Hua Jin Strategy: The spring market rally is not over; hold stocks through the holiday. Technology growth and cyclical sectors may still outperform relatively.

Investment Highlights

The short-term trend of A-shares before the Spring Festival may have some influence on the post-holiday market. In the 16 years since 2010, there have been 9 instances where the Shanghai Composite Index performed strongly (weakly) in the 5 trading days before the Spring Festival, while the index fell (rose) on the first trading day after the festival; there have been 12 times where the index’s performance in the 5 days before the festival and the 5 days after the festival moved in the same direction.

Spring market trend is not over, risks during the Spring Festival may be limited, and holding stocks through the holiday is feasible. (1) During this year’s Spring Festival, economic and profit expectations may improve. First, travel and consumption data during the festival may show a preference. Second, real estate sales during this year’s Spring Festival may warm up: firstly, due to low base effects, the year-on-year growth rate of real estate sales during the festival may rebound; secondly, policies to stimulate real estate sales are expected to be strong across various regions, and real estate sales may continue to recover during the holiday. (2) Liquidity during the festival may remain loose. First, macro liquidity may stay ample: overseas, the US January CPI data will be released on February 11, and retail sales data on February 17, likely keeping the dollar index at a low level with limited restrictions on domestic liquidity easing; domestically, before the festival, the central bank may increase net liquidity injections amid seasonal tightness. Second, stock market funds may stay at certain levels before the festival and accelerate inflows afterward. (3) Risk appetite during the festival may remain neutral. External geopolitical risks may exist but have limited impact domestically: the US-China game risk may be small; geopolitical risks like US-Iran conflicts may persist but have limited effect on global capital markets. Additionally, expectations for more proactive policies before and after the festival remain strong.

After short-term adjustments, technology growth and cyclical sectors may still be relatively favored. (1) Reviewing history, sectors supported by policies and industry trends may regain favor after adjustments. First, sectors that led before the correction in spring markets may lead again, driven by policy support and upward industry trends. For example, in 2016, the top 5 performing sectors before the spring correction included electronics and light manufacturing, which rebounded after the correction; in 2019, electronics, computers, and media led before the correction and continued to perform well afterward; in 2021, petrochemicals, beauty care, and basic chemicals were top performers before the correction and rebounded again. Second, sectors with low valuations or sentiment during the correction may catch up afterward. (2) Currently, after short-term adjustments, technology growth and cyclical sectors may still be relatively strong. First, these sectors are supported by policies and industry trends: policies on technological innovation, anti-inflation, and related fields are expected to be implemented further; industry catalysts such as commercial aerospace and AI continue to emerge, with related commodity prices like non-ferrous metals and chemicals likely to oscillate upward. Second, sectors like pharmaceuticals, computers, chemicals, non-bank financials, and consumer sectors may rebound: valuations in growth sectors like biotech and computers, and in cyclical sectors like chemicals and steel, are relatively low in historical terms.

Industry allocation: Before the festival, a balanced allocation among technology growth, some cyclical, and consumer sectors is recommended. (1) Automotive, military, beauty care, machinery, and communications sectors may outperform in 2025 annual reports in the short term. (2) The short-term rebound in consumer sectors may be valuation-driven; sustainability remains to be seen. Historically, consumer confidence, low valuations, and profit growth are core drivers of short- to medium-term upward trends. For example, consumer confidence indices and profit margins have shown positive trends during certain periods. Currently, the sustainability of the rebound is uncertain: consumer confidence remains weak, profit turning points have not yet appeared, and valuation recoveries are already significant. (3) Valuations in biotech, automotive, computer, and machinery sectors are currently low. (4) Low-level allocations before the festival include policy and industry trend-driven sectors such as electronics (semiconductors, AI hardware), media (AI applications, gaming), computers (AI applications), military (commercial aerospace), communications (AI hardware), machinery (robots), new energy (fusion, energy storage, space photovoltaics), pharmaceuticals (brain-machine interfaces, innovative drugs), non-ferrous metals, and chemicals. Additionally, sectors with potential for catch-up and marginally improving fundamentals like non-bank financials and consumer (food, retail, social services) are also recommended.

Risk warning: Past experience may not predict future performance; policy surprises or changes; economic recovery may fall short of expectations.

