CITIC SEC: Selection of New Year varieties from ETFs hitting all-time high

CITIC SEC released a research report stating that among the 360 industry/theme ETFs, 39 reached new highs in December. Among the consensus varieties, the old varieties are communication and non-ferrous related ETFs, corresponding to North American AI infrastructure and resource logic; the new variety is commercial aerospace-related ETFs (including military industry), which are the choice of active funds in the market's volatile stage, similar to the past low-altitude theme. Whether it's communication, non-ferrous or commercial aerospace, a common feature is that they all represent the competition between China and the US in the next generation cross-border infrastructure construction, which is the most consensus direction in the market. Of course, there are also some varieties that are beginning to attract attention, lacking industry discussion heat, but quietly rising and reaching new highs in the year, such as chemical industry, engineering machinery, and other varieties, which represent the transformation of China's manufacturing industry from global competitive advantage to pricing power. In addition, some varieties related to anti-hollowing (such as new energy, steel) are also climbing again, and the catalysis related to anti-hollowing may appear intensively in the first quarter of next year. From the perspective of allocation strategy, CITIC SEC still believes that before the unexpected changes in domestic demand appear, it is still dominated by structural opportunities in dealing with the volatile market thinking, which is a basic framework for cross-year allocation choices. Sectors with low heat and concentration, but with increasing attention and long-term ROE improvement potential (such as chemical industry, engineering machinery, new energy, etc.) are preferred; some ShenZhen New Industries Biomedical Engineering themes (such as commercial aerospace) may also ferment repeatedly. At the same time, it still pays high attention to and tracks the trend of RMB appreciation, and securities firms and insurance companies are both offensive and defensive choices from this perspective. CITIC SEC's main points are as follows: The market remains volatile, but 39 of the 360 industry/theme ETFs reached new highs in December In December, the industry/theme ETFs that reached new highs in the year were mainly concentrated in the communication, non-ferrous, and military (aerospace) sectors. According to Wind data, among the 360 industry/theme ETFs, a total of 39 reached new highs in December, concentrated in the communication, non-ferrous, and military (aerospace) sectors. Among them, 7 communication ETFs that reached new highs (combined tracking index ETFs of the same kind) had an average increase of 10% since October and an average increase of 91.5% in the year; 6 non-ferrous ETFs that reached new highs had an average increase of 20.1% since October and an average increase of 95.2% in the year; 7 military, aerospace ETFs that reached new highs had an average increase of 18.7% since October, among which the two satellite ETFs most catalyzed by the commercial aerospace theme had an average increase of 34.5%, also driving the rise of 2 military ETFs (+11.1%); in addition, the chemical ETF and engineering machinery ETF increased by 15.1% and 4.6% respectively since October, with increases of 40.4% and 32.4% in the year, quietly reaching new highs in the year. Among the varieties with consensus, the old varieties are communication and non-ferrous related ETFs, and the new variety is commercial aerospace 1) North American AI infrastructure and resources belong to consensus in terms of existing funds, but incremental funds are feared to be high and have divergent views. In the rotation of the sub-categories of the North American AI infrastructure track, as a core variety, optical modules have recently lagged behind liquid cooling, 800V HVDC, power supply, and other sub-categories. This differentiation is partly due to the previous rise of optical modules, with the market value already relatively high, while liquid cooling and other subcategories are still in the early stages of development, with relatively small market value and more elastic capital game; on the other hand, the market's core concern is not the sustainability of the industry trend, but optical modules as an early hot track, the current position concentration is already high. Some institutional investors expect a phase of rebalancing demand before and after New Year's Day, and out of consideration for avoiding short-term volatility risks, they prefer to wait for the rebalancing to land and the sector's trend to stabilize before choosing to deploy at the right time. Historically, when the liquid cooling sub-category significantly outperforms the optical module in terms of periodic increase, it often accompanies an overall volatile adjustment of the AI infrastructure sector. The non-ferrous sector has also entered a stage where commodity heat is higher than stock prices. Since December, the cumulative increase in silver spot and lithium carbonate main contracts has reached 39.6% and 35.4%, respectively, while core silver stocks and energy metal-related individual stocks have significantly weaker increases than commodities; the performance of individual stocks and commodities of basic metals such as copper and aluminum are more closely related, and the rise of core copper and aluminum target this week can still keep up with commodities. Historically, whenever commodity prices accelerate, volatility increases, the difficulty of investing in resource stocks will begin to increase significantly, especially when commodity prices continue to rise strongly, but the corresponding decline in stock performance is obvious, the market often briefly synchronizes highs in stocks and commodities, leading to a sharp correction in commodity prices and ending. Investing in resource stocks while watching commodity prices rise and fall throughout the day is often no longer a good entry point. 2) Commercial aerospace is an active choice for funds in the market's volatile stage, similar to the previous low-altitude theme. With the narrative catalyst of the layout of China-US aerospace infrastructure and aerospace competition, the imagination space has been significantly opened up, and the IPOs of representative companies in the US and A-share markets may become a peak of market heat, while most targets in the sector have attributes of military industry, providing a certain basic support. However, in terms of coverage and scale, the commercial aerospace sector cannot reach the scale of humanoid Siasun Robot&Automation, closer to the scale of the low-altitude economy. From the perspective of the MSCI thematic index, the number of companies in the humanoid Siasun Robot&Automation index (8841699.WI) is 120, with a total market value of 6.5 trillion yuan; the number of companies in the low-altitude economy index (8841750.WI) is 70, with a total market value of 1.6 trillion yuan; the number of companies in the commercial aerospace index is 69, with a total market value