From early September to early December, both A-share and H-share markets underwent an extended period of adjustment, with investor sentiment turning cautious. Recently, however, multiple key events and data releases have aligned with or slightly exceeded market expectations. We believe the fundamental logic supporting the bull market remains intact, driven primarily by structural opportunities and capital market reform policies. With the adjustment phase largely complete and fund rankings finalized, a new year-end rally appears imminent.
For mid-term sector allocation, focus areas include non-ferrous metals and AI computing power—both showing positive catalysts—as well as thematic opportunities in commercial aerospace (primary), alongside controlled nuclear fusion and humanoid robotics (secondary). The H-share market also presents investment potential, particularly in internet giants and innovative pharmaceuticals. Key sectors to watch: non-ferrous metals, commercial aerospace, AI, humanoid robotics, controlled nuclear fusion, biotech, and non-bank financials.
**Key Events Unfold as Expected** Investors had been awaiting year-end domestic and international developments to guide positioning. Recent policy meetings in China maintained a accommodative stance, emphasizing AI industry support and structural reforms, while the Fed’s rate cut reinforced global liquidity expectations. Economic data reflected a slow recovery: November CPI rose to 0.7% YoY, though PPI remained weak at -2.2%. While export improvements eased external demand concerns, sluggish domestic consumption and manufacturing PMI below 50 highlighted ongoing challenges.
**Bull Market Adjustments Conclude** The bull market’s structural foundation persists, supported by policy tailwinds. Over the past month, sector rotation intensified, with only the STAR 50 index showing over 50% constituent gains—a sign of selective momentum. Market reforms targeting long-term capital inflows and ecosystem development further bolster confidence.
Trading volume for the A-share market bottomed at 48.8% of its peak, and major indices breached their 60-day moving averages—typical of a full correction phase. With institutional funds likely to reposition post-rankings, consensus on new market leaders may emerge.
**Thematic and Sector Opportunities** - **AI Computing Power**: After an August overheating and subsequent correction, valuations (ex-Google) returned to pre-surge levels. Policy backing (e.g., Politburo’s AI focus) and upcoming tech breakthroughs (new model releases, capex guidance) reignite upside potential. - **Non-Ferrous Metals**: Commodities like gold (+62% YTD), silver (+110%), and copper (+33%) benefit from dollar weakness and sustained demand. - **Commercial Aerospace**: Policy and industrial breakthroughs propel this theme, with satellite computing leaders like Ganfeng Lithium and Tongyu Communication surging 79.3% and 47.7% monthly. - **H-Shares**: Internet giants and biotech (e.g., Fosun Pharma’s $2.1B overseas deal) attract steady southbound capital amid low crowding.
**Risks to Monitor** 1. **Domestic Stimulus Underperformance**: Weak property/consumption data or prolonged deflation could pressure markets. 2. **U.S.-China Tensions Escalation**: Broader conflicts in tech, trade, or finance may disrupt economic activity. 3. **U.S. Market Volatility**: Unexpected Fed policy shifts or economic deterioration could spill over to global risk appetite.
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