Guotai Junan Strategy Chief Fang Yi: Market trading is overheated, stock index volatility has begun.

Guotai Junan Securities Chief Securities Strategy Analyst Fang Yi released a research report saying that the previous market had already taken into account many optimistic expectations and overheated trading. With more uncertainties increasing, policy expectations are difficult to adjust temporarily, and stock market fluctuations have already begun. The main investment battlefield is clear, and the technology index is unlikely to see new lows. We expect to see new highs throughout the year. The stock market is oscillating from high to low, focusing more on performance-valuation matching. Trend analysis: With more uncertainties, stock market fluctuations have already begun. Since Guotai Junans strategy judgment on January 5th that "the stock market is expected to stabilize before the Lunar New Year" and "technology as the key, expanding into Hong Kong stocks", Guotai Junan Securities updated their judgment on February 16th that "after the rebound, the stock index is expected to horizontally fluctuate". Looking at the recent market performance, it is evident that the fluctuations have already begun. For the future market, we need to be clear about the following: 1) Due to the determination of the decision-making level to reverse the economic situation and support the capital market, the stock market in 2025 is no longer a bear market but is entering a structural bull market, so it is not advisable to stay out of the market; 2) The biggest driving force for the stock market in 2025 comes from the entry of incremental funds after the decline in risk-free interest rates. After the long-term bond rate "breaks 2%", we have seen a decline in residents' interest in fixed income and a change in their interest towards stocks and equity, which is an important change that has not been seen in the past three years; 3) Given the current international and economic situations, investors still have doubts, and it will take time for expectations to be established and changed, so the stock index movement will have an N-shaped rhythm rather than a "crazy bull" without any pullback. As for the current market, the recent stock market fluctuations should not be simply understood as a decrease in "value for money". It is difficult to ignore the increase in uncertainties (US-China friction, earnings growth, etc.) following the previous optimism and overheated trading. In the short term, it will be difficult for policies to quickly adjust, causing investors' risk-taking willingness to decrease. Guotai Junan Securities predicts that the stock market fluctuations will continue. In 2025, subjective investment in the Chinese stock market begins to return, but it is essential to distinguish the main battlefield. It is expected that the technology index will not drop to new lows and will see new highs throughout the year. Firstly, after three years of decline and adjustment, some Chinese assets (Hang Seng Technology, ChiNext, etc.) have already realized pessimistic expectations and cleared the trading structure. The adjustment over the past three years is equivalent to the largest decline in Japan from 1989 to 2003; Secondly, the rapid reduction in costs for DeepSeek and Siasun Robot & Automation indicates that commercial opportunities and industrial trends are emerging, social capital will begin to be active, and the spirit of adventure will emerge. The coupling of these three factors indicates that the main investment battlefield will be clear in 2025, with the technology as the main theme established; Thirdly, accelerated corporate capital expenditure, the establishment of industrial expectations, the ability for investors to extend their expectations, and industry chain analysis will become the focus again. Subjective investment based on the value discovery of investment methods will begin to be effective. Despite this, it is important to clarify two points: Firstly, the direction of the established expectations lies in technology, so the main investment battlefield is structural, not yet holistic; secondly, stock market fluctuations and technology adjustments will occur, and it is expected that the technology index will not fall to new lows, with new highs throughout the year. Industry comparison: The main battlefield throughout the year lies in technological growth, but short-term fluctuations are advised to "seize the high and cut the low". Risk preferences in the next stage will shift slightly downwards, therefore Guotai Junan Securities suggests: 1) Technology will differentiate in the short term, so it is necessary to focus more on sectors and stocks with higher valuation safety margins and higher performance certainty: recommended sectors include electronics, new energy, computing power, and Hong Kong Internet stocks; 2) Due to the complexity of the international environment and economic situation, there will be opportunities for recovery in low-cycle assets and high dividends: such as banks, railways, highways, chemicals, and coking coal; 3) With the approaching performance verification period, focus on sectors such as consumer electronics, household appliances, and mechanical equipment, which will benefit from equipment updates and policies that encourage the exchange of old products for new ones. Theme recommendations: 1) Mergers and Acquisitions: Shanghai has proposed to create a global M&A center, state-owned enterprise asset integration is accelerating, and optimism is high for restructuring and integration in the hard technology areas such as defense and semiconductors. 2) Solid-State Batteries: Accelerating the production pace of solid-state batteries, catering to the needs of Siasun Robot & Automation/ low-altitude new scenarios, optimistic about solid-state electrolytes, positive and negative electrode materials, and critical equipment. 3) Domestic computing power: The spending on computational power on the domestic side is accelerating, with a positive outlook on server, power supply, liquid cooling, and the computational chip industry chain led by Huawei and others. 4) Embodied Intelligence: Beijing has released an action plan for embodied intelligence to promote scene implementation, with an optimistic outlook on dexterity, screw rods, sensors, and other related sectors.