This week, market risk appetite saw some repair as the US and Iran entered negotiation phases, leading to a marginal enhancement in normalization trades. However, subsequent developments in the Middle East, particularly regarding the central level of oil prices, still carry a degree of uncertainty. China's March PPI turning positive year-on-year strengthened market confidence in the economy exiting deflation. As the first-quarter earnings verification window approaches, existing capital may further concentrate on high-growth assets.
Normalization trades are rising marginally, with investment focus returning to growth sectors: During this intensive earnings verification period, trading logic is shifting towards profitability and the sustainability of growth. Reviewing market characteristics from April 2018 to April 2025 shows that when growth is sustainable, stock prices and earnings are more likely to rise in tandem. In strong market environments, investors may even show tolerance for temporarily weaker earnings performance (as seen in 2020), instead trading on longer-term profit prospects and industrial logic, thereby driving sustained stock price increases. Looking ahead, if geopolitical risks resurface, the market might intensify its focus on high-growth directions after a pullback, further narrowing the circle of strong investment themes, leading to even greater concentration in growth sectors.
After the first-quarter earnings window, the mid-cycle industrial growth driven primarily by the AI industry may still exhibit strong stickiness, likely not prompting significant changes in market structure. Whether a marginal rebalancing occurs will largely depend on whether normalization trades might shift again to stagflation or even recession trades at a macro level. The core indicator for this is oil prices, which also impact expectations for US Treasury yields, US stock volatility, and the growth outlook for China's new energy industry. Secondly, at the aggregate level, one can observe marginal changes in industrial catalysts and growth expectations for domestic demand-driven tech sectors, such as the domestic AI chain, for example, whether the release of Deepseek V4 triggers a chain reaction, or price increases by cloud providers due to a surge in token usage.
Normalization trades may still experience fluctuations, but the relative advantages of Chinese assets are expected to remain prominent: The central level of oil prices is highly likely to be higher than pre-conflict levels. The US energy system, dominated by oil and gas, would face significantly greater impact than China. Examining the oil price transmission environment reveals a divergence in inflation trends between China and the US. China's March PPI turned positive year-on-year, while CPI, although weaker month-on-month, remained positive year-on-year, indicating the economy is in the early stages of transitioning from deflation to mild inflation. The US March CPI was as high as 3.29% year-on-year, with high inflation significantly constraining the Fed's room for interest rate cuts and raising concerns about stagflation risks. Mapping this to asset pricing, if China enters a mild inflation environment, it would benefit the stability of the A-share valuation system. In contrast, the US high inflation pattern may continue to suppress the valuation center for growth stocks and increase corporate financing costs, further enhancing the allocation attractiveness of A-shares.
Key sectors to watch include: New Energy (lithium batteries, wind power, energy storage, photovoltaics, etc.), AI Computing Power (optical communication, storage, semiconductor equipment, etc.), Pharmaceuticals, and Defense.
Risk warnings: Geopolitical risk escalation; uncertainty in global liquidity and US tariff policies; potential errors in data statistics.
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