Huajin Securities: A-share spring market is still on, After adjustment, it is an opportunity to buy low.

released a research report stating that the spring stock market trend is still ongoing this year, and it is a good opportunity to buy on dips after the adjustment. (1) This year, policies and liquidity are likely to remain loose, with limited external risks, so the spring market trend is highly probable. Firstly, at the beginning of the year, the policies still lean towards being positive: on the economic policy side, the scale and application of policies such as equipment renewal and trade-in may expand; secondly, on the capital market policy side, policies such as new round of swaps and repo operations continue to be implemented. Secondly, there are limited external risks at the beginning of the year. Thirdly, liquidity at the beginning of the year may remain loose. (2) The current A-share trading volume has dropped close to historical averages. Since November 2024, the daily lowest trading volume for the entire A-share market has dropped by around 53% compared to the highest trading volume, which is close to the historical average of 56%. Short-term major risk events are unlikely to occur, and the decrease in trading volume may be seasonal. In history, the pace of the spring market trend has varied, and policies, liquidity, and external risks can cause fluctuations. (1) The pace of the spring market trend in history has been different. Since 2010, there have been 9 instances of the spring market trend starting in January or February, with 2 instances of continuous upward movement, 2 instances of initial increase followed by fluctuations, and 5 instances of increase-fluctuation-increase. (2) Policies, external events, and liquidity are the core factors affecting the pace of the spring market trend. Tightened policies or negative external events can cause fluctuations or early end of the spring market trend, such as IPO restart at the end of January 2014, RMB depreciation at the end of February 2016, crackdown on margin trading at the end of February 2019, and Russia-Ukraine conflict in February 2022. Liquidity tightening can also lead to fluctuations or early end of the spring market trend, such as the People's Bank of China raising reserves in February 2011, and dynamic adjustment of reserve ratios in February 2017. The impact of fundamental factors on the pace of the spring market trend is relatively limited. Looking back at history, A-shares may experience seasonal drop in trading volume at the end of the year and beginning of a new year, and if risk events occur, the spring market trend may be delayed or end. (1) The trading volume of A-shares may experience seasonal decline at the end of the year and beginning of a new year. Since 2010, the trading volume of all A-shares from November of the previous year to February of the next year may experience seasonal decline, with an average duration of around 30 trading days and the decline ranging from 30% to 80%. (2) If risk events disturb the market at the end of the year and beginning of a new year, it may delay the start or end of the spring market trend, such as the outbreak of the epidemic in early 2020 causing the spring market trend to start in February and the Russia-Ukraine conflict in February 2022 leading to the end of the spring market trend in early March. In the short term, the adjustment range is limited, the slow bull trend remains unchanged, and there may be a rebound after fluctuations. (1) On the supply side, the economy and profits continue to recover weakly. High-frequency data show that the economy is still recovering weakly. The growth rate of industrial enterprise profits indicates that profits continue to rise. (2) Liquidity remains loose. The Federal Reserve may pause rate cuts in January, the US dollar continues to rise; credit is likely to rebound seasonally in January, and the central bank is likely to implement a reserve requirement cut before the Spring Festival; financing, foreign capital and other funds may flow back seasonally at the beginning of the year. (3) Risk appetite: Market sentiment may stabilize after a short-term adjustment. Overseas factors may disrupt market sentiment; domestic policies still support risk appetite. In the short term, it is recommended to buy on dips in technology, some consumer, and high dividend industries. (1) In the short term, technology and consumer industries may be the main focus of allocation. Looking back at history, high-growth industries tend to lead the spring market trend, while industries that catch up later may have an advantage. Based on this year's spring market trend, AI-related technology industries may still have the highest growth potential, and some consumer industries may see an increase in demand due to domestic policy enhancements. (2) In the medium term, the style may still favor small caps: in the short term, policies remain positive, the CSI 2000 has adjusted 17% from its peak in December 2024, liquidity remains loose, so the style may still lean towards small caps. (3) It is suggested to buy on dips in industries that benefit from policies, such as communication (AI), electronics (consumer electronics, semiconductors), media (AI applications), computers (autonomous driving, data), machinery (Siasun Robot & Automation), defense, and automobiles; industries that may benefit from policies, such as food, automobiles, retail, social services, and textiles; and industries that may see improvement in fundamentals, such as new energy and healthcare.