 25 years is in the "late downturn to early recovery" phase, small-cap growth styles will dominate. In the long term, dividends are few assets that do not require timing and can be configured for the long term. The tone of the key meeting in December was relatively positive, but the market trend was flat. In the past two weeks, the market style has changed, with a slight change in small-cap style. This week, the focus will be on discussing the seasonal pattern of style switching at the end of the year and the beginning of the year. The probability of small-cap stocks rising in December has always been very low, but the probability of rising after the change of the year (from the Spring Festival to the Two Sessions) is 100%. From 2010 to 2024, a total of fifteen years of broad-based/style indexes show: Pattern 1: The market performance is generally average in December, with a significant risk of decline in small-cap styles. Pattern 2: The turning point is the change of the year, with an increased market win rate afterwards. From the Spring Festival to the Two Sessions, the market style turns to small-cap, with a 100% probability of rise in the Shanghai Small-Cap Index. Pattern 3: The Two Sessions are the second turning point, with a decreased market win rate. The probability of the market rising from the National People's Congress to late April is less than 25%, with greater risks for small-cap stocks. This forms two segments of style switching at the end of the year and the beginning of the year: "small-to-large" at the end of the year and "large-to-small" in the spring. At the end of the year, there is a high probability of style switching (80%) between November and December, mainly from small to large, with large-cap style leading at the end of the year (80%). In the spring, there is also a high probability of style switching (80%), mainly from large to small, with most changes occurring in January. The spring style is dominated by small caps (73%). From New Year's Day to the Spring Festival, small caps underperform compared to large caps (80%), with an average excess return of -3.1%. From the Spring Festival to the Two Sessions, small caps outperform compared to large caps (93%), with an average excess return of 6.1%. Why is there such a regular pattern of style switching at the end of the year and in the spring every year? 1) November to March is the period when A-shares are "least traded fundamentally," determined by the vacuum period of economic data and financial report disclosures. 2) The tone of the year-end meeting determines the stable growth expectations of economic cyclical assets (large-cap styles), such as 2011, 2012, 2018, and 2022 being positive growth years at the end of the year. 3) Before and after the change of the year, funds play a role in driving the style (from foreign capital/insurance, or private equity hedge funds). For example, at the end of 2016 and 2023, there were restrictions on shell resource speculation, while in 2013, 2015, 2019, and early 2023 there were inflows of foreign capital. 4) Before and after the Spring Festival, the funds tend to shift from tight to loose. Historically, there have been reductions in reserve requirements and interest rates at the end of the year and the beginning of the year, which are favorable to small caps, such as at the end of 2011, 2014, 2018, and this year, triggering a loose monetary cycle. 5) Finally, by April, there is a moment of truth, where the true and false are separated, and if there is no follow-up verification of the fundamentals after the valuation is stretched, there is a risk of adjustment for both the index and small caps. These rules are likely to continue for 25 years, corresponding to the current forecasting style until 2044. Short-term perspective: Since mid-December, the small-cap index represented by the CSI 1000 has fallen, while the large-cap style has been relatively more stable, in line with historical patterns. With the year-end meeting tone and the drive of insurance funds through the year change, it is expected that this trend will continue before the Spring Festival, with a balanced market style and a slight upward movement in the center of stock prices for macroeconomic cyclical assets (domestic consumption/real estate chain/Hang Seng technology/major financial institutions), while insurance institutions will contribute incremental funds to dividend assets. By January 2025, if small-cap stocks continue to adjust, it will provide an opportunity for layout. According to historical experience, during the period from the Spring Festival to the Two Sessions of 2025, the small-cap growth style may return. In other words, the small-cap index that has risen 100% in the past fifteen years will likely appear in 2025. Mid-term perspective: Referring to experiences in China and the United States, as long as the economic outlook for 25 years is in the "late downturn to early recovery" phase, the small-cap growth style will dominate. Long-term perspective: Dividends are few assets that do not require timing and can be configured for the long term.