China Galaxy Securities: A-share market volatility is not a trend shift, focus on three major themes in asset allocation opportunities.

China Galaxy Securities released a research report stating that the recent violent fluctuations in the A-share market are not a trend shift, but a short-term emotional release under the pressure of external factors. The medium- to long-term market trend remains positive. Policy support and fundamental profit potential are expected to take over valuation, becoming the focus of the market. The bank is optimistic about three main themes: first, sectors with short-term certainty in price increases and risk avoidance, such as oil and gas, petrochemicals, coal, non-ferrous metals, and shipping ports. Second, sectors with improved supply and demand patterns and industry profit recovery logic, as well as dividend assets with safe margins in valuation, recommend focusing on basic chemicals, steel, building materials, finance, and other sectors. Third, new productive forces such as storage, computing power, consumer electronics, communication equipment, communication services, semiconductors, and military industries in the focus areas of the "Fourteenth Five-Year Plan." In terms of the consumer sector, it is recommended to focus on sectors with strong domestic and international demand expectations, such as light industry, textiles and clothing, household appliances, and agriculture. The main points of China Galaxy Securities are as follows: Market fluctuation characteristics-sector differentiation: In the recent period, the A-share market has seen a significant increase in volatility, mainly driven by geopolitical risks, market structure differentiation, and fund contests, manifested by index wide fluctuations, extreme sector differentiation, and continuous increase in trading volume. Has the investment environment of the A-share market changed? It can only be said that the external environment has changed, but the internal factors of the A-share market have not shifted, and the market is still interpreting the situation from the perspective of "me first." Firstly, geopolitical factors have a strong impact on the market. The conflict between the US and Iran may push the US dollar index higher in the short term, suppressing global markets. Secondly, from a liquidity perspective, the expectation of the RMB's active appreciation has increased since the beginning of the year, and the long-term expectation of a stronger RMB exchange rate remains unchanged. Thirdly, from a policy perspective, with the "Two Sessions" approaching, policy drivers may comprehensively increase towards the market. Deconstruction of the core logic of the violent fluctuations in the A-share market: The fluctuations in the A-share market are not driven by a single factor, but the result of the resonance of external geopolitical shocks and market structure differentiation. The direct cause of the short-term fluctuation is external shocks and trading structure adjustments. In the medium to long term, the market is still dominated by domestic economic fundamentals and policy orientation, maintaining a logic of short-term fluctuations along with a long-term upward trend. The continuous escalation of the Middle East geopolitical situation in the recent period has become the direct trigger for the short-term fluctuations in the A-share market. The escalating market structural differentiation has accelerated the style switching. The market has transitioned from an index beta market driven by "emotional recovery + risk premium compression" to a structural alpha market driven by "profit structure + fund structure." The "positive factors" of the A-share market: Firstly, internal logic, policy support and the foundation of an "independent market" provide support, as the market is about to enter the "Two Sessions" period, with a high probability of warm policy tone; under the backdrop of global order restructuring, international capital is seeking a "safe haven"; the RMB is maintaining a relatively strong trend, and the attractiveness of Chinese equity assets is increasing. Secondly, fundamental logic, profits are expected to take over valuation and become the focus of the market. Prospects for investment opportunities in the A-share market: The violent fluctuations in the A-share market are not a trend shift, but a short-term emotional release under the pressure of external factors. The medium to long-term market trend remains positive, and the market will gradually shift from being driven by "emotions" back to being driven by "fundamentals," showing a pattern of "digesting fluctuations, increasing momentum, and focusing on structure." Firstly, in terms of policies, there will be continued efforts as policy dividends will be concentrated during the "Two Sessions" period, providing a clear directional focus for the market; secondly, the foundation for domestic economic recovery is gradually solidifying, and corporate profits are expected to continue to improve, providing fundamental support for the market; thirdly, currently A-share valuations are still at reasonable levels, and long-term funds are gradually entering the market, clarifying the medium- to long-term positive trend of the market. In terms of allocation opportunities, it is recommended to focus on: first, sectors with short-term certainty, such as rising prices and risk avoidance. If geopolitical conflicts are difficult to resolve in the short term, global physical assets are undergoing a revaluation process. The tension in the Strait of Hormuz has directly driven the strengthening of energy and alternative demand. Oil and gas, petrochemicals (direct beneficiaries of rising oil prices), coal (substitution logic); non-ferrous metals (copper, aluminum, gold, benefiting from inflation expectations and safe haven demand); shipping ports (surging freight rates and route restructuring). Second, sectors with improved supply and demand patterns and industry profit recovery logic, as well as dividend assets with safe margins in valuation, recommend focusing on basic chemicals (expectations for improved performance margins, such as chemical products, raw materials, and agricultural chemicals), steel, building materials, and finance (especially banks). Third, China's domestic economy is transitioning to new quality production forces, and sectors such as storage, computing power, consumer electronics, communication equipment, communication services, semiconductors, and military industries in the focus areas of the "Fourteenth Five-Year Plan" are worth paying attention to. In addition, in terms of the consumer sector, it is recommended to focus on sectors with strong domestic and international demand expectations, such as light industry, textiles and clothing, household appliances (strong overseas expectations), and agriculture. Risk warning External uncertainty risks; policy risks due to unexpected events; market instability and continuous adjustments in liquidity.