CMSC: It is expected that the spring market trend will continue in the short term.

The CMSC released a research report stating that since late January, the market has launched a spring offensive driven by factors such as liquidity release, DeepSeek's popularity, and expectations for the Two Sessions policies. Looking ahead to March, the market is still in a period of performance and policy vacuum. Considering the expansion of capital expenditure by domestic cloud computing and internet giants, as well as continued catalysts in AI and Siasun Robot & Automation sectors on the policy front, it is expected that the spring market rally will continue in the short term. In terms of industry allocation, it mainly focuses on the evolution process of the spring market and layout of clues for the recovery of specific industry sectors. Taking into account factors like medium-term prospects, profitability, chip distribution, valuation, trading, stage of economic cycle, and track value, this issue recommends focusing on sectors such as communications (communication services, communication equipment), electronics (consumer electronics, semiconductors), machinery (engineering machinery, automation equipment), automotive (automotive parts, passenger cars), pharmaceuticals (medical services), and defense industry (aviation equipment). Key viewpoints of CMSC are as follows: The evolution of the spring market and clues for the recovery of prosperity: Market performance review: In the past month, the overall market has been fluctuating upwards. From January 26th to the eve of the Spring Festival, the market saw a slight decline, mainly due to economic data entering a blank period, lack of short-term catalysts, and a cash shortage due to cash withdrawals before the Spring Festival, which led to an increase in the cost of cross-year capital, although the central bank took a series of countercyclical adjustments, liquidity remained tight. After the Spring Festival, it benefited mainly from the seasonal release of liquidity, the strengthening of confidence in AI applications by DeepSeek's rise, continuous catalysts such as expectations for the Two Sessions policies and the strong box office performance of Nezha during the Spring Festival holiday. The market sentiment gradually warmed, the spring excitement market continued, active investments in themes like AI+, Siasun Robot & Automation, and core assets and some indices began to strengthen. TMT, pharmaceuticals, and other AI-empowered sectors performed well, while consumer and some dividend sectors saw larger declines. Looking ahead to March, the market is still in a phase of performance and policy vacuum, and the evolution of the spring market and clues for the recovery of specific industry sectors will be important factors affecting industry allocation in March. 1) The evolution of the spring market: Historically, the "spring excitement" market of A-shares usually starts around the Chinese New Year and lasts for an average of about 2 months, with focus on TMT and some cyclical industries such as resource products and machinery. This round of spring market started on January 13th, driven by the catalysis of new technological revolution represented by AI, mainly focused on AI applications, humanoid Siasun Robot & Automation, intelligent driving, etc. Taking into account the expansion of capital expenditure by domestic cloud computing and internet giants, as well as policy catalysts in AI and Siasun Robot & Automation sectors, it is expected that the spring market rally will continue in the short term. Sectors that have had significant gains but whose valuation percentiles have not yet significantly exceeded will be recommended in the short term, such as automation equipment, consumer electronics, communication services, computer equipment, medical services, education, and semiconductors. 2) Clues for the recovery of specific industry sectors: Currently, the prosperity of various sectors is relatively differentiated. From a macro perspective, sectors with relatively high absolute prosperity mainly include TMT and high-tech manufacturing, pharmaceuticals and some service processing industries (such as pharmaceutical manufacturing, agricultural and sideline food processing, textile and apparel, aviation transportation, telecommunications broadcasting, etc.), and construction installation industry, with their PMI above the boom-bust line in January. Performance in the previous periods, concentration of trading activities, and monthly effects: 1) Sectors that have underperformed the WIND All A Index in the past two months are mainly concentrated in cyclical fields such as coal, infrastructure, decoration, steel, cement, etc.; certain sub-sectors in consumer healthcare such as condiments fermentation products, food processing, beverages, retail, beauty care, etc.; midstream manufacturing sectors such as photovoltaic equipment, wind power equipment, etc. The growth sectors like semiconductors, communication equipment, optics and optoelectronic, as well as some high-tech manufacturing sectors like passenger cars, general equipment, automotive parts, engineering machinery, have outperformed the WIND All A Index. 2) The market has been active recently, and in terms of turnover rate and trading volume share, sectors like software development, medical services, automation equipment, communication services, automotive parts, computer equipment, general equipment, consumer electronics, media are relatively crowded, while sectors like energy metals, liquor, gas, biotechnology products, industrial metals, aviation equipment have relatively low trading shares; 3) In March each year, industries with relatively high probabilities of generating excess returns mainly include some consumer services and cyclical industries, such as textile and apparel, social services, beauty care, pharmaceuticals, building materials, transportation, etc. Taking into account factors such as medium-term prospects, profitability, chip distribution, valuation, trading, stage of economic cycle, and track value, this issue recommends focusing on communications (communication services, communication equipment), electronics (consumer electronics, semiconductors), machinery (engineering machinery, automation equipment), automotive (automotive parts, passenger