In the week before the holiday, the A-share market experienced four days of volatile gains, followed by a significant correction on the final trading day, disappointing investors who had anticipated the usual pre-holiday rally. With numerous developments occurring during the extended break, how will they influence market trends after the holiday? Will the market open strong? Where do future opportunities lie? Today, Brother Da and Dr. Niu discuss these topics of widespread interest.
Dr. Niu: Hello, Brother Da! First, I wish you and all our followers a happy Spring Festival and successful investments in the Year of the Horse. The correction on the last trading day before the holiday left many investors feeling frustrated, and there has been no shortage of news during the break. What is your outlook for the post-holiday market?
Brother Da: As the Year of the Horse market is about to begin, may everyone quickly identify high-performing stocks and see their investments rise faster than a galloping horse! During the holiday, key developments included updates on tariff policies, robots dominating Spring Festival Gala performances, a surge in AI-related stocks in the Hong Kong market, box office revenues exceeding 5 billion yuan during the holiday period, and OpenAI's revised targets for computing power expenditure. Overseas, the three major U.S. stock indices experienced fluctuations or modest gains, while the Hang Seng Index and Hang Seng Tech Index in Hong Kong generally rose, though the increases were limited. Considering the market's reaction to pre-holiday news, the impact of holiday developments and global market performance on post-holiday trends is likely to be limited, with the A-share market's internal dynamics playing a more crucial role.
On the last trading day before the holiday, the market underwent a sharp correction. Technically, there remains downward pressure, with the possibility of the Shanghai Composite Index retesting levels near its closing price of 4,065 points or its low of 4,029 points on February 6. A retest of 4,065 points would indicate a preliminary completion of the correction, and further significant declines appear unlikely. The primary reason is that after hitting a cyclical low on February 3, the Shanghai Composite Index underwent its first retest on February 6. Typically, a recovery phase involves at least two such retests. For instance, during the double-bottom formation between November 24 and December 16, 2025, the index completed retests on November 28 and December 4. Similarly, in the recovery phase from January 28 to March 3, 2022, retests occurred on February 14, 22, and 24. Overall, the market may continue to experience downward pressure in the first half of this week, though the room for decline is limited. Once the retest is complete, the recovery trend is expected to resume.
Today, the Hong Kong market posted strong gains. If the A-share market opens significantly higher tomorrow, investors should be cautious of potential profit-taking. Additionally, the market will need to digest holiday developments, likely leading to positioning adjustments and speculative trading in the first half of the week—a scenario often described as a "battle of funds." With the National Two Sessions approaching next week, historical patterns suggest that the market tends to trade sideways during this period. From mid-to-late March to early April, the market typically enters the final phase of the conventional spring rally. In summary, I believe volatility will likely dominate over the next three months, and expectations for index gains should be tempered.
Dr. Niu: Thank you for sharing your insights. If volatility is expected over the next three months, a cautious approach to trading may be advisable. Where do you see opportunities emerging?
Brother Da: For the Year of the Horse market, I lean toward AI applications. Over the past two years, sectors such as low-altitude economy, innovative pharmaceuticals, humanoid robots, computing power, semiconductors, chips, commercial aerospace, and non-ferrous metals have seen substantial gains. While these sectors remain noteworthy, their risk-reward profiles are less attractive. In contrast, AI applications are positioned at relatively moderate to low levels. Drawing parallels with the "internet+" trend of 2015 or the momentum seen in tech stocks like Zhipu and MINIMAX, I believe "AI+" opportunities hold greater promise this year. Once a sector's valuations become elevated, it often loses appeal—recent examples include computing power and large internet companies in Hong Kong, where gains have been modest due to high valuations or large market capitalizations. In AI hardware, represented by computing power, last year's advances were significant. While opportunities remain, they are more dependent on catalysts such as news, earnings, and technological breakthroughs.
Outside the technology sector, two areas warrant attention: chemicals and international crude oil shipping. These sectors share overlapping drivers, including geopolitical tensions involving Iran and rising international oil prices. Additionally, the chemicals sector may benefit from catch-up demand or substitution effects relative to non-ferrous metals. Starting in March, the market will enter a period of intensive annual report disclosures, followed by further disclosures of annual and quarterly reports in April. Thus, moderately positioned stocks with earnings surprises deserve attention. Historically, markets have responded more favorably to quarterly earnings surprises during the first-quarter and mid-year reporting seasons.
In conclusion, Brother Da summarizes: The Hong Kong market's gains during the holiday suggest potential for a higher open tomorrow. However, given underlying downward pressures, the first two trading days this week may present a favorable entry point after a retest. Operationally, a steady approach is recommended. Sector-wise, focus on AI applications, such as media, internet, advertising, packaging, and online gaming, alongside chemicals and crude oil shipping.
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