Zheshang Strategy: New momentum drives revaluation of traditional industries, with a market value + pro-cyclical combination capable of both offense and defense

Core Viewpoints

Due to factors such as the nomination of the new Federal Reserve Chair, changes in AI narratives, rising geopolitical concerns, and uncertainties around US tariffs, global technology assets are experiencing increased volatility. Recently, A-shares sectors have been rotating more rapidly, and trading styles have become more uncertain. The spring rally may be nearing its end, with medium- to short-term movements likely to be characterized by slight strength and oscillations. In terms of style rotation, focus on large-cap value sectors with pro-cyclical attributes. Industry allocation suggests that technology is driving a reassessment of traditional capacity values. It is recommended to focus on a balanced “large-cap value + pro-cyclical” strategy: one part benefiting from global resource nationalism and AI capital expenditure, such as coal, oil, chemicals, transportation, non-ferrous metals, electricity, machinery; the other part being technology manufacturing sectors with ongoing prosperity validation, such as communications and new energy.

Summary of Content

1. Style Rotation: Market Cap Focus, Valuation Toward Value, Industry Focus on Pro-Cyclicality

1. Market cap (size) style: Large-cap (CSI Large Cap) > Mid-cap (CSI Mid Cap) > Small-cap (CSI Small Cap); the style may favor large caps.
2. Valuation style: Value indices outperform growth indices overall; valuation style leans toward value.
3. CITIC industry style: Consumption > Cyclical > Financials > Stable > Growth; pro-cyclical styles (consumption + cyclical) are expected to be relatively stronger. Overall, by March 2026, focus on large-cap value sectors with pro-cyclical attributes.

The HALO trading indicator is heating up, emphasizing physical assets. AI technological innovation is advancing rapidly, with high barriers, difficulty in substitution, and physical foundations essential for technological development (e.g., power grids). Tech giants’ CAPEX is rising sharply; whether this will generate high returns remains uncertain, but traditional heavy-asset infrastructure companies may see valuation revaluation.

In the first year of the five-year plan, prices tend to rise easily, benefiting pro-cyclicality. As 2025 marks the start of the “14th Five-Year Plan,” price recovery may be relatively smooth, mainly because:

1. Major projects typically start in the early stages of the plan, boosting fixed asset investment growth;
2. Fixed asset investment growth slowed to -3.8% in 2025, with the economic work conference emphasizing “stabilizing investment”;
3. Historically, PPI tends to rise strongly in the first year of a five-year plan.

Additionally, recent global commodity prices have continued to rise, domestic capacity utilization has begun to recover, and the “anti-involution” sentiment remains strong, making price increases and spread logical.

“Blood flow, rising body temperature”: M1 money supply was strong early on, and with lag effects, PPI is expected to continue warming. M1 usually leads PPI by about six months; the PPI is still about two months away from its previous high, and M1 has shown slight recovery amid fluctuations, indicating a general upward trend. PPI recovery strongly guides net profit growth of listed companies; since Q3 2025, with PPI rising steadily, the net profit growth of the entire A-share market has also been upward.

2. Industry Allocation: Under the Surface of Cyclical and Tech Strengths, New Drivers Drive Traditional Industry Revaluation

Based on industry scoring, the top ten industries are coal, oil and petrochemicals, basic chemicals, communications, transportation, non-ferrous metals, non-bank financials, utilities, power equipment, and machinery.

Combined with fundamentals, technology is driving a reassessment of traditional capacity values. It is recommended to focus on a balanced “large-cap value + pro-cyclical” portfolio: one part benefiting from global resource nationalism and AI capital expenditure, such as coal, oil, chemicals, transportation, non-ferrous metals, electricity, and traditional machinery; the other part being technology manufacturing sectors with ongoing prosperity validation, such as communications, new energy (space photovoltaics), and robotics (humanoid robots).

3. Next Month’s Sector Allocation Advice: “Large-Cap Value + Pro-Cyclicality” Balanced Strategy

In the coming month, style may favor large-cap value, with a relatively optimistic outlook on sectors with pro-cyclical attributes. Industry focus should be on consumption and cyclical sectors. The recommended allocation emphasizes a balanced “large-cap value + pro-cyclical” approach: one part benefiting from global resource nationalism and AI capital expenditure, such as coal, oil, chemicals, transportation, non-ferrous metals, electricity, and machinery; the other part being technology manufacturing sectors with proven prosperity, such as communications and new energy (space photovoltaics).

4. Risk Warning

Subjectivity in model design, short or lacking backtesting periods, unsustainable excess returns, high turnover rates that are unachievable or meaningless, and errors or abrupt changes in consensus forecast data.