Main Text

1. To hold stocks or cash before the Spring Festival?

(1) Short-term market trend before the festival may influence post-holiday market

The short-term trend of A-shares before the Spring Festival may influence the market after the holiday. Since 2010, in 9 out of 16 years, the Shanghai Composite Index performed strongly (weakly) in the 5 trading days before the festival, while it fell (rose) on the first trading day after; in 12 of those years, the index’s performance in the 5 days before the festival and the 5 days after the festival moved in the same direction, with only 4 instances of divergence.

(2) Spring market not over, hold stocks through the holiday

During this year’s Spring Festival, travel and consumption data may be favorable, real estate sales may warm up, and economic and profit expectations may improve. (1) Travel and consumption data during the festival may show a preference: First, according to the State Council Information Office, the 2026 Spring Festival travel period will start on February 2, with an estimated total cross-regional passenger flow of 9.5 billion, likely surpassing historical peaks; second, data from the Ministry of Public Security’s Road Traffic Safety Research Center suggest that highway traffic during the festival may increase by about 3.0% year-on-year; third, the Civil Aviation Administration expects air passenger volume to reach a record high of 95 million, with an average of 2.38 million per day, up about 5.3%. (2) Consumption may also pick up: First, the Ministry of Commerce and other agencies issued the “2026 ‘LeGou New Spring’ Spring Festival Special Activities Plan,” focusing on new economy, digital, green, smart, health, and inbound consumption, with policies accelerating implementation; second, internet platforms’ “red envelope battles” may boost short-term consumption, with Tencent, Baidu, ByteDance, and Alibaba pooling over 1.5 billion yuan in red envelopes, integrating AI functions with festival activities—such as AI writing Spring Festival couplets, generating New Year videos, and social AI collaborations—boosting AI application penetration and short-term consumption expectations. (3) Real estate sales during the festival may warm up: First, in 2025, real estate sales during the festival were low, especially in first- and third-tier cities, with transaction volumes at low percentiles (17.6% and 5.8%), so YoY growth may rebound this year; second, second-hand housing sales are rising, with Shenzhen and Beijing seeing YoY increases of 20.8% and 15.3% in January, and policies to stimulate real estate sales are strong, likely prolonging the recovery trend during the holiday.

Liquidity during the festival may remain loose. (1) Macro liquidity may stay ample: First, overseas, the US January CPI data will be released on February 11, and retail sales on February 17, which may influence the Fed’s rate hike expectations; however, forecasts suggest CPI YoY may stay around 2.7%, maintaining expectations for rate cuts. Second, the dollar index may continue to oscillate at low levels, with limited restrictions on domestic liquidity easing. (2) Stock market funds may stay at certain levels before the festival and accelerate inflows afterward: Historically, since 2015, in 8 of 11 years, foreign net inflows occurred in the 5 days before the festival, despite net outflows in financing; after the festival, net inflows occurred 9 times, with financing inflows 10 times, often recovering previous outflows. This year, financing may slightly outflow before the festival but, driven by ample liquidity and industry catalysts, market sentiment remains stable, and funds like financing, foreign capital, and new funds are expected to flow back after the holiday.

Risk appetite during the festival may stay neutral. (1) External geopolitical risks may exist but have limited impact domestically: recent US-China calls suggest improved relations, with ongoing high-level dialogues likely to continue, reducing short-term US-China game risks; geopolitical risks like US-India trade agreements and US-Iran conflicts may persist but mainly affect oil prices, with limited impact on global markets. (2) Local government meetings around the festival may be frequent, with policies supporting growth expected to be more active: local governments like Beijing and Guangdong emphasize expanding and upgrading service industries, focusing on elderly care, childcare, and digital consumption, with policies accelerating after the festival; policies supporting modern industry and AI development are also expected to be further implemented.

2. Industry allocation: Balanced allocation among technology growth, some cyclical, and consumer sectors before the festival

(1) After adjustments in spring markets, technology growth and cyclical sectors may still be relatively favored

Post-adjustment, technology growth and cyclical sectors may still outperform. (1) Reviewing history, sectors supported by policies and industry trends tend to regain favor after corrections. For example, in 2016, the top 5 sectors before the spring correction, such as electronics and light manufacturing, rebounded afterward; in 2019, electronics, computers, and media led before the correction and continued to perform well; in 2021, petrochemicals, beauty care, and basic chemicals were top performers before the correction and rebounded. Similarly, sectors with low valuations or sentiment during corrections, like electronics in 2016 and 2019, tend to catch up. (2) Currently, sectors like tech and some cyclicals supported by policies and industry trends include: policies on 6G, quantum tech, biotech, hydrogen energy, brain-machine interfaces, and intelligent systems; industry catalysts such as commercial aerospace and AI applications are ongoing, with commodity prices like non-ferrous metals and chemicals oscillating upward. Short-term, sectors like pharmaceuticals, computers, chemicals, non-bank financials, and consumer sectors may also rebound, with valuations at low levels historically.

(2) Leading industries in annual report performance growth may outperform in the short term

Automotive, military, beauty care, machinery, and communications sectors may perform well in 2025 annual reports, with some short-term gains. (1) Historically, sectors with high YoY growth in annual report forecasts tend to outperform shortly after disclosures: in the past 10 years, 8 times within 10 trading days, and 5 times within 30 trading days, sectors with top forecasted growth outperformed others. (2) Currently, sectors like automotive, defense, beauty, machinery, and telecom are expected to have high YoY growth rates (471.5%, 398.4%, 378.3%, 275.6%, 242.1%), likely showing some short-term performance.

(3) Consumer sectors’ short-term rebound may be valuation-driven, with uncertain sustainability

The short-term rebound in consumer sectors may be valuation-driven; whether it sustains remains to be seen. (1) Historical review shows that long-term downtrends in consumer sectors appeared mainly after 2021; since then, there have been 6 rebounds averaging 70 days and 21.56% in amplitude. (2) Core drivers include rising consumer confidence, low valuations, and profit growth: consumer confidence indices and profit margins have shown positive trends during certain periods. Currently, the sustainability is uncertain: consumer confidence index dropped from 90.3 in November 2025 to 89.5 in December; quarterly profits declined from 2.8% in Q2 2025 to -23.9% in Q3; PE valuation percentile has recovered from 0.4% to 18.2%, indicating a large short-term correction.

(4) Valuations in growth sectors like biotech, automotive, computer, and machinery are currently low

Primary growth sectors such as power equipment, media, and automotive have low PEG ratios (0.68, 1.00, 1.10). Their trading volume proportions are also low in historical terms: 5.6%, 12.3%, 28.1%, respectively.

(5) Sentiment in secondary growth industries like auto services, passenger cars, medical devices, and pharmaceuticals is low

PEG ratios for sectors like marine equipment, gaming, commercial vehicles, and optoelectronics are low (0.28, 0.48, 0.62, 0.68). Their trading volume proportions are also low: 0.5%, 1.1%, 5.7%, 8.4%.

(6) Sentiment in thematic industries like innovative drugs, robotics, and energy storage is low

PEG ratios for brain-machine interfaces, energy storage, and AI applications are low (0.64, 0.72, 0.96). Their trading volume proportions are also low: 5.7%, 31.5%, 32.8%.

(7) Before the festival, balanced allocation to technology growth, some cyclical, and consumer sectors

Recommend low-level allocations to policy and industry trend-driven sectors such as electronics (semiconductors, AI hardware), media (AI applications, gaming), computers (AI applications), military (commercial aerospace), communications (AI hardware), machinery (robots), new energy (fusion, energy storage, space photovoltaics), pharmaceuticals (brain-machine interfaces, innovative drugs), non-ferrous metals, and chemicals. Examples include: DRAM prices rising, Korea’s semiconductor expo in February 2026, mobile game revenue growth, AI summit in India, software industry profits, aerospace and satellite conferences, and chemical industry updates. Specific sectors and events are detailed with dates and forecasts.

3. Risk warnings

1. Past experience may not predict future performance: Historical analysis has limitations; market conditions, industry trends, and global environment changes can lead to different outcomes. Past performance is for reference only.
　　2. Policy surprises or changes: Macroeconomic policies influenced by external shocks, international relations, or unforeseen events may deviate from expectations, affecting investment decisions.
　　3. Economic recovery may fall short: External disruptions, trade disputes, natural disasters, or other unpredictable factors could cause fluctuations in economic recovery, impacting investment strategies.**

(Source: Huajin Securities)