Dongwu Strategy: Hold Coins for the Holiday or Hold Stocks for the Holiday?

The “Spring Festival Effect” Pattern in History

Historically, the A-shares exhibit prominent “Spring Festival Effect” characteristics. We reviewed the market performance around the Spring Festival over the past 20 years and summarized four patterns:

First, in terms of trading volume, there is a “decrease before the festival and rebound after.” Historical data shows that trading volume usually begins to decline around T-8 days (T being the Spring Festival, same below) before the festival. This cycle also aligns with current market behavior—this Wednesday became a watershed for volume, with total A-share trading amounts on Thursday and Friday falling below 2.5 trillion yuan, approaching the 2 trillion level. Based on past experience, the volume contraction trend generally continues until the first trading day after the festival, with the volume center significantly rising from T+2, market enthusiasm returning, and liquidity gradually recovering.

Second, in terms of overall trend, the week before the festival is the best window for index positioning, with around five days before the festival often marking a turning point for rebounds. A review of the Spring Festival market since 2006 shows that after a period of fluctuation and consolidation, indices typically begin a trend rebound about five trading days before the festival; in terms of the continuation of the rebound, the trend usually lasts until around T+6 after the festival, with the index showing a clear upward trend, though the slope of the rise gradually slows down.

Third, in terms of style, there is a prominent reversal between large-cap and small-cap stocks around the Spring Festival. Before the festival, large-cap stocks outperform small caps, and growth stocks generally outperform value stocks; after the festival, small and micro caps tend to outperform large caps again. From the perspective of win rates and average returns over intervals, the style reversal effect between large and small caps is especially significant. Five or ten trading days after the festival, the average excess return of the China Securities Index 1000 relative to the SSE 50 reaches 4.1%/6.0%, and the Wind Micro Cap Index relative to the SSE 50 reaches 4.7%/7.1%; meanwhile, the return differential between growth and value styles is relatively moderate. Further dissection of specific styles shows that before the festival, financials, consumer sectors, and growth styles have higher win rates and odds; after the festival, the market style shifts toward cyclicals and growth.

Fourth, in terms of industry performance, industries that historically perform well before the festival include non-ferrous metals, automobiles, chemicals, pharmaceuticals, and power equipment; industries that perform relatively well after the festival include environmental protection, electronics, media, and agriculture, forestry, animal husbandry, and fishery.

How to Understand the “Spring Festival Effect”?

On one hand, overall trading psychology tends to be subdued before the festival, while post-holiday work resumption “reinvigorates” the market. From the perspective of capital attributes, the “Spring Festival Effect” is also closely related to the participation level of active funds. Funds tend to retreat before the festival and warm up afterward. This characteristic is mainly reflected in three aspects: first, the changes in volume and turnover center before and after the festival; second, in terms of market style, small and micro caps are relatively under pressure before the festival due to lack of active capital support, but rebound after the festival as active funds flow back; third, the market sentiment index, which is based on stocks that hit daily limit-ups or limit-downs in the past five trading days, shows a win rate of only 33% in the five days before the festival and 25% over ten days, but a 100% win rate after the festival, directly reflecting low active fund bullishness before the festival and a significant warming afterward.

On the other hand, the pattern of the index declining first and then rising before the festival can also be understood from the perspective of capital behavior: during the long holiday, uncertainties in overseas macro events lead some funds to exit before the festival to avoid potential risks, causing a temporary weakness in the market; as participants deepen their understanding of the “Spring Festival Effect,” some funds prefer to position early and speculate on the rebound after the festival to gain an advantage, which often results in market rebounds occurring in the last few trading days before the festival.

Market Outlook: The Main Index Is Expected to Continue Setting New Highs This Year

Recently, the market has been oscillating and weakening under the influence of overseas liquidity shocks and collective adjustments in U.S. tech stocks. Regarding overseas liquidity, the “Wash Trade” has impacted the market. On January 30, the most crowded commodities, such as non-ferrous metals, experienced sharp corrections, with deleveraging in futures tightening liquidity and further transmitting to the equity market. The trigger for this overseas liquidity shock was the “Wash Trade.” On January 30, Trump nominated Waller as the next Federal Reserve Chair. Waller is known for his hawkish stance, emphasizing Fed independence and explicitly opposing long-term quantitative easing and fiscal monetization, which loosened the previously supporting long-term structural logic of a weak dollar. Coupled with unexpectedly high U.S. inflation data, market expectations for rate cuts were further weakened, leading to a rebound in the dollar and marginal tightening of global liquidity. In terms of U.S. stocks, the AI narrative faces renewed challenges. First, after Anthropic launched new tools, related AI application companies (like Thomson Reuters) weakened significantly, highlighting the impact of “technological progress swallowing old applications.” Second, the latest earnings reports from North American tech giants like Google and Amazon provided better-than-expected capital expenditure guidance, further raising concerns about the sustainability of AI investment returns. Third, technical disputes re-emerged in the computing power and communication sectors, with market interpretations leaning bearish, impacting the chain and suppressing market risk appetite. Under these influences, the A-share main index adjusted with reduced volume, and the tech chain was generally under pressure, showing disorderly rotation.

Looking ahead, we believe the two main factors suppressing the market may reverse. Regarding overseas liquidity, the “Wash Trade” is expected to see a reversal. Currently, the market may have overinterpreted Waller’s hawkish stance; in fact, Waller is not solely “hawkish or dovish.” His call for balance sheet reduction mainly opposes the Fed’s previous unlimited balance sheet expansion, and he believes inflation is caused by government policies, so shrinking the balance sheet can indirectly pave the way for rate cuts. Additionally, from the nomination background, Trump’s core consideration in nominating Waller was to push for rapid rate cuts, and Waller is likely to cooperate with Trump’s policies. Therefore, the current market pricing of dollar liquidity tightening may be overly aggressive and could reverse. Moreover, the recent volatility in futures like silver and gold has decreased, and the impact of futures deleveraging on liquidity has weakened. Regarding the AI narrative, we understand that the recent adjustments in the tech sector are essentially due to a decline in market risk appetite. Investors tend to interpret new information negatively, amplifying narrative flaws or divergences into reasons for profit-taking. Currently, the AI industry is still rapidly developing and iterating. Without disproof of industry trends, pessimism-driven irrational pricing often creates “golden pits.”

Overall, we believe that the factors currently suppressing the market will gradually weaken. Combining with the Spring Festival effect pattern, the main index is expected to rebound starting next week, with the rally likely to continue for several trading days after the festival. Therefore, holding stocks over the holiday is recommended. In terms of allocation, first, focus on the over-penalized tech sectors in this correction, including domestic chips, semiconductor equipment, storage chips, computing power communication, and cloud computing; second, focus on cyclical sectors such as energy storage/lithium battery industry chain, wind power, and other cyclical price-increasing segments; third, pay attention to themes related to the 14th Five-Year Plan, including commercial aerospace, 6G, nuclear power, hydrogen energy, quantum communication, brain-computer interfaces, and other emerging and future industries.

Risk warning: domestic economic recovery is slower than expected; Fed rate cuts are less than expected; macro policy efforts are weaker than expected; technological innovation falls short of expectations; geopolitical risks.

(Source: Dongwu Securities)