Song Xuetao: Two main trends in the market this year

Since the beginning of 2026, the A-share market has continued to interpret a "good start" trend, with the total increase of the Wind Full A reaching 5.2% and the average daily turnover exceeding 3 trillion yuan. Among them, the Science and Technology Innovation 50, the CSI 500, and the CSI 2000 led the gains, with cumulative increases of 11.9%, 11.3%, and 9.6% respectively, showing the characteristic of technology and small and medium-sized companies outperforming large companies. In terms of sector performance, media, computer, non-ferrous metals, and military industries led the gains, with increases of 16.0%, 14.0%, 14.0%, and 9.0% respectively since the beginning of the year, reflecting the current market's focus on "AI and geopolitics." The AI-driven trend is extending from upstream computing power infrastructure to downstream AI applications, with geopolitical conflicts in countries like Venezuela and Iran catalyzing the non-ferrous metal and military sectors. The impact of AI is not only reflected in the trend of the A-share market but also in the marginal changes in macroeconomic indicators. In December 2025, China's PPI rose by 0.2% month-on-month, achieving an increase for the third consecutive month and marking the highest month-on-month increase since 2024. AI's contribution to the improvement of PPI cannot be ignored, mainly reflected in the price increases of non-ferrous metals and tech components. Looking at non-ferrous metals, in December 2025, the prices of non-ferrous metal ore mining and selection, as well as non-ferrous metal smelting and processing, increased by 3.7% and 2.8% respectively month-on-month. In addition to geopolitical factors, the rapid increase in demand for electricity brought by AI significantly boosted the prices of two types of non-ferrous metals: materials such as copper, silver, tungsten, tantalum, and aluminum as well as energy carriers like lithium, cobalt, and nickel. Looking at tech components, in December 2025, the prices of external storage devices and components, as well as integrated circuit products, increased by 15.3% and 2.4% respectively. The higher-end AI-related chips are occupying more advanced manufacturing resources, objectively squeezing the available production capacity of other types of chips, exacerbating structural tension. Samsung Electronics and SK Hynix plan to raise server DRAM prices by 60%-70% in the first quarter of 2026, a significant increase compared to previous memory chip cycles. Additionally, the implementation of the "anti-internal loop" policy has also promoted the reversal of PPI. In December 2025, the price of lithium-ion battery manufacturing increased by 1.0%, the price of new energy vehicle manufacturing changed from a 0.2% decrease to a 0.1% increase, and the price reduction of photovoltaic equipment and components narrowed by 0.4 percentage points from November. The improvement in PPI reflects the strategic choices made by China and the U.S. in the current global macroeconomic context, which are expected to be the two main themes in the pricing of A-shares in 2026. One theme is "AI and geopolitics," corresponding to the U.S. seeking growth through technology and geopolitics, finding "new qualitative productivity" in a stagflation environment to make "America great again." The other theme is "anti-internal loop," corresponding to China seeking momentum through reform, deepening fiscal and tax system reforms and income distribution reforms, promoting the construction of a unified large market and transitioning local government development models, accelerating industrial transformation and upgrading to achieve high-quality development. The current market has yet to fully price in the "anti-internal loop," entering a new phase in 2026. On January 13th, People's Daily published an article by "Zhong Caiwen" titled "Profoundly Grasping the 'Five Musts' to Promote a Good Start to the '15th Five-Year Plan'," proposing to "thoroughly rectify 'internal loop'-style competition in some areas to promote high-quality and fair competition" and "strengthen the regulation of key industry capacity, implement the exit of operating entities in accordance with laws and regulations." Compared to the Central Economic and Financial Affairs Commission's sixth meeting proposal of "promote the orderly exit of outdated capacity," Zhong Caiwen's proposal of "implement the exit of operating entities in accordance with laws and regulations" signifies that the anti-internal loop is extending from capacity control to operating entities, indicating that the anti-internal loop is entering a phase of accelerated advancement. Recent policy changes have made the execution strategy of the "anti-internal loop" on the industrial and government sides clearer. At the industrial end, the core of the "anti-internal loop" is "high quality and fair pricing." On December 26, 2025, the State Administration for Market Regulation emphasized the importance of "insisting on high-quality and fair pricing in photovoltaic projects, and strengthening requirements for product quality." On January 7, the Power and Energy Storage Battery Industry Symposium convened