Shenwan Hongyuan Group: Market consolidation may continue after oversold rebound in the second quarter, with focus on key events in May for validation.

Shenwan Hongyuan Group released a research report stating that it reiterates its mid-term judgment on the return of the "two-stage uptrend market". In the short term, there will be an oversold rebound in the market, followed by a period of consolidation and oscillation. There may be a new round of all-time high market in the second half of 2026. In the second quarter, attention should be paid to key events in May for validation; new sources of prosperity, etc. The firm believes that in the next stage, new energy, new energy vehicles, and the export chain may be directions for increasing prosperity validation, which may also lead to independent market trends. In the short term, the direction of theme diffusion market may be interpreted, focusing on commercial aerospace and semiconductors. The main points of Shenwan Hongyuan Group's view are as follows: 1. Reiterate the mid-term judgment on the return of the "two-stage uptrend market". In the short term, there will be an oversold rebound, followed by a period of consolidation and oscillation, and there may be a new round of all-time high market in the second half of 2026. This market bottom is also a style bottom for small-cap growth, with a slow upward trend in the direction that was previously advantageous. A few prosperous structures may demonstrate independent market trends, which is a typical feature of the period of consolidation and oscillation. These few prosperous structures, constrained by market trend rules, may experience a period of consolidation at high levels after short-term concentrated rise reflecting high performance growth. Our medium-term market view is being validated, reiterating our view: under the U.S.-Iran conflict, the macroeconomic situation is converging, and the extremely pessimistic scenario has been largely ruled out. The U.S.-Iran conflict as a stage of the main asset pricing conflict has come to an end, and risk appetite is rebounding from its bottom. The market is returning to the mid-term pattern of "two-stage uptrend market", with a period of consolidation and oscillation likely to continue after the short-term oversold rebound. In the second half of 2026, the market as a whole may break through to the upside and start a new round of all-time high market trend. This market bottom is also a style bottom for small-cap growth. The adjustment of small-cap growth this round has gone through structural offensive to cyclical rotation + HALO trading + asset liquidation triggered by the US-Iran conflict, with relatively sufficient time and amplitude for adjustment. This round of growth style rebound resonates in both the US and China. With the Nasdaq hitting new highs, the A-share Growth Enterprise Market also hitting new highs. This proves that there is a high probability of an upward trend in the mid-term A-share market. For directions that currently lack new catalysts, the lows in absolute and relative returns have already appeared, but the market may take some time to reach new highs, operating on a quarterly level. The Growth Enterprise Market is demonstrating an independent market trend, which is reasonable, but it is also subject to the constraint of the industrial trend market. The short-term increase in the Growth Enterprise Market is in line with high performance growth, and valuation levels have not significantly increased, indicating strong internal stability. By reviewing historical periods of consolidation and oscillation, the main trend of the industry extending + macro narrative expansion still brings high-resilience investment opportunities. However, overall valuation is at a high level, sector connectivity is weak, and with a few prosperous catalysts, the direction of fundamental alpha becomes independent market trend. The pattern of independent market trend remains effective: industrial prosperity validation share price increase, valuation rise short-term price-to-value ratio decline, medium-term valuation constraint revealed market stagnation, sideways oscillation, waiting for important catalysts to determine direction. After the short-term concentrated rise in the Growth Enterprise Market, it is also transitioning to a period of consolidation at high levels. The capital supply and demand environment in the short-term market: ETFs, allocation funds, fixed income + and quantitative instruments constitute the marginal funds that price the "first stage uptrend". At present, the negative cycle of funds triggered by the US-Iran conflict has come to an end, but the short-term incremental inflow is relatively weak compared to the first quarter of 2026: after the rapid contraction in industry ETFs, they have stabilized at the bottom, but overall they have not returned to net inflows, with only individual directional ETFs seeing an increase in size. Allocation funds peaked in the first quarter of the year, and the mid-year saw a season of weak new premiums, leading to a weakening of incremental inflows. After a pulsed contraction, fixed income + quickly rebounded. In the short term, there is only structural incremental inflow, with overall incremental capital weaker than the first quarter of 2026. This incremental fund environment is sufficient to support a rebound, but support for a breakout is slightly lacking. As A-shares quickly return to the core range in the mid-term, they still need a period of consolidation and oscillation. 2. As the first quarter reporting period comes to a close, the market feature of "reality reappearing" requires new anchor points. What should be paid attention to in the second quarter? 1. Validation of key events in May: Trump's visit to China, monetary policy expressions before and after the handover of the chairmanship of the Federal Reserve. 2. New sources of prosperity, focusing on China's supply chain security and energy security, and whether they can transform into prosperity alpha in the export and maritime chain. 3. In the off-earnings season + overall low profit effects, there may be a subsequent phase of active themes and profitable effects spreading in the market. During this A-share earnings verification period, "reality reappearing" is the core market feature. Technology leaders exceeding earnings expectations are the main opportunities. After the earnings season, what should be focused on in the second quarter? 1. At the macro level in the second quarter, there are not many critical validation points. In May, Trump may visit China, constituting a key validation period for geopolitical trends. Before and after the handover of the Fed chair, monetary policy expectations may become clearer. 2. Structural economic highlights still prioritize external demand over internal demand. Even if the improvement in domestic demand continues, there are concerns about its sustainability and it is not likely to bring high-resilience investment opportunities. However, China's supply chain security + energy security may transform into prosperity alpha in the export and maritime chain, validating product price increases and offshore cost pressures. This constitutes an important source of new high prosperity. During the stage when the manufacturing industry has opportunities, the influx of foreign capital + Middle Eastern capital may resonate, enhancing market resilience. 3. Currently, the sectors with large increases in stock prices are concentrated in technology leaders, and the spread of profitable effects is not yet evident. As the first quarter earnings verification period comes to a close, an earnings gap period opens, providing a window conducive to theme market trends. Subsequently, there may be a phase of active themes and spreading profitable effects in the market. 3. After the concentrated rise of the Growth Enterprise Market leaders, they are also beginning to transition to a period of consolidation at high levels. It continues to suggest that in the next stage, new energy, new energy vehicles, and the export chain may be directions for increasing prosperity validation, which may also lead to independent market trends. In the short term, the direction of theme diffusion market may lead to commercial aerospace and semiconductors. After the concentrated rise of the Growth Enterprise Market leaders, reflecting high performance growth, the conditions for a moderate rise in valuation levels in the short term are weak, and the market is also starting to transition to a period of consolidation at high levels. At present, the sector rotation will not stop in its tracks, and the next high-resilience investment opportunities are more likely to come from new subdivided industries with increasing prosperity. We continue to suggest that in the next stage, new energy, new energy vehicles, and the export chain, the validation of prosperity may continue to increase. The effect of "buying prosperity" may be significantly better than the previous "buying hedge" strategy. There may be a phase of theme diffusion market in the future, and as of now, commercial aerospace and semiconductors are the directions in which market consensus is converging and industry ETFs have expanded in size. Risk warning: Overseas economic recession exceeds expectations, domestic economic recovery falls short of expectations.