cars), pharmaceuticals (medical services), and defense industry (aviation equipment). Recommended sectors in this issue: Communications (communication services, communication equipment) The rapid growth in computing power driven by AI applications and cloud computing, all three major telecom operators fully adopting DeepSeek's open-source large models, Alibaba's capital expenditures exceeding expectations, are expected to drive the release of industry chain performance. In January, PPI for communication equipment manufacturing steadily increased, CPI for communication services turned positive year-on-year, and the cumulative year-on-year growth rate of telecom business revenue in December expanded, indicating continued high prosperity in the industry. Deepseek launched the R1 model, with performance benchmarked against the GPT-o1 official version, and daily active users growing rapidly. Various entities such as government systems, hospitals, universities, and companies are connecting to DeepSeek, driving the rapid growth of computing power. Optical communications, computing power leasing, and other sectors are expected to benefit. All three major telecom operators fully adopting DeepSeek's open-source large models, cloud services may witness accelerated development. Electronics (consumer electronics, semiconductors) The demand for AI servers, computing power remains prosperous, policy stimulates demand for consumer electronics products, the deployment of AI at the edge is expected to accelerate, and domestic semiconductor production is expected to speed up. Demand remains prosperous, DDR5 DRAM memory prices continue to rise, the "trade-in for new" policy stimulates demand for consumer electronics products, and mid to high-end semiconductors have the potential to outperform. Sectors where growth is expected includes semiconductors, telecommunications equipment, optoelectronics, some high-tech manufacturing like passenger cars, general equipment, automotive parts, engineering machinery, are expected to outperform the WIND All A Index.The activation volume of the domestic mobile phone market increased by 11.9% year-on-year, and the penetration of AI phones will further accelerate. The high-performance inference small model DeepSeek-R1 will speed up the landing of edge AI, driving hardware shipments of AI phones, AI PCs, AI glasses, etc. The demand for computing power generated by AI is increasing, which is expected to continue to promote the development of the chip and hardware market, with hardware manufacturers expanding production or driving profit improvement for downstream companies; the US restrictions on exporting chips to China may continue to tighten, potentially accelerating the process of semiconductor localization.The translation in Mechanical (engineering machinery, automation equipment) Siasun Robot&Automation's commercialization is promising, with continuous improvement in the sales of engineering machinery and gradual release of equipment update demand. Siasun Robot&Automation enters the industrial scene, with the industrial chain flourishing. Yushu Technology's Siasun Robot&Automation algorithm completes upgrades, Figure releases the AI model Helix, promoting the enhancement of Siasun Robot&Automation's generalization ability, with commercialization prospects; in addition, many Siasun Robot&Automation listed companies are expected to have favorable performance, and the Siasun Robot&Automation industry is expected to accelerate. Loader sales in January turned positive year-on-year, with higher year-on-year growth in flat machines and road rollers exports. After the holidays, the main host factories of engineering machinery started delivering the first batch of orders, and the domestic earth moving machinery market demand has entered an upward trend, combined with policy stimulation, equipment update demand is expected to gradually unlock. Automobile (automobile parts, passenger cars) The equalization of intelligent driving rights promotes the gradual deepening of intelligent driving penetration rate, and AI development drives the increase in the proportion of high-end intelligent driving. Due to the impact of the Spring Festival holiday positioning, the three-month rolling year-on-year growth rate of automobile and passenger car production and sales narrowed in January, with accelerated post-holiday automobile consumption increase and continuous expansion of the base of replacement with new. In terms of exports, automobile and passenger car exports increased year-on-year. BYD Company Limited has extended the "God's Eye" high-end intelligent driving system to the vast majority of models, accelerating the equalization of intelligent driving rights while enhancing intelligent driving penetration rate and supporting export stability. Chongqing Changan Automobile has integrated DeepSeek, and the rapid iteration of AI models is expected to drive the increase in the proportion of high-end intelligent driving. BYD Company Limited is expected to start mass demonstration of full solid-state battery installation in 2027, and the industry is expected to remain highly prosperous. Pharmaceuticals and Biotechnology (medical services) DeepSeek is restructuring AI in healthcare, with the need for pharmaceuticals becoming more apparent amid an aging population. The application of AI technology in the medical field is accelerating, with the recent deployment of the first AI pediatric doctor in the country, JD HEALTH's AI doctor intelligent body product, and Huawei's release of the Ruijin pathology model expected to bring new breakthroughs to medical diagnosis, improving the scientificity and efficiency of clinical decisions. The National Medical Insurance Administration's launch of the "Medical Insurance Image Cloud Index" may optimize medical resource allocation, improve the quality and accessibility of medical services, and coupled with the gradual aging of the population in China, the demand for pharmaceuticals and elderly care services continues to increase, with national medical consumption expenditures expected to continue to increase, providing a turning point for medical consumption. Defense and Aerospace (aerospace equipment) Towards the end of the 14th Five-Year Plan, the industry's orders are expected to accelerate, and low-altitude