CITIC SEC: Since 2025, A-shares have broken out of the "dumbbell" pattern. Growth realization is the fundamental basis for its basic fundamentals.

CITIC SEC released a research report stating that since 2025, the A-share market has emerged from a three-year "dumbbell" pattern, with the growth of hard technology sectors represented by science and technology innovation and the Growth Enterprise Market as the fundamental basis. After a systematic valuation repair from June to October, the trend differentiation between industries has intensified since October, and the continued growth in performance up to Q3 is the basis for the resilience of most industries after October. Currently, it is expected that the profit outlook for the innovation and technology sectors will be higher than the current levels, and it is recommended to pay attention to the realization of earnings in 2026; compared to industries with similar PB ratios, there is still room for improvement in the profitability of the defense and military industry sector; the profitability gap between the food and beverage and home appliance industries is gradually narrowing, but in the long term, there may be a process of narrowing the valuation gap; the significant transition in growth dynamics between new and old economies within the benchmark index is evident, and the overall stability of profits and price fluctuations is the basis for its allocation value. January 2026 is the observation window for the 2025 annual performance forecast, and it is recommended to pay attention to the performance realization of relevant industries. The main points of CITIC SEC are as follows: Since 2025, the A-share market has emerged from the "dumbbell" pattern, and growth realization is the fundamental basis. 1) The "dumbbell" pattern formed and strengthened from 2022 to 2024, is a characteristic behavior of prices and allocations formed under the weakening of fundamentals and low risk appetite, rooted in the lack of growth in typical growth sectors. 2) Since 2025, the evolution of the main style reflects the beginning of a shift in market fund preferences, moving from the original micro-cap and dividend dumbbell to the direction of technology growth. 3) Since 2025, the growth of the core hard technology sector represented by the Sci-Tech innovation 50 and the Growth Enterprise Market Index has rebounded, which is the basis for the A-share market to move out of the dumbbell pattern. At the same time, the analyst sentiment index continues to break through to historically high levels. The growth is the basis for the resilience of most industries in the market after October. 1) Since August 2025, the market's valuation has tended to differentiate, and after a short-term fluctuation in October, it hit new highs again. After October, due to the change in the pace of the uptrend, the Beta coefficient temporarily eased before hitting new highs again, surpassing the differentiation level at the beginning of 2023. 2) There is a differentiation in the structure of the price trends of different industries after October, but growth is the basis for the resilience of their market performance. Some industries have not been affected by the uptrend after October, or have been temporarily affected before returning to an upward trend, and most such industries have maintained high growth since 2025 up to Q3. Investment points: 1) Innovation and technology sectors: With expected profits remaining high, it is recommended to pay attention to the realization of profits in 2026. The difference between the expected ROE and ROE_TTM in related sectors is above 5%, with the electricity equipment and new energy industries having a difference of 8.18%. 2) Defense and military industry: Compared to industries with similar PB valuations, there is still room for improvement in the sector's profitability level. As of early December, the daily average PB for the defense and military industry was 3.70, with a ROE_TTM of 3.70%, while the food and beverage industry (PB=4.08) with a similar ranking in PB had a ROT_TTM of 19.93%, and the nonferrous metals industry (PB=3.14) had a ROE_TTM of 12.97%. 3) Food and beverage and home appliance industry: With the narrowing gap between expected and realized profits, there is a significant difference in valuations, and in the long term, there may be a process of convergence in valuations. The realized ROE_TTM and expected ROE_FTTM for the food and beverage and home appliance industries are both around 20%, but the daily average PB for the food and beverage industry is 4.08, while for the home appliance industry, it is 2.40. 4) Market index: Under the transition of growth momentum between new and old economies, the overall profitability and valuation remain stable, with potential allocation value. Among the top 10 primary industries in the CSI 300 and SSE 50, the proportion of innovation and technology sectors has increased, and the transition of growth dynamics between new and old economies is significant. Risk factors: Significant changes in market expectations; major changes in macro and industrial policies; performance growth rates and profitability levels falling short of expectations.