by the NDRC and four other departments highlighted that "there is blind construction within the industry, irrational competition such as low-price competition," and called for "increased supervision and inspection of production consistency and product quality," as well as "strengthened price law enforcement checks" and the "establishment of cost-based monitoring mechanisms to detect and correct abnormalities." At the government end, the essence of the "anti-internal loop" is the transformation of the performance view and development model of local governments. The construction of a "unified large market" requires local governments to stop illegal subsidies, grants, and various small policies for investment attraction, ensure fair competition at the systemic level, and eliminate obsolete capacity. This is not only a key aspect of deepening reforms but also the cornerstone of achieving economies of scale and efficiency breakthroughs in the manufacturing industry in China. The gradual removal of export tax rebates on products like photovoltaic products at the national level is a manifestation of the "anti-internal loop." The Ministry of Finance and the State Taxation Administration recently announced the cancellation of value-added tax export rebates for photovoltaic products starting from April 1, with the VAT export rebate rate for battery products lowered from 9% to 6%, and from January 1, 2027, the cancellation of VAT export rebates for battery products. The removal of export tax rebates is conducive to strong competition from leading companies with technological advantages through price increases to offset costs. At the same time, it keeps the financial resources that were previously used to subsidize overseas consumers inside the country for more investment in people's livelihood areas and government debt clearance, expanding domestic demand and the domestic consumption market. Since last year, some local governments have started to practice the "anti-internal loop." For example, Chongqing has implemented a "first talk pre-filing" mechanism to set a protection period for major projects at the municipal level, guiding districts and counties to shift from "competing for land and taxes" to "competing for industrial chains and ecology." Jiaozuo City in Henan proactively abolished preferential policy documents that contradicted higher-level laws; Handan District in Weifang City, Shandong, resolutely implemented the "double no return" system for land transfer fees and taxes, completely filling the "policy gap." Guangxi has implemented a three-level "double review" work method for fair competition checks, rigorously reviewing and clearing new policy documents to prevent the issuance of policies containing local protectionist content from the source. Guangxi also launched a special anti-monopoly operation, investigating various unfair competition cases, establishing a cross-provincial (Guangdong-Guangxi-Hainan) law enforcement coordination mechanism, and building a long-term regulatory network to prevent market segmentation and a rebound in the internal loop. The practices of local governments in regulating investment attraction collectively point to one thing: the core advantage of regional investment competition is shifting from unsustainable policy concessions to sustainable business environments and professional service capabilities. Additionally, recent actions at the central level to strengthen antimonopoly and anticompetitive behaviors show a strengthening of efforts towards the "anti-internal loop." The most representative action is the State Administration for Market Regulation summoning six leading silicon material companies and the photovoltaic industry association, prohibiting them from agreeing on production capacity, capacity utilization rate, production-sales volume, and sales prices, and also avoiding market division, production distribution, and profit sharing through capital ratios in any form. The reinforcement of antitrust actions precisely illustrates that the "anti-internal loop" is not about "raising prices to reduce capacity" or allowing leading companies to squeeze out the survival space of other companies through monopolistic positions. Instead, it aims to accelerate the elimination of outdated capacity under the premise of fair competition, enhance industry concentration and the market share of leading companies, strengthen the pricing power of high-quality companies, and ultimately establish a market order of high quality and fair competition. When profits of leading companies rise due to the return of pricing power, price signals will be transmitted through PPI sub-items, forming a virtuous cycle of profit-driven research and development and quality improvement. This is also the time window for the main theme of the market pricing of the "anti-internal loop." This is not just an administrative directive but also a necessary requirement for the high-quality development of the economy and the transformation of industry towards global competitiveness, aiming to empower leading companies to conduct research and development and investment and drive further improvement in the competitiveness of the entire industrial chain.