economy is expected to undergo standardized development. The current year is the closing year of the 14th Five-Year Plan, with new equipment orders expected to accelerate under budget constraints, promising performance. At the same time, large aircraft are industrializing on a larger scale, with C919 with a saturated order backlog. If it successfully obtains the European EASA airworthiness certificate, it is expected to initiate the process of overseas market entry. Domestic low-altitude economy support policies continue to roll out, with the recent launch of the "National Low-Altitude Traffic Network" project expected to drive coordinated and standardized development of the industry chain. Coupled with the rapid growth of low-altitude aircraft orders, the industry is expected to remain highly prosperous. Eight-dimensional review Segmented field prosperity review and outlook Upstream resource products: Under the impact of pre-holiday production stoppages and post-holiday resumed production, most resource prices are falling, with excess capacity in steel and cement. Focus on small metals, industrial metals in improvement supply and demand patterns, as well as rising prices of precious metals and some chemical products. Midstream manufacturing: Overall performance has rebounded, with the equalization of intelligent driving rights driving the upward trend in the automotive industry's prosperity, the entry of satellite Internet into industrialization, the promising commercialization prospects of Siasun Robot&Automation, and most industries entering a new cycle of prosperity. Pay attention to automation equipment, automobiles, and other AI-enabled fields. Consumer/Pharmaceutical: High prosperity in Spring Festival consumption, with strong momentum in travel chain recovery, steady growth in real estate chain sectors, slowing growth in mandatory consumption, and strong performance in the medical industry under AI empowerment. Finance and Real Estate: Market trading activity has recovered, with medium- to long-term funds entering the market, focusing on the prosperity of the brokerage and insurance sectors. Information Technology: Acceleration of AI penetration in smartphones, Deepseek stepping out, the artificial intelligence ecosystem triggering a chain reaction, industries actively deploying localizations, and focusing on semiconductor and communication driven by computing demand, as well as consumer electronics. The A-share financial statements for the third quarter of the 24th year are still fluctuating at low levels, driven by the non-financial sector, with a slight narrowing of the decline. Excluding real estate and power equipment sectors, full A profitability has continued to recover due to the non-financial sector. If the effects of future policies continue to manifest, the third quarter may be the low point of the year for profitability. In the general industries, consumption services > utilities > finance and real estate > TMT > pharmaceuticals > resource products > midstream manufacturing. The areas with better performance mainly include: 1) the financial sector (non-financial and banking) with improved debt costs and expanded investment income; 2) some resource products (non-ferrous metals, chemical products) showing improvement in supply and demand and rising prices; 3) some consumption areas (aquaculture, beverages and dairy products, leisure food, retail trade, etc.) with steady or improving demand on a low base; and 4) TMT areas (semiconductors, communications, communication equipment, engineering machinery) with improved prosperity. Analysts' consensus profit expectations for some industries have been revised upwards in the last month, with livestock breeding, aviation airports, securities, insurance, batteries, environmental protection, agricultural chemical products, and other industries seeing profit expectation increases exceeding 1 percentage point, followed by seasonings and fermentation products, electricity, food processing, and home appliances industries with varying degrees of profit expectation increases. In contrast, real estate, decoration and decoration, software development, communication equipment, military electronics, beauty care, energy metals, and other industries have seen larger downward revisions. Public funds mainly increased their holdings in the fourth quarter in semiconductors, securities, beverages and dairy products, automation equipment, batteries, consumer electronics, banks, etc. The fourth quarterThe Shanghai-Hong Kong Stock Connect increased holdings in batteries, securities, banks, semiconductors, beverages and dairy products, software development, etc. This month, financing funds increased holdings in semiconductors, communications services, software development, automotive components, communication equipment, home appliances, etc.Over the past month, the industries with a significant increase in valuation percentile are concentrated in media, consumer electronics, communication services, and computer equipment. The industries with turnover percentile in the upper medium position and in an upward trend in this period are mainly medical equipment, optical optoelectronics, condiments and fermentation products, medical services, decoration and furnishings, and textile and clothing. The industries with high trading concentration and in an upward trend in this period are mainly medical services, communication services, software development, medical equipment, automation equipment, and computer equipment. Currently, the market still shows strong expectations and weak reality. However, the introduction of a package of policies has basically reversed the market's pessimistic expectations, and with the continuous efforts of policies to promote economic stabilization and recovery, the market is expected to return to an upward trend. Focus on the intensity and effectiveness of subsequent policies, AI + intelligent manufacturing, equipment updates, and consumer goods for trade-in. In the medium to short term, focus on the five major tracks with marginal improvements: large language models, AI infrastructure, optical modules (CPO), autonomous controllable, and humanoid Siasun Robot & Automation. Risk warning: Downward revision of performance beyond expectations, industry policy support less than expected.