Hua Jin Strategy: Has the spring market ended?

Reviewing history, the sustainability of the spring market is mainly influenced by policies, external events, liquidity, and fundamentals. Market sentiment overheating and industry rotation completing can also lead to the end of the rally. (1) The market lasts for about 34-65 trading days. (2) The longevity of the spring market is primarily affected by policies, external events, liquidity, and fundamentals. First, the end of the spring rally is heavily influenced by policies and external events. Second, loose liquidity is a key driver for the continuation of the spring market. Third, marginal improvements in fundamentals may lead to a longer-lasting and stronger spring rally. (3) Overheated market sentiment and completed industry rotation can also signal the end of the rally. First, overheated sentiment may cause the market to top out. Second, industry rotation completing is also a sign of market peak: typically, technology leads the spring rally first, followed by rotation into consumer and financial sectors. (4) The first year of a five-year plan’s opening may see the spring rally continue until after the Two Sessions, with relatively less impact from economic data, external events, and liquidity, mainly influenced by industrial corporate profits and policies.

Currently, the A-shares spring market may continue in the short term. (1) Short-term policies may remain relatively positive, and external risks could marginally decline. First, domestic policies are likely to stay positive in the short term: firstly, macro policies are set with an optimistic tone at the Two Sessions; secondly, industrial policies emphasize technological innovation and expanding domestic demand, with further policy implementation expected. Second, external risks may marginally ease: firstly, US-Iran tensions have somewhat eased, especially with alternative oil transportation options emerging; secondly, President Trump may visit China at the end of the month, potentially improving US-China relations in the short term. (2) Liquidity may remain loose in the short term. First, macro liquidity is expected to stay accommodative: the Federal Reserve may cut interest rates again this year, and the US dollar index could remain low and volatile in the short term; secondly, central banks may continue to lower reserve requirements and interest rates. Second, stock market funds may continue to flow in at a certain level. (3) Short-term earnings expectations may keep improving, and the spring rally could extend until after the Two Sessions. First, the economy may continue its weak recovery in the short term. Second, earnings expectations may further improve. Third, as the first year of a five-year plan, historical experience suggests that profit rebounds and policy support could sustain the spring rally past the Two Sessions. (4) Market sentiment indicators and industry rotation data show that the short-term spring rally is not over. First, indicators like gains, turnover rate, and trading volume have not reached extreme levels. Second, industry rotation is still ongoing: consumer and financial sectors lag in gains and have not yet experienced a clear rebound.

Industry allocation: continue focusing on technology growth and cyclical sectors in the short term. (1) After the Two Sessions, technology growth and cyclical industries may outperform. First, historical review shows that from the end of the Two Sessions to the end of the spring rally, sectors with strong policy support and high earnings growth tend to perform better. Second, currently, after the Two Sessions, technology growth and cyclical sectors may be relatively favored: firstly, these are sectors supported by short-term policies; secondly, their profits may continue to improve. (2) After US-Iran tensions, main sectors like technology and cyclicals may regain favor. First, historical data shows that within 5-30 trading days after US-Iran conflicts, sectors with policy support and upward industry trends tend to outperform. Second, in the short term, technology and cyclical sectors may reassert their advantage: firstly, these sectors are likely to continue benefiting from policy support; secondly, metals, chemicals, and other cyclical industries may see short-term prosperity, while AI-driven demand continues to push technology growth upward. (3) Short-term investment advice: continue to buy on dips in sectors with policy and industry support such as electronics (semiconductors, AI hardware), new energy (AI power, energy storage), communications (AI hardware), non-ferrous metals, chemicals, military industry (commercial aerospace), machinery (robots), media (AI applications, gaming), computers (AI applications), and pharmaceuticals (innovative drugs); also consider sectors with potential for rebound and marginal fundamental improvement like non-bank financials and consumer sectors.

Risk warning: past experience may not apply in the future, policy surprises, and economic recovery falling short of expectations.

(Source: Huajin Securities)