Last week, we discussed how the core period of the spring rally typically occurs around the Lunar New Year, with market trends shifting from large-cap value stocks to tech-oriented small-cap growth stocks. Given recent catalysts and signs of stagflation, we recommend viewing broad AI applications as a call option. Market discussions about the spring rally have