Huajin Securities: A-share short-term resilience may still be relatively strong. What are the main industries this year?

Investment Highlights

Mainline industries after the Two Sessions are likely to be those favored from the start of the year through the Two Sessions, driven mainly by industry trends, policies, and macroeconomic environment. (1) Industries favored from the start of the year to the Two Sessions are often those that continue to outperform after the Two Sessions. Over the past 16 years, 13 years have seen industries that outperformed before the Two Sessions continue to do so afterward, with 8 years seeing industries that continued to outperform in more than two sessions. (2) The formation of mainline industries after the Two Sessions is primarily driven by industry trends, policies, and macro environment. First, industry mainlines are driven by major internal and external industry trends. Second, the tone set at the Two Sessions strongly promotes the formation of mainline industries. Third, major shocks internally and externally also significantly influence mainline industries. Fourth, industries with low gains or valuations in the previous year are more likely to be pushed into the mainline by policies and industry trends.

Some technology growth and cyclical industries may be the mainline sectors this year. (1) Coal, petrochemicals, and chemicals have seen top gains since the beginning of the year through the Two Sessions, potentially becoming main sectors. (2) Certain tech and cyclical industries may continue their upward trend driven by industry trends: First, AI demand may drive increased demand for related hardware, computing power, and electricity by 2026, supporting industries like electronics, communications, and power equipment. Second, conflicts involving the US and Iran, AI demand, and strategic reserves may jointly push prices of non-ferrous metals and chemicals to oscillate upward by 2026, sustaining cyclical industry trends. Third, tech growth and cyclical industries may receive policy support in 2026. Fourth, rising geopolitical risks could benefit some cyclical industries: For example, in 2022, the Ukraine conflict led to global energy supply tensions, boosting the coal industry. If the US-Iran conflict persists, the Strait of Hormuz blockade could impact global energy supply, benefiting petrochemicals, power, and coal sectors. Fifth, industries like pharmaceuticals, power equipment, construction, coal, and non-ferrous metals may be undervalued or have low valuations in 2025.

Short-term resilience of A-shares remains strong; spring market rally continues. (1) Short-term economic recovery and profit growth may still be underway: First, the economy is still recovering, with February exports growing 39.6% year-over-year, with high exports of ships, furniture, and integrated circuits, indicating strong external demand and domestic export advantages, likely reducing downside risks. Second, short-term profits may continue to rebound, supported by continued profit growth in A-shares. (2) Liquidity may remain loose in the short term: First, macro liquidity is likely to stay ample, with the RMB remaining relatively strong amid economic recovery and energy advantages, even if the Fed does not cut rates. Second, the central bank may increase liquidity injections or further cut reserve requirements or interest rates. (3) Risk appetite may be neutral with some support: First, positive policies may support risk appetite, such as recent infrastructure investment plans and reforms in capital markets. Second, geopolitical risks remain but their impact may weaken: for example, Iran’s tough stance and the potential for U.S.-China relations to stabilize or improve in the near term.

Industry allocation: continue focusing on dual mainlines of tech growth and cyclical sectors in the short term. (1) Leading tech and cyclical sectors may still outperform: Historically, oil price increases have gradually lessened their impact on tech stocks. Since 2015, there have been eight periods of oil price rises averaging 137 trading days and 93.2% gains, with tech sectors showing diminishing suppression over time. Currently, oil prices have been rising for 52 days, up 56.8%, approaching historical averages. The impact of US-Iran conflicts on oil prices may be diminishing due to reserve releases and alternative shipping routes. Additionally, during earnings seasons, some tech and cyclical sectors may perform relatively well. (2) It is advisable to buy on dips: sectors such as policy-driven new energy (including energy storage and power), non-ferrous metals, chemicals, semiconductors, AI hardware, communications, military (commercial space), machinery (robots), media (AI applications, gaming), computers (AI applications), and pharmaceuticals (innovative drugs). Also, sectors like non-bank financials and consumer sectors with potential for catch-up and margin improvement.

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

Mainline industries after the Two Sessions are likely to be those favored from the start of the year through the Two Sessions, driven mainly by industry trends, policies, and macroeconomic environment. (1) Industries favored from the start of the year to the Two Sessions are often those that continue to outperform after the Two Sessions. Over the past 16 years, 13 years have seen industries that outperformed before the Two Sessions continue to do so afterward, with 8 years seeing industries that continued to outperform in more than two sessions. (2) The formation of mainline industries after the Two Sessions is primarily driven by industry trends, policies, and macro environment. First, industry mainlines are driven by major internal and external industry trends. Second, the tone set at the Two Sessions strongly promotes the formation of mainline industries. Third, major shocks internally and externally also significantly influence mainline industries. Fourth, industries with low gains or valuations in the previous year are more likely to be pushed into the mainline by policies and industry trends.

Some technology growth and cyclical industries may be the mainline sectors this year. (1) Coal, petrochemicals, and chemicals have seen top gains since the beginning of the year through the Two Sessions, potentially becoming main sectors. (2) Certain tech and cyclical industries may continue their upward trend driven by industry trends: First, AI demand may drive increased demand for related hardware, computing power, and electricity by 2026, supporting industries like electronics, communications, and power equipment. Second, conflicts involving the US and Iran, AI demand, and strategic reserves may jointly push prices of non-ferrous metals and chemicals to oscillate upward by 2026, sustaining cyclical industry trends. Third, tech growth and cyclical industries may receive policy support in 2026. Fourth, rising geopolitical risks could benefit some cyclical industries: For example, in 2022, the Ukraine conflict led to global energy supply tensions, boosting the coal industry. If the US-Iran conflict persists, the Strait of Hormuz blockade could impact global energy supply, benefiting petrochemicals, power, and coal sectors. Fifth, industries like pharmaceuticals, power equipment, construction, coal, and non-ferrous metals may be undervalued or have low valuations in 2025.

Short-term resilience of A-shares remains strong; spring market rally continues. (1) Short-term economic recovery and profit growth may still be underway: First, the economy is still recovering, with February exports growing 39.6% year-over-year, with high exports of ships, furniture, and integrated circuits, indicating strong external demand and domestic export advantages, likely reducing downside risks. Second, short-term profits may continue to rebound, supported by continued profit growth in A-shares. (2) Liquidity may remain loose in the short term: First, macro liquidity is likely to stay ample, with the RMB remaining relatively strong amid economic recovery and energy advantages, even if the Fed does not cut rates. Second, the central bank may increase liquidity injections or further cut reserve requirements or interest rates. (3) Risk appetite may be neutral with some support: First, positive policies may support risk appetite, such as recent infrastructure investment plans and reforms in capital markets. Second, geopolitical risks remain but their impact may weaken: for example, Iran’s tough stance and the potential for U.S.-China relations to stabilize or improve in the near term.

Industry allocation: continue focusing on dual mainlines of tech growth and cyclical sectors in the short term. (1) Leading tech and cyclical sectors may still outperform: Historically, oil price increases have gradually lessened their impact on tech stocks. Since 2015, there have been eight periods of oil price rises averaging 137 trading days and 93.2% gains, with tech sectors showing diminishing suppression over time. Currently, oil prices have been rising for 52 days, up 56.8%, approaching historical averages. The impact of US-Iran conflicts on oil prices may be diminishing due to reserve releases and alternative shipping routes. Additionally, during earnings seasons, some tech and cyclical sectors may perform relatively well. (2) It is advisable to buy on dips: sectors such as policy-driven new energy (including energy storage and power), non-ferrous metals, chemicals, semiconductors, AI hardware, communications, military (commercial space), machinery (robots), media (AI applications, gaming), computers (AI applications), and pharmaceuticals (innovative drugs). Also, sectors like non-bank financials and consumer sectors with potential for catch-up and margin improvement.

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