Last week, A-shares experienced range-bound trading on low volume, with overall market risk appetite cooling. Thematically, sectors such as power grids, energy engineering, and methanol continued to show strength, while new energy themes like lithium batteries gained momentum with significant capital inflows. In contrast, defense and non-ferrous metals sectors saw pullbacks.
Macro analysis: Strong export resilience driven by front-loading and global reflation Domestically, the central bank released February financial data, showing stable performance in aggregate financing and corporate loans, although the household sector remained weak with continued deposit outflows. Specifically, driven by accelerated fiscal spending and robust corporate foreign exchange settlements, M1 and M2 unexpectedly rose, maintaining ample macro liquidity. The growth rate of outstanding aggregate financing held steady at 8.2%. Year-on-year, M2 remained at a relatively high level of 9.0%, while M1 rebounded to 5.9%, supported by rapid fiscal expenditure progress and strong corporate forex settlement demand. A peak in household time deposit maturities is expected in the first quarter of 2026, with household deposits growing modestly in January-February while non-bank deposits surged significantly, indicating a potential acceleration in deposit shifts.
Meanwhile, China's exports continued to demonstrate strong resilience, with January-February data showing broad-based recovery. This reflects both new dynamics, such as export front-loading ahead of potential U.S. tariffs on key minerals, polysilicon, and wind turbines, and a recovery against the backdrop of global reflation-driven external demand. Customs data showed dollar-denominated export growth of 21.8% and import growth of 19.8% for the period. Looking ahead, despite base effect pressures from export front-loading in March 2025, exports are expected to maintain relatively rapid growth.
Internationally, military actions by the U.S. and Israel against Iran continue, currently at a stalemate. Although former President Trump previously indicated the conflict would end quickly, Iran has launched multiple rounds of retaliatory strikes, damaging several U.S. bases in the Middle East. The Strait of Hormuz remains closed solely to adversaries.
Short-term impacts of the Strait's closure on China appear manageable. China maintains relatively high crude oil inventories, along with substantial stocks of chemical and resource products. Its stockpiling policy lends calmness to the current geopolitical tensions, with a near-term stance of watchful waiting. Continued attention is warranted on potential escalation by the U.S. and its effectiveness.
Investment strategy: Stable A-shares fundamentals, focus on sectors with strong earnings recovery expectations In the short term, we view the A-share environment as relatively stable for several reasons: 1) Stability is scarce, and Chinese markets offer lower risk premiums, supported by relatively stable geopolitics, higher energy self-sufficiency, advancing technology, a comprehensive industrial system, and stable socioeconomic and capital market conditions. 2) Growth logic provides a breakthrough from stagflation narratives; PPI recovery supports year-on-year improvements in listed companies' net profits, with earnings growth likely driving market gains more smoothly in the second half. 3) Attention is on upcoming leader meetings between China and the U.S., suggesting a relatively mild development environment beforehand, though post-meeting volatility in bilateral relations remains a risk.
Investment-wise, low-position cyclical sectors may benefit more in the near term, particularly those with strong earnings recovery prospects. Key areas to watch include: 1) Traditional energy (e.g., oil, gas, coal): Profit potential and defensive value. Geopolitical conflicts not only drive up international energy prices but also raise long-term global supply chain security concerns. Domestic production constraints under supply protection policies limit elasticity, suggesting a systematic upward shift in profit margins and valuation anchors, with high dividends enhancing allocation appeal. 2) New energy (e.g., green power): Convergence of industry trends and policy benefits. High oil prices underscore energy independence urgency, highlighting green power's economic advantages. The sector is transitioning from policy-driven to earnings-driven growth, underpinned by solid long-term logic. 3) Low-position cyclicals (e.g., agriculture): Inflation pass-through and undervaluation. Rising energy costs are transmitting to agricultural inputs like fertilizers and pesticides. As a late-cycle inflation segment, agriculture is entering an upswing, with valuations at historical lows and rigid demand supporting favorable risk-reward profiles. 4) High-quality growth (e.g., free cash flow strategy ETFs): Potential stability amid uncertainty.
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