Zhongtai: Currently, we can position ourselves at a low level to invest in central state-owned enterprises and the hard technology industry chain, paying attention to opportunities in market fluctuations.

Zhongtai released a strategic research report stating that at the current point in time, it is suitable to position oneself in low positions in state-owned enterprises and hard technology industry chains. 1) The continuous decline in market interest rates is causing an overall increase in risk premium for state-owned enterprises. Dividend assets currently have a high long-term investment cost-effectiveness. In terms of risks, the continuous entry of long-term capital such as insurance funds into the market in the future, and the increase in the fault tolerance rate of state-owned funds, will bring in long-term investment funds. Low-position bank stocks, utilities, and other sectors that align with financial risk prevention and safety directions are worth paying attention to. 2) Currently, the ongoing geopolitical risks between China and the US make "hard technology" one of the main directions for fiscal policy investment. Among these, the "hard technology" direction represented by military industry, drones, Siasun Robot & Automation, and commercial aerospace may be the most elastic global industry direction starting from 2025. Zhongtai's main points are as follows: How to view the significant market volatility this week This week, the market entered 2025 and showed a retracement trend overall. On the first trading day of 2025 (January 2nd), the market saw a significant decline, with major broad indices such as the CSI 300, and the CSI 500 falling by over 3%. When the market experienced a major decline, stable sectors were relatively resilient. Value sectors performed relatively well this week, with small and mid-cap value stocks showing smaller declines. In terms of industries, stable sectors such as coal, petroleum and petrochemicals, and banking saw smaller declines. The deep adjustment in the A-share market this week was mainly due to the lackluster performance of value sectors: on one hand, the "disappointment" of policy expectations since the Central Economic Work Conference in December led to a phase of profit-taking in small and mid-cap growth stocks, on the other hand, as the market transitioned towards value sectors, the absence of incremental funds failed to provide effective support, leading to a significant impact on the market in the short term. As the structure of the Hong Kong stock market is mainly focused on stable dividend-paying state-owned enterprises and technology (telecoms, new energy vehicles, internet), the extent of change in economic cycle expectations is limited. The decline in Hong Kong stocks this week was significantly smaller than A-shares, with the AH premium slightly narrowing. The focus of the current market game lies in the economic expectations brought about by policy expectations, hence the clear "see-saw" effect between stocks and bonds. This week, long-term government bond yields continued to decline, reflecting a pessimistic outlook for future economic growth. The market decline this week spread from small-cap cyclically-sensitive sectors that are heavily influenced by policy and economic expectations to other sectors, resulting in an overall market retracement, which may present some opportunities. Although some cyclical sectors have risen too much since September due to excessive policy expectations, there are still many "stable assets" with weak economic relevance and low valuations that have been "hit" by the market's pessimistic sentiment. Since the Political Bureau meeting in September, various risk prevention and debt reduction policies have been implemented, ensuring the profit expectations of stable assets. The pessimistic sentiment in the market this week driving the retracement of stable sectors is also a good positioning opportunity. Moreover, the ongoing downward trend in macro interest rates provides strong support for stable dividend assets: the profits and dividends of these assets are relatively stable and significantly higher than the cost of funds, hence they have a high safety margin and cost-effectiveness. In terms of policy, the true direction of 2025 financial policy may still focus on encouraging "patient capital" with leverage: through measures such as central bank lending facilities (institutional funds increasing allocation to stable state-owned enterprises with high dividends), special repurchase and refinancing for stable high-dividend enterprises to enhance market value, mergers and acquisitions, senior executives' market value management assessments, etc., continuously raising the valuation center of stable assets. Even under the trend of declining interest rates, stable high-dividend state-owned enterprises still possess a "stable arbitrage space", and lending facilities and repurchase loans are two powerful tools for "valuation convergence." Furthermore, long-term capital such as insurance funds and pension funds continue to enter the market, these assets with relatively low valuations and strong safety margins are the preferred choice for long-term funds. As the proportion of "ballast stones" in the investor structure continues to rise, the risk of these assets experiencing a significant decline due to short-term liquidity will decrease.