According to analysis from China Merchants Securities, looking ahead to April, external risks for the A-share market have not yet substantially eased. The United States is currently accelerating its military buildup, and with the deployment of the USS George H.W. Bush carrier strike group expected to be completed by mid-April, the possibility of ground operations has increased significantly. There is a risk of the US-Iran-Israel conflict escalating beyond expectations. Against this backdrop, further upward pressure on oil prices will intensify market concerns about global economic stagflation. Should the US military launch a ground offensive in mid-to-late April, whether due to unexpectedly high casualties or a sharp oil price spike triggering a deep global stock market correction, the Trump administration might be forced to adopt a more conciliatory approach, potentially leading the market to enact a typical "dash for trash" or recovery rally.
Domestically, following the conclusion of the March "Two Sessions" and the release of the 15th Five-Year Plan outline, subsequent key investment projects are expected to accelerate their implementation, becoming the core driver for reviving domestic investment growth. If external shocks lead to a significant rise in economic uncertainty, there are expectations for further stabilization and growth policies to be introduced during the Politburo meeting at the end of April. Comprehensive analysis suggests that late April will be a critical window for marginal improvement in both domestic and international environments. After external shocks subside, market focus in mid-to-late April is anticipated to shift towards sectors demonstrating high growth in first-quarter earnings reports.
Based on current data, resource sectors such as non-ferrous metals and petroleum & petrochemicals, along with new energy, optical communication, and the semiconductor industry chain, are expected to show the most impressive earnings growth. The main views of China Merchants Securities are as follows:
Style and Sector Allocation Strategy: In terms of market style, large-cap stocks are expected to outperform in April, with a continued balance between growth and value styles. The recommended index portfolio includes the SSE 50, CSI 300, CSI 300 Quality, CSI 300 Energy, and CSI 300 Materials. Firstly, April is a concentrated window for Q1 and annual report disclosures, shifting market focus from thematic speculation to earnings-based pricing; historically, large-cap and value styles have significantly outperformed in April. Secondly, regarding fundamentals, the domestic economy has been steadily recovering since the beginning of the year, exceeding market expectations; furthermore, the rising trend in energy prices is driving a sustained recovery in the Producer Price Index (PPI), which benefits cyclical value sectors. Thirdly, uncertainty surrounding the US-Iran situation remains high, and while comprehensive liquidity risk indicators are in a low-risk zone, this somewhat suppresses growth styles; a sustained recovery for growth stocks awaits clearer positive signals. Fourthly, regarding capital flows, attention should be paid to the movements of margin financing and major institutional investors. If the US-Iran situation worsens unexpectedly, leading to a market sell-off, it could trigger an expansion of outflows from margin trading, increasing pressure on small-cap stocks. However, if a significant market decline activates stabilization mechanisms from major institutions, boosting risk appetite in A-shares, small-cap stocks could exhibit greater elasticity, similar to the market stabilization observed in April 2025.
In terms of sector selection for April, allocation advice primarily revolves around the transmission of moderate inflation recovery and clues from Q1 earnings regarding sector prosperity. Considering previous performance, valuations, trading activity, changes in景气度 (prosperity), and policy/event catalysts, it is recommended to focus on: 1) Manufacturing sectors with export advantages, such as electrical equipment (batteries, photovoltaic equipment, wind power equipment) and machinery (construction machinery, automation equipment); 2) Sectors benefiting from energy security and high oil prices, such as coal and utilities (power, gas); 3) Sectors with high demand景气度 driven by AI, such as electronics (semiconductors) and communications (communication equipment).
In terms of specific themes, five themes showing marginal improvement warrant focus in April: coal, the lithium battery industry chain, overseas computing power, commercial aerospace, and military trade.
Liquidity and Capital Supply/Demand: Incremental capital inflows in April are expected to remain in a tight balance, with ETFs likely to be the main source of incremental funds. Regarding macro liquidity, interbank liquidity conditions eased spontaneously in March 2026, and this accommodative stance is expected to continue in April. For external liquidity, the Middle East conflict has heightened stagflation concerns, leading markets to expect no interest rate cuts from the Fed in 2026; the US dollar index and US Treasury yields may remain strong. Regarding stock market capital flows, tracked capital supply and demand were in a tight balance in March, with newly issued funds continuing to be the main incremental source. On the supply side, the scale of new equity-focused fund issuance rebounded, ETF net outflows narrowed, and margin financing outflows continued due to declining risk appetite. On the demand side, net减持 (reduction in holdings) by major shareholders expanded; IPO issuance scale increased, while refinancing scale decreased, leading to a steady or slightly rising overall capital demand. In March, newly issued funds were the primary source of incremental market capital.
Mid-cycle景气和 Sector Recommendations: Corporate profit expectations are improving marginally, with focus on resource products, information technology, and some midstream manufacturing sectors showing profit recovery. In terms of profits, industrial enterprise profits for January-February achieved an unexpectedly strong start, with high aggregate growth and optimized structure. A combination of volume-price resonance and improving costs drove profit recovery, led by upstream resource sectors and high-tech industries, while downstream consumption remained relatively weak. Overall, sectors expected to show high Q1 earnings growth or improvement are concentrated in: 1) The price increase chain: Petroleum & petrochemicals, non-ferrous metals, chemicals, electrical equipment, etc.; 2) Export-advantaged manufacturing: Textiles and apparel, integrated circuits, medical devices, electronic components, general equipment, construction machinery, ships, etc.; 3) TMT sectors experiencing price diffusion: Semiconductors, electronic components, communication equipment, etc.
Regarding景气度 (prosperity) in March, high-景气度 areas were mainly concentrated in upstream resources and utilities. Within resources, oil and chemical product prices generally rose; in midstream manufacturing, crude oil freight indices increased while construction machinery sales slowed; in consumer services, the wholesale price of Feitian Moutai rose; in financials and real estate, market transactions slowed; and in utilities, gas prices increased. For April allocation, focus is recommended on sectors benefiting from the rising oil price trend and those likely to deliver on Q1 earnings expectations, particularly: 1) Export-advantaged manufacturing, such as electrical equipment (batteries, photovoltaic equipment, wind power equipment) and machinery (construction machinery, automation equipment); 2) Sectors benefiting from energy security and high oil prices, such as coal and utilities (power, gas); 3) Sectors with high demand景气度 driven by AI, such as electronics (semiconductors) and communications (communication equipment).
Theme and Industry Trend Investment: Alibaba released its new-generation model, Qwen3.6-Plus, marking a technological leap towards expert-level productivity. On April 2, 2026, Alibaba Cloud officially announced the launch of Qwen3.6-Plus globally. This timing reflects not only precise control over Alibaba's own large model iteration pace but also a strong response to the current global fervor around AI Agents and automated programming. The release of Qwen3.6-Plus signifies a decisive step for domestic large models in transitioning from "usability" to "expert-level productivity."
Risk Warning: Economic data may fall short of expectations; policy interpretations might be incomplete; overseas policies could tighten beyond expectations.
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