of 1.2 trillion yuan, and some core individual stocks also overlap with the low-altitude economy. The commercial aerospace theme is more suitable for active trading in the market, but funds are not enough to further boost the valuation of sectors where institutional funds are heavily invested in such as AI and resources. Referring to the operating rules of humanoid Siasun Robot&Automation and the low-altitude economy theme, the duration of the first wave of market is about 60 trading days, with the peak of absolute and relative returns to the MSCI A index appearing around the 25th to 35th trading days after the start of the market, followed by a high-level volatile oscillation, and the commercial aerospace sector has entered its 25th trading day since the start of the market. Attention is beginning to grow, lacking heat in industry discussions, but quietly rising and reaching new highs in the year, including chemicals, engineering machinery, etc. We can classify this type of industry as Chinese manufacturing, with a global competitive advantage and a share advantage, and industries with great potential for profit realization, by expanding overseas, industry self-discipline in pricing, strict control of new capacity under environmental constraints and other ways, relying on the gradually influencing industry supply and demand patterns and pricing systems based on the already formed global share advantage, gradually raising industry profit margins. The significant feature of these industries is the lack of media attention, a relatively scattered industry and individual stock layout, lack of a concentrated industrial prosperity trend driving forces, high research costs, and discussions mostly limited to individual stock dimensions, so-called "general prosperity" might be ignored or even denied. In fact, from the perspective of capital expenditure intensity and ROE marginal changes, there are still many industrial sectors that have been silent for a long time in the current market. We use the percentile position of the ten-year capital expenditure/depreciation amortization ratio to measure the actual position of the capacity cycle. The conclusion is that the marginal supply growth rates of building materials, textile and apparel, electrical equipment, chemicals, agriculture, forestry, animal husbandry, fishery, not only have shrunk, but also the capital expenditure intensity is at historically extremely low levels, within the 10th percentile. Considering the marginal changes of ROE, the industries where business is picking up or bottoming out, but the capital expenditure growth rate is still declining, mainly concentrated in agriculture, forestry, animal husbandry, fishery, basic chemicals, construction materials, and mechanical equipment. If we consider the varieties on the left side, such as construction and decoration in the real estate chain, chemicals in the textile chain (such as spandex), the breeding and processing sectors in the agriculture, forestry, animal husbandry, fishery sectors, the price increase of these industries so far this year has not exceeded 30%, with relatively low valuations, stocks are relatively insensitive to the deterioration of fundamentals, and with a shrinking supply trend, they also have a ratio and safety margin. Some varieties related to anti-hollowing (such as new energy, steel) are climbing again The process of anti-hollowing is ongoing, and unlike the market's skeptical attitude when anti-hollowing began to heat up in June, the market is now very sensitive to industry supply trends. For example, this week, the actions of shutdown and maintenance in the new energy field were very intensive (Shenzhen Dynanonic, Hunan Yuneng New Energy Battery Material, Hubei Wanrun New Energy Technology, ANDA TECH, etc.), which may be due to cost pressure caused by the rapid rise in lithium carbonate prices, but can also be seen as a test of downstream battery factory price acceptance behavior (although this is not easy according to past experience). However, after the shutdown information came out, the stock price showed a very obvious positive performance. This at least indicates that the market is very expectant of similar anti-hollowing actions of actual supply contraction, and stock pricing has not fully responded. This week's collective price increase of photovoltaic modules is also the same situation, with stock prices showing a positive response. What we fear most is that good news appears but the market does not respond or reacts in reverse, as long as the market remains sensitive to marginal information feedback prices, the anti-hollowing market is far from over. The first quarter is also a period with the potential for intensive catalysis of anti-hollowing. There are several potential catalysts: first, the execution situation, strength, scope, and policy intentions reflected in the execution of export licenses for pure electric passenger cars, steel, etc.; second, whether there are new adjustments in export tax rebates; third, after the "Fifteenth Five-Year Plan" is implemented, whether there will be restrictions on future production ceiling in the industrial policies of various industries, similar to restrictions on electrolytic aluminum. Before the unexpected changes in domestic demand appear, it is still dominated by structural opportunities in dealing with the volatile market thinking, which is a basic framework for cross-year allocation choices The market needs more diversified sources of prosperity, otherwise, once the upward variety spreads, the demand for incremental liquidity is enormous. We have also analyzed in previous reports that overseas supply chains, exports, and going global are continuations of widely recognized logics for this year. With performance but no expectation gap, new changes are needed to broaden the sources of prosperity to bring in more diverse funds to push the market to a higher level. Before that, we still need to focus on structural opportunities and deal with the volatile market thinking, maintaining stability and avoiding having too high expectations for emotional premiums and heights. Under this premise, when considering cross-year allocation, we actually prefer some sectors with relatively low heat and concentration, but with increasing attention, more catalysts, and long-term ROE improvement potential, such as chemicals, engineering machinery, new energy, etc., and are relatively cautious about sectors with high prosperity, high heat, but stagnant stock prices. In addition, some new industrial themes (such as commercial aerospace) may still ferment repeatedly, replicating the evolving mode of previous low-altitude economy themes. Furthermore, we still pay high attention to and track the trend of RMB appreciation, and the rapid increase in popularity of industries such as papermaking and aviation in recent times comes more from the market's "muscle memory" of RMB appreciation. What is more worth paying attention to in the future is the policy logic change brought about by continued appreciation, and securities firms and insurance companies are both offensive and defensive choices from this perspective.