CITIC Construction Investment: The core momentum that has been driving the current bull market has weakened.

The CICC Securities Research Report points out that currently, due to the outbreak and continued escalation of the US-Iran war, the weak US dollar assumption is facing challenges. In a high oil price environment, the expectation of a Fed rate cut has drastically changed, therefore, the core momentum that has been driving this bull market has been weakened. As we pointed out in our annual strategic outlook, in the second half of the bull market, the market will shift from rising valuations to rising earnings. If earnings growth expectations remain strong, the A-share bull market is likely to continue. However, before earnings growth expectations are confirmed, the market will face a painful transition from rising valuations to earning profits. Sectors that may be significantly affected under the backdrop of a sharp increase in global energy prices and suppressed consumption include: high valuation sectors, high energy-consuming industries, and industries where demand is suppressed and costs are rising. Three directions are favored: 1) industries benefiting from the closure of the Strait of Hormuz and long-term high oil prices, such as coal chemical industry, new energy, energy storage, nuclear power, and power grid; 2) defensive varieties with stable cash flow, such as coal and hydropower; 3) areas of certain growth potential that are easily overlooked, such as the AI price increase chain and power shortage chain.