From December to January, the A-share market typically exhibits a balanced style, with large-cap, low-valuation, and cyclical sectors outperforming. This trend is driven by expectations of pro-growth policies from year-end key meetings and the preference of institutional investors like insurance funds for large-cap and dividend-paying stocks. As the Spring Festival approaches, the market enters a typical liquidity- and risk-appetite-driven rally window, shifting toward high-beta sectors like small-cap and tech growth stocks.
**Key Observations by Industrial Securities:**
1. **Policy Validation Window Concludes, Laying Groundwork for Rally** Recent market volatility reflects investor caution amid major domestic and global policy events. However, with the Fed’s rate decision, China’s Central Economic Work Conference, U.S. jobs and inflation data, and the Bank of Japan’s rate hike now behind us, the policy outlook appears more favorable than expected, setting the stage for a potential rally.
- **U.S. Data Supports Easing Expectations:** November’s higher unemployment and lower CPI reinforced soft-landing hopes, while political calls for rate cuts further fueled dovish Fed expectations. - **BOJ’s Dovish Hike Eases Liquidity Fears:** The 25bp hike was well-telegraphed, and Governor Ueda’s lack of hawkish guidance eased concerns about carry-trade unwinding.
With overseas uncertainties fading and domestic policy remaining supportive, market sentiment is shifting from wait-and-see to opportunistic, building consensus for a rally.
2. **Potential Rally Triggers** Historically, rallies are catalyzed by landmark events, which fall into three categories: - **November Start (Yellow):** Requires strong macro policy shifts (e.g., 2008, 2014, 2022). - **December Start (Red):** Follows year-end disruptions in an otherwise strong year (e.g., 2017, 2019, 2020). - **January–February Start (Blue):** The most common timing.
The current scenario resembles the second category, where year-end disruptions give way to a rally. Past examples include: - **2017:** A “Spring Festival RRR cut” signaled the rally after deleveraging pressures eased. - **2019:** U.S.-China trade truce and fiscal stimulus ignited the rally. - **2020:** Post-election clarity and fund inflows drove gains.
**Key Rally Catalysts to Watch:** 1. Resolution of lingering uncertainties (e.g., policy or geopolitical risks). 2. Monetary easing (RRR cuts or rate cuts), with potential windows in late December or January. 3. Upbeat data (PPI, PMI, M1, credit growth, or corporate earnings guidance).
3. **Sector Allocation Strategy** - **Year-End to January:** Balanced exposure to large-cap, cyclical, and value stocks, supported by policy and institutional flows. - **Post-Spring Festival:** Shift toward small-cap and tech growth as liquidity and risk appetite improve.
**High-Conviction Themes for 2026 (30%+ Earnings Growth):** - **AI Trends:** Hardware (semiconductors, consumer electronics), software (IT services, gaming). - **Advanced Manufacturing:** EVs, renewables, defense, robotics, biotech. - **“Anti-Involution” Sectors:** Commodities (steel, chemicals), infrastructure (cement, glass), and aviation. - **Domestic Recovery:** Services (tourism, retail, education), new consumption (snacks, apparel).
**Tactical Plays:** - Cyclicals (chemicals, metals) and consumption (retail, travel) benefit from policy support and PPI recovery. - Tech growth (semiconductors, AI applications, biotech) will lead the rally as liquidity and sentiment improve.
In summary, with policy risks easing and liquidity favorable, the market is poised for a rally. Key triggers include easing measures or data surprises, while tech and cyclical sectors offer the most upside.
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