Industrial: How to view the structure and sustainability of the A-share market's current strong start?

Industrial released a research report stating that looking ahead, the "sixteen consecutive trading days in the Shanghai Stock Exchange", breaking through key points, and trading volume exceeding 3 trillion yuan, among other significant events, have strengthened trends and confidence. This is helpful in boosting the enthusiasm of various market participants, laying a good foundation for the current spring market. In history, after the daily trading volume exceeded 3 trillion yuan, there has always been a market trend of at least monthly level. Under the global context, the characteristics of concentrated hotspots and theme-driven features are more obvious in this current market trend. As listed companies gradually disclose their annual reports, performance is expected to become an important factor dominating the market's structure for a period of time. The market may undergo a structural adjustment around performance, with the previous hot sectors facing performance validation, while some low-key performance sectors are also expected to attract new rounds of capital inflows. Key points of view from Industrial are as follows: 1. The "red opening" of this round: an easily overlooked background As market risk appetite improves gradually and funds enter the market forming a positive cycle, supporting factors such as liquidity which drove the market frenzy in the past still have some continuity in January, making the red opening worth looking forward to. This week the market had a strong start, with the Shanghai Composite Index breaking through key points with a "sixteen consecutive trading days in the Shanghai Stock Exchange". The strength and sustainability of the market trend have exceeded the expectations of many investors. The "red opening" reflects the recent macro data warming and ample liquidity as the foundation for market risk appetite, resulting in the gradual attraction of incremental funds to the market earned from the previous frenzy, forming a positive cycle of reinforcing capital inflows and market rises. Various types of trading funds we track have shown signs of accelerated entry recently, including: 1) margin funds have cumulatively entered the market by 78.9 billion yuan since the beginning of the year; 2) retail funds represented by small orders have returned to a higher level of around 30 billion yuan in net daily inflows in the past 20 days; 3) the proportion of turnover in the January long-short list continues to rise to a new high since September 2024; 4) since the beginning of the year, industry-themed ETFs have received significant net inflows, reflecting the market's increased willingness to layout structural opportunities. Moreover, from the structure of net inflows, various funds have formed a relatively consistent consensus on the main theme, further reinforcing the structural characteristics of this round of "red opening" market trend. Deconstructing the net inflow structure of margin funds, retail funds represented by small orders, long-short lists, and industry-themed ETFs, we can see that various funds have formed a strong consensus on the main theme, mainly focusing on: TMT (storage, AI applications), military industry (commercial spaceflight), non-ferrous metals, new energy (controlled nuclear fusion), machinery (Siasun Robot & Automation), pharmaceuticals (innovative drugs, brain-machine interfaces). Where did the main theme consensus come from? An easily overlooked background is that the A-share "red opening" is not an exception. Most global stock markets started the year 2026 with strong performances and structurally focused on macro and industrial narratives as theme trades. The anticipation of loose global liquidity, geopolitical changes, and the continuous formation of trends in ShenZhen New Industries Biomedical Engineering have driven most global stock markets to have a strong start in 2026, with A-shares not being an exception. Moreover, the confluence of global macro and industry narratives stemming from the concentrated interpretations of major global events in the beginning of the year, such as the geopolitical events elevating the strategic value of resources (non-ferrous metals), the International Consumer Electronics Show (CES) catalyzing industrial new trends (storage), a series of industrial revolutions led by Musk (commercial spaceflight, Siasun Robot & Automation, brain-machine interfaces), Trump calling for a significant increase in US defense spending (military industry), AI application companies KNOWLEDGE ATLAS and MINIMAX listing on the Hong Kong Stock Exchange (AI applications), and Trump breaking ground on the first fusion power plant (controlled nuclear fusion), these global macro and industry narratives are driving most global stock markets to exhibit a certain degree of convergence in structure. Therefore, the main themes of the A-share trading at the beginning of the year have been somewhat influenced by global narratives. In summary, the "red opening" of the A-shares market at the beginning of this round primarily responds positively to the warm domestic macro environment and ample liquidity, reflecting the positive response to the common global macro and industrial narratives that are driving global stock market rises. This further reinforces the consensus and earning effects, attracting more incremental funds into the market, and the combination of internal and external factors drives the reinforcing positive cycle of capital inflow and market rise. 2. How to view the structure and sustainability of this "red opening"? Looking ahead, the "sixteen consecutive trading days in the Shanghai Stock Exchange", breaking through key points, and trading volume exceeding 3 trillion yuan, among other significant events, have strengthened trends and confidence. This