**Core View**: Policy expectations are likely to be revised upward, and market activity is expected to pick up. After a prolonged period of sideways consolidation, China's "transition bull market" will regain momentum, climbing steadily to new heights. The year-end rally has begun, with optimism for tech, brokerages/insurance, and consumer sectors.
**Summary** After an extended period of volatility, China's "transition bull market" is poised for a resurgence. On November 24, when the Shanghai Composite Index dipped pessimistically to 3,800 points, Guotai Haitong's strategy team identified a "critical juncture: entering the strike zone, making the first move." Over the past two weeks, the ChiNext Index has nearly fully recovered its losses. Guotai Haitong is more optimistic than the market consensus: some investors mistakenly interpret policy inertia as "cross-cycle" caution, while 2025's unconventional measures aim to mitigate tail risks from 2024. Looking ahead to 2026, the Central Economic Work Conference emphasized "consolidating and expanding the steady economic recovery," calling for "more proactive" fiscal policies and "domestic demand-driven" growth. It also introduced measures to "stabilize investment" (after 2025's contraction) and revived the property sector's "inventory reduction" policy after a decade. Han Wenxiu, deputy director of the Office of the Central Financial and Economic Affairs Commission, signaled incremental policy adjustments, extending subsidies and prioritizing key projects under the 15th Five-Year Plan, underscoring the importance of a strong start. With recent economic slowdowns and accelerating declines in property sales, policy expectations may be revised upward. Assuming stable RMB conditions, the PBOC could cut rates in early 2026. Trading-wise, profit-taking and de-risking are winding down, while year-end rebalancing and institutional inflows should boost liquidity and trading activity—the year-end rally is underway.
**Spring Market Trends**: Large caps set the stage, small caps lead the charge, with high-quality sectors taking the lead. Historical patterns since 2010 show: 1) Spring rallies typically span December to April, often starting 10–15 trading days before Lunar New Year. If markets have corrected sufficiently and policy/liquidity expectations improve, rallies start earlier (e.g., 2012–13, 2018–19, 2022–23). 2) Style-wise, large caps (CSI 800) dominate pre-holiday due to earnings pressure and insurance allocations, while post-holiday, small/mid-cap growth (CSI 2000) outperforms amid seasonal liquidity improvements. 3) If prior-year leading sectors maintain momentum, they often trigger early "valuation shifts," as seen with gaming (2014), internet+ (2015), semiconductors (2020), and the "Maotai Index" (2021). Given recent adjustments, policy support, and fresh inflows, now is a key window to position for the spring rally. Large-cap growth with industrial trends may lead pre-holiday, while large-cap value could rebound on insurance inflows.
**Sector Picks**: Tech, Brokerages, and Consumer Sectors in Focus. The Central Economic Work Conference reinforced proactive macro policies, balancing short-term demand stimulus with long-term structural reforms. Key recommendations: 1) **Tech Growth**: Accelerating AI advancements and domestic computing shortages favor港股互联网/media/IT/hardware, plus globally competitive exporters like power/industrial equipment. 2) **Financials**: Capital market reforms may reignite risk appetite—prefer brokers/insurers. 3) **Cyclicals**: After three years of underperformance, low valuations and improving consumption trends favor F&B/agriculture/hotels/tourism; metals/chemicals are cyclical picks.
**Thematic Opportunities**: 1) **Commercial Space**: With the Long March 12A launch imminent and satellite networks expanding, focus on liquid rockets/payloads/launch sites. 2) **Energy Security**: Green power adoption is a strategic priority—watch smart grids/new energy storage/nuclear fusion. 3) **AI Applications**: Policy pushes for "AI+" expansion favor港股互联网/data center power. 4) **Domestic Consumption**: Strengthening the home market highlights sports events/ice-snow tourism/emerging消费.
**Risks**: Overseas recessions or geopolitical uncertainties could disrupt markets.
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