East Money Information: Evolution of the Spring Market and Discussion on Domestic Demand Opportunities

East Money Information Chen Guo team released a research report stating that previously indicated signs of rising US bond yields, the Bank of Japan is about to raise interest rates, and external disturbances need to be watched. From the market performance last week, there was disturbance in A shares, but the willingness of incremental funds to chase the spring market is also strong. Structurally, the domestic demand sector, especially non-durable consumer goods, is obviously advantageous. The spring market has gone through a long period of high winning rate interpretation, and has moved past the calendar effect into the stage of preemptive speculation, entering the phase of reflexivity. Aside from possible disturbances in January earnings forecasts, visibility of negative factors is low, prompting a preemptive approach and buying on dips. Improvement in the attractiveness and winning rate of domestic demand sectors structurally has increased, with emphasis on insurance, securities firms, non-ferrous metals, AI computing power/semiconductors, retail/American healthcare/social services/dairy, aviation, new energy, and innovative pharmaceuticals. Evolution theory of the spring market With changes in market participants, faster dissemination of information, enhanced learning effects of investors, and the transition of old and new economic drivers, the spring market has undergone profound evolution, which can be divided into three stages: the first phase, prior to 2017, the calendar effect stage. The market fermented after the Spring Festival, relying on policy driving and liquidity inflow; the second phase, 2018-2023, the preemptive speculation stage. The timing of market initiation significantly shifted to December, resulting from learning effects and changes in market participant structures; the third phase, 2024-2025, the stage of reflexivity. "Preemptive speculation" exhausts incremental funds, encountering negative news can easily lead to a "deep pit" style adjustment, subsequently relying on industry trends and liquidity driving. Follow the preemptive approach, buy on dips The latest US CPI data shows that resistance to future interest rate cuts has greatly reduced, the Bank of Japan has already raised interest rates, domestic policies to expand domestic demand and reverse internal circulation have room for imagination, and the trend of the RMB exchange rate is strengthening. In the short term, aside from possible disturbances in January earnings forecasts, visibility of negative factors is low. Currently, insurance funds and private equity have shown preemptive characteristics and financing balances are high. Drawing from the experience of the third phase of 2024-2025, there is a higher probability of market strength in subsequent market fluctuations, so following the preemptive approach, buying on dips may be beneficial, and if faced with sudden negative news, it is likely to be a good time to buy. How to view the possibility and sustainability of domestic demand joining the spring market? Policy catalysis and safety margin driving, multiple domestic demand sectors have already joined the spring market. Historical experience shows that sectors with high annual or fourth quarter gains tend to see excess returns fall during the end of the year and beginning of the next year, whereas sectors with lower gains may see a need for catch-up gains. This is driven by year-end institutional performance assessments leading to profit-taking, style drifts of some funds returning to their original style, and portfolio rebalancing; at the same time, sectors with lower gains may have stronger policy expectations. In the medium to long term, the gradual appreciation trend of the RMB exchange rate in the second half of 2025, combined with policies boosting domestic demand orientation from the Central Economic Work Conference, is expected to be a major driving force for the recovery of domestic demand and improvement of economic structure. Taking all factors into consideration, some domestic demand sectors may have a certain level of sustainability, with an emphasis on the rise in importance.