helps in boosting the enthusiasm of various market participants, laying a good foundation for the current spring market. In history, after the daily trading volume exceeded 3 trillion yuan, there have always been market trends of at least monthly level. Moreover, combining fundamental, sentimental, structural, and calendar effect dimensions, the market is currently in a window where downward risks are limited, and there is still significant potential upside. From a fundamental perspective, the improvement in December PMI and price data has stabilized the expected economic downturn, and after the "bumps" in the 2024 annual reports, there are minimal pressures on listed companies' fundamentals, meaning that there is limited downside risk to the market; from a sentimental perspective, financing sentiment has not reached its peak yet, and a new round of "household deposit relocation" is expected to gradually unfold, ensuring a continuous supply of incremental funds; from a structural perspective, nearly 90% of individual stocks are still awaiting a new high, indicating ample room for market diffusion; from a calendar effect perspective, considering that February is approaching, with a high annual win rate, any subsequent temporary fluctuations will provide an opportunity to buy on the dips. In terms of structure, as some sectors have experienced significant increases recently, particularly those represented by commercial spaceflight, the market is concerned about their current crowding and future sustainability. We analyze this from two perspectives. Firstly, comparing the time and space of the first wave of typical theme market rallies since 2023, after the recent acceleration of commercial spaceflight, it has shown some excess returns compared to other themes in the short term. Secondly, from the perspective of trading volume proportions, there is a rule to follow regarding the crowding during the first wave breakout: the high point of trading volume proportions during the breakout period is usually around 2 times the previous high. The trading volume proportion of commercial spaceflight was around 4% at the previous high point, and currently, it is 6%, meaning that with the upcoming spring frenzy catalyzed by liquidity, there is still room for trading sentiment to rise further. However, due to the accumulated excess returns and the subsequent market environment, there may be increasing disagreements in the short term for themes such as commercial spaceflight. Especially considering the upcoming intensive disclosure period of annual report performance forecasts in the second half of January, the correlation between stock prices and performance will significantly increase, and themes with weaker fundamental support in the past will face performance verification pressure, suggesting that spreading themes based on performance may be a direction with less resistance in the future. Nevertheless, once the disclosure of annual report performance forecasts is completed in January, the market will return to a fundamental vacuum period in February, and funds will return to a mode of appreciating future growth prospects, opening up space for the upward elasticity of theme market trends. As a sector with significant margin changes and high consensus among funds, there may still be room for further improvement in trading sentiment for commercial spaceflight. In the medium to long term, the fundamentals, policies, and industrial trends of the commercial spaceflight sector are undergoing positive changes, making it a new potential main trend that deserves attention this year. 3. What directions should be focused on in the future? Due to the global common narratives reflected in this round's "red opening," the characteristics of concentrated hotspots and theme-driven features are more prominent. As listed companies gradually disclose their annual reports, performance will become an important factor dominating the market structure for a period of time. The market may undergo a structural adjustment centered around performance, with previous hot sectors facing performance verification and some low-performance segments potentially attracting new rounds of capital inflows. Since November last year, industries that have had more upward profit forecasts are mainly concentrated in: Technology: Besides the upstream strong demand for computing power hardware (communication equipment, components, semiconductors), the recent upward profit forecasts are mainly concentrated in the middle and downstream application areas, including consumer electronics, computer (computer equipment, software), media (movie theaters, games, TVB), etc; Advanced manufacturing: New energy (photovoltaic equipment, batteries, wind power equipment), military industry (marine equipment), automobiles (motorcycles, commercial vehicles), Siasun Robot & Automation chain (automation equipment, home appliance components), medical services, etc; Cyclicals: Building materials (glass fiber), non-ferrous metals (industrial metals, precious metals, minor metals), coal, steel, chemicals (agricultural chemicals, non-metallic materials), power; Consumption: Food processing, retail, home appliances, internet e-commerce; finance: insurance, securities, agricultural commercial banks. Industries with relatively lower gains since November last year include: AI upstream computing power (components, semiconductors), AI middle and downstream applications (consumer electronics, games, software, etc), new energy (batteries, photovoltaic equipment), Siasun Robot & Automation chain (automation equipment, home appliance components), automobiles (motorcycles, commercial vehicles), cyclicals (steel, precious metals, agricultural chemicals), dividends (coal, home appliances, power, shipping ports, agricultural commercial banks), trade and retail (internet e-commerce, retail, etc), securities, etc.