CITIC SEC: Focus on chemical industry, new energy and other directions under extreme group- holding market.

CITIC SEC released a research report stating that since 2007, there have been 8 extreme clustering periods, with the current duration ranking second. From the perspective of winning rate, industries that are neither popular nor being siphoned off should be the focus of exploration. Sectors that are most opposite to popular industries are not necessarily the best performers after the clustering peak. Popular industries are widely recognized because of their high prosperity, while industries being siphoned off may have a deviation in prosperity. Industries being siphoned off are not necessarily significantly underestimated; it only indicates that the possibility of short-term position clearing is more thorough, making it easier to benefit from high cutting and low buying. However, high cutting and low buying are not necessarily the characteristics that occur after the clustering peak. In the medium to long term perspective of 6 months, industries that outperform often require both good fundamental prosperity and chip structure. Currently, typical industries that possess these characteristics include chemical industry, new energy, domestic computing power, non-ferrous metals, and power equipment. After the clustering market ends, excess often appears in non-popular industries, rather than sectors that are most opposed to popular industries. 1) Since 2007, there have been 8 extreme clustering periods, with the current duration ranking second. Using the crowding index, CITIC SEC identified the 8 extreme clustering periods since 2007. In terms of duration, the highly concentrated state of the current market has lasted for 8 months, second only to the period from December 2020 to October 2021, ranking second in history. However, when looking at the peak and average value of the market share of top companies, the current situation is still weaker than other historical industry trends. The high market discussion intensity may only be due to the higher level of information dissemination and homogenization in the AI era than before. CITIC SEC analyzed the performance of various industries after the end of the 7 previous clustering periods in 3 months (60 trading days) and 6 months (120 trading days). Industries were categorized into popular, siphoned off, and others (equivalent to cold varieties that have not been significantly siphoned off). Looking at the top ten industries in terms of performance after the clustering period, the proportion of other industries is significantly higher than that of popular or siphoned off industries, accounting for nearly seventy percent in the next 3 and 6 months. From the perspective of winning rate, industries that are neither popular nor being siphoned off should be the focus of exploration. 2) Sectors that are most opposite to popular industries are often not the best performers after the clustering peak. Popular industries are widely recognized because of their high prosperity, while industries being siphoned off may have a deviation in prosperity. Industries being siphoned off are not necessarily significantly underestimated; it only indicates that the possibility of short-term position clearing is more thorough, making it easier to benefit from high cutting and low buying. However, high cutting and low buying are not necessarily the characteristics that occur after the clustering peak. In the medium to long term perspective of 6 months, industries that outperform often require both good fundamental prosperity and chip structure. Currently, CITIC SEC believes that chemical industry, new energy, domestic computing power, non-ferrous metals, and power equipment are typical industries that possess these two characteristics. Attention should also be paid to the decline in commodity volatility, the return of fundamental pricing funds, and the continuous rise in commodity prices. In the past period, the fall in oil futures prices reflects the "systematic distortion" of the financial market's micro-structure under extreme volatility. At the peak in April, the spot price of Brent crude oil surged to around $132.5, while the price of the near-month futures contract settled at only $103.4, resulting in the highest price difference in nearly a year. The spot price reflects the reality of a sharp drop in transshipment volume through the Strait and a rapid decline in global visible inventory, while the futures price is more of a product of fund flows and trading. By analyzing the implied volatility of Brent crude oil and the net long positions of managed money (MM) in the CFTC-calculated crude oil, it can be seen that after the conflict broke out, the implied volatility of Brent oil quickly rose from under 40% to a high of around 114% in early April. However, MM's net long positions only slowly increased to 96,000 contracts in mid-March, and then, as volatility increased even further, MM's net long positions did not rise but fell, dropping to 73,000 contracts. It was not until the latest week (the week of April 14) that the volatility dropped from 114% to 75%, and MM's net long positions spiked by nearly 20,000 contracts to 98,000 contracts in a single week. Under the constraints of the volatility target strategy, the higher the volatility, the smaller the allowable nominal position. Consequently, when funds are forced to reduce positions due to risk control rules at the most tense fundamental times, they are unable to truly reflect the severity of the supply-demand gap. For investors accustomed to using commodity futures prices as references for equity investments, this distortion is particularly dangerous as it may lead to the systematic underestimation of the true economic impacts of supply interruptions. From a dynamic perspective, if the US-Iran negotiations reach a conclusion and the Strait gradually reopens, the short-term supply-demand gap may actually widen. According to the IEA's April report on the international oil market, visible global oil inventories decreased by 85 million barrels in March, with a particularly high decline of 205 million barrels outside the Middle East region. It is expected that crude oil inventories in Asian petroleum importing countries will further decrease in April. Apart from the direct impact on transportation terminals, there is also an additional market-driven behavior of "actively destocking," where refineries and traders anticipate the end of the blockade, proactively sell the stored goods at hand, and plan to replenish at lower prices once supply returns. This strategy is based on the assumptions that the blockade will end soon and that supply will quickly recover after the reopening. However, in reality, even if the Strait reopens, due to the gradual process of resuming production, oil tanker sailing cycles, and logistical restrictions such as pipeline speed limits, the recovery of the supply chain will inevitably be a slow and gradual process. At that time, market participants with cleared inventories will find themselves unable to immediately purchase abundant goods at low prices, coupled with the increased demand from refinery re-openings and the potential initiation of precautionary strategic reserves by various countries. The pulse on the demand side may actually significantly amplify the supply-demand gap in the short term. In such a scenario, if the futures market volatility begins to moderate, fundamental-driven funds that were forced to reduce positions in a high-volatility environment may begin to flow back, pushing up the prices of petrochemical products, leading to a situation where US-Iran negotiations reach a conclusion but commodities do not fall but rise. When the market truly begins to price the economic impacts of the blocked navigation, the sustained price increases and unexpected profits caused by the supply-demand gap will become the core clues. Based on publicly available information, CITIC SEC has identified 17 areas where sustained supply-demand gaps may occur, and the impacts in some industries may last for several years. Qatar Energy predicts that the impact of the destruction of Qatar's Ras Laffan LNG production capacity will last for 3-5 years, Reuters forecasts a gap in Gulf refinery product exports for 0-2 years, Argus Media expects a gap in Gulf phosphorus fertilizers/DAP for 1 quarter, and IAI predicts that the decline in Gulf aluminum production will affect 2-6 quarters. Furthermore, factors such as the export gap of Middle Eastern ethylene/propylene, the interruption of Iranian methanol exports, the deficit in Gulf urea exports, the disruption of the Asian helium supply chain, and the revaluation of uranium/nuclear fuel supply that is highly dependent on the recovery of Ras Laffan LNG capacity, are closely related to wheat and fertilizer production risks as well as the deficits in urea and phosphorus fertilizers, with the disturbance duration also expected to be long. In addition, factors such as the structural shortage of light sweet crude oil, the import gap of Asian LPG, the supply gap of Asian PX/PTA, VLCC freight rates, LNG new ship prices, and Gulf war insurance quotes depend on the situation in the Strait, with significant uncertainty in the duration of the disturbance. Based on the potential supply-demand gap and logic mentioned above, CITIC SEC has selected stocks that are expected to benefit from the sustained price increases and improved profit expectations. These stocks are mainly distributed in the energy sector (14 companies), petrochemical and chemical industry (13 companies), shipping and logistics (13 companies), metal mining (10 companies), agriculture (3 companies), covering both A and H shares of listed companies. The domestic supply-side policy should not be ignored, with "energy conservation and carbon reduction" and "assessment methods for peak carbon reaching" being two key documents in recent times. On April 22, the General Office of the CPC Central Committee and the General Office of the State Council announced the "Opinions on Doing a Better Job in Energy Conservation and Carbon Reduction at a Higher Level and Higher Quality," which may restrict the expansion of high-energy-consuming industries (such as steel, non-ferrous metals, petrochemicals, chemicals, building materials) and potentially accelerate transformation, benefitting green technologies, new energy, and energy conservation and environmental protection. On April 23, the General Office of the CPC Central Committee and the General Office of the State Council jointly issued the "Comprehensive Evaluation and Assessment Method for Carbon Peaking and Carbon Neutrality," which for the first time incorporates double control requirements for carbon emissions into the Party's internal regulations, marking the transition of double carbon work from the top-level design stage to the stage of institutional rigid constraints. The two aforementioned documents have clear policy directions, with the "Opinions on Energy Conservation and Carbon Reduction" pointing out the path and methods, while the "Assessment Method for Carbon Peaking" puts pressure on local government officials. The release of these two documents may also be related to the current international situation and macroscopic background. In fact, the documents make very strict demands on the expansion of production capacity corresponding to the consumption of petrochemical energy and products, which are both necessary for "carbon peaking" and a precautionary measure under extremely complex global geopolitical structures and supply chain interruption threats. After the short-term cooling off from the Middle East impact, the market may increase its expectations for the duration of the global supply-demand gap in the petrochemical sector. This is somewhat similar to the control of coal safety production and thermal power installation after 2020, but this time it needs to be viewed from the perspective of the global market. Neither popular nor opposing, actively seek out varieties with supply-demand gaps The recent A-share market has a high degree of concentration, and there is a clear opposition and mutual exclusion between the optical communication sector and the consumer sector. However, based on historical experience, sectors that are most opposed to popular industries are often not the best performing directions after the clustering peak. CITIC SEC believes that attention should be paid to the return of basic pricing funds and commodity prices rising after the decline in commodity volatility; when the market truly begins to price the economic impacts of the blocked navigation, the sustained price increases and unexpected profits caused by the supply-demand gap will become core clues. The underlying logic of allocation is still the reevaluation of China's dominance in manufacturing pricing, with the most representative industries being new energy, chemicals, non-ferrous metals, and power equipment. It is important to closely monitor the progress of domestic AI, as the logic of hardware "quantification" may erupt as a direction with a significant difference in expectations on the AI chain. While the introduction of DeepSeek V4 may not have sparked as much excitement as the V3 and R1 versions, domestic models have transitioned from being "usable" to being "good to use". With the mass production of domestic hardware in the second half of the year (as hinted at in official documents for the Ascend super node), there is a gradual shift from being "easy to use" to "good to use and affordable", forming an open-source ecosystem. The gap between domestic models and top-notch overseas models is no longer the core issue; "ease of use" and volume and price are the factors worth observing in the second quarter of 2026. Furthermore, it is recommended to continue adding some undervalued varieties, with a focus on securities firms and insurance companies. For cyclically rising commodity varieties, they may be impacted by changes in oil futures prices in the short term, but blockades in waterways, accumulation of shortages in spot markets, and the spread of disruptions to supply chains are all real occurrences. Market desensitization is apparent, but in the long run, these facts will be priced in. In this regard, it is still necessary to closely monitor these developments.