Soochow: Focus on the key window of the new round of market style transition in 2026, AI main line may face a mid-term adjustment.

Soochow released a research report stating that since the A-share market has started valuation repair and gradually entered a new bull market, in terms of style, growth style is leading and is the core source of excess returns in this bull market, with the Giant Tide Small Cap Index outperforming the Giant Tide Large Cap Index. Looking ahead to 2026, around June, there may be a key window for a new round of style rotation from "growth" to "value" in the market. In terms of industry trends, if popular AI applications do not emerge in the first half of the year and are combined with liquidity pressure from a stronger US dollar in the second half of the year, market sentiment may turn cautious, and the AI sector may experience a medium-term adjustment. The effects of anti-internal inversion policies will need about 3-4 quarters to be verified, focusing on the potential for dividend assets to flourish in the future. Soochow's main points are as follows: When we talk about style, what are we talking about? The turning point of industry trends and liquidity points is the core of the style switch from "growth" to "value": Although the actual trend of growth stocks is based on industry trends, the two elements are not completely independent, and liquidity tightening can suppress industry trends; when the two resonate, it often gives rise to the strongest market performance. Investing in growth stocks does not require excessive fear of high valuations, as the level of valuation itself is not the key to the turning point of the market; the key is whether the logic driving valuations undergoes a reversal. In terms of fund flows, based on the three-way game model constructed by Soochow, in the continuation of a weak US dollar trend, capital that has been previously parked overseas may become the leading marginal increment, triggering a game and follow-up from other funds, thereby forming a "multiplier effect" to provide effective support to the domestic economy and market. Soochow predicts that around June there may be a key window for a new round of style rotation from "growth" to "value". The turning point in the US dollar may occur around June next year. On one hand, global liquidity easing/weak dollar cycles typically last 2-2.5 years, starting from 2024Q3, this current weak dollar cycle is likely to continue until 2026Q2; on the other hand, it is expected that the Fed will cut rates in the first half of the year + independence faces challenges, leading to a weaker US dollar, with the suppression factors weakening in the second half of the year and nearing the midterm elections, the US dollar may turn stronger. In terms of industry trends, if popular AI applications do not emerge in the first half of the year and are combined with liquidity pressure from a stronger US dollar in the second half of the year, market sentiment may turn cautious, and the AI sector may experience a medium-term adjustment. In terms of policy, 2026 is the year the "Fifteen-Five" plan begins, with policies centered on technological innovation and a modern industrial system expected to be further strengthened, becoming the core focus of the market in the first half of the year. The effects of anti-internal inversion policies will need about 3-4 quarters to be verified, and if the point at which PPI turns positive is delayed until the second quarter of 2026, the Ten-Year Rate may continue to decline, at which point dividend styles may move up another level. In terms of market styles, with the rapid development of quantitative private equity funds, the pricing logic of large and small caps depends not only on macro residual liquidity, but also increasingly on the influence of capital structure switching. In the medium to long term, the game attributes of small and microcaps will strengthen, and excess returns will significantly weaken, with institutional allocation towards value and participation declining accordingly. Compared to market value styles, grasping the style cycle of "growth to value" is more critical. 2026 A-share profit analysis With overall volume increases, high growth in the technology sector, and the low base effect showing in the growth of science and technology, overall revenue and profit growths have ended a downward trend that lasted for 4 years since 2021, and have started rebounding. Looking ahead to next year, with the deepening of the unified large market reform, economic factor allocation is expected to optimize, supply and demand conditions will continue to improve, and enterprise profits are expected to further increase. The stability of ROE depends on the rebalancing of the supply and demand landscape. In 2022, listed companies had a round of production expansion in anticipation of the normalization of the economy, but due to the slow pace of total demand recovery, a gap between supply and demand emerged. This led to main income declines for economic entities and a weakening of expectations, resulting in a trend of decreasing ROE factors. Currently, with the advancement of anti-internal inversion policies, corporate profit margins have stabilized first with expectations also showing improvement, and leverage gradually increasing. Once supply and demand are balanced, asset turnover rates are expected to lead to a new upward cycle for ROE. In terms of industry trends and allocation, following the core allocation strategies of "technology and safety" and "reform and growth" In the dimension of technology and safety, importance is placed on the trends in the AI industry and resource energy security. In the increasingly complex global geopolitical environment, on one hand, there is a need for a strategy of technological self-reliance and to seize the wave of the AI technological revolution, to advance key technologies independently and support the industry, and after fully pricing the domestic industries associated with overseas infrastructure development, 2026 will see the domestic chip and manufacturing industry, storage and AI electric power construction sectors with comparative advantages continuing to evolve. Additionally, downstream applications such as AI glasses, humanoid Siasun Robot & Automation, and ToB-end vertical application (AI medical, AI marketing) can be considered as bullish options for the AI market. With the intensification of sovereign currency credit substitution and the rising trend of resource nationalism, the strategic value of basic metals, minor metals, and other resource products is becoming increasingly recognized, with central prices expected to continue rising. Emphasis should be placed on the continuous improvement of the supply and demand structure for copper, aluminum, nickel, and other basic metals, as well as tungsten, cobalt, antimony, chrome and other minor metals with independent prosperity. New energy sources such as energy storage, green hydrogen ammonia not only meet the requirements of China's "dual carbon" strategy for energy transformation, but also take a key step in avoiding the bottleneck of imported fossil energy and ensuring national energy independence. In addition, future energy directions such as solid-state batteries, perovskite, and nuclear energy are also worth attention. Furthermore, attention should be placed on core nominations in the Fifteen-Five Plan, including new energy, new materials, aerospace, low-orbit economy, and future industries such as quantum technology, biomanufacturing, hydrogen and fusion energy, brain-machine interface, embodied intelligence, and sixth-generation mobile communication industries. From the perspective of reform and growth, the supply side against anti-internal inversion and the demand side promoting consumption are equally important. The "anti-internal inversion" policy as the bottom line of industrial economic policy is expected to shift from the initial trading policy expectation to a pricing prosperity turning point next year. The allocation strategy will shift from the anti-internal inversion race track to the more optimal direction of actual supply and demand conditions and price elasticity recovery, focusing on lithium battery electrolyte, positive and negative electrodes, diaphragms, polysilicon and the main industry chain of photovoltaics. Traditional industries with logic for capacity digestion such as agrochemicals (pesticides/phosphates/urea), PTA, organosilicon, polyethylene terephthalate, soda ash, refrigerants, as well as steel, and thermal coal also have expectations of price increases next year. Supply determines direction, demand determines elasticity, with physical consumption slowed down due to the difficulties in supporting domestic demand recovery due to the reduction of government subsidies and the high base effect. Therefore, in 2026, the focus should be on the improvement of expectations in the direction of service consumption and non-durable goods, such as travel in the travel chain, aviation, hotels, duty-free shopping, sports, as well as necessary consumptions like frozen convenience foods, health products, and some large single products of casual snacks. Risk Warning Economic growth below expectations; policy progress below expectations; geopolitical risks; uncertainties in overseas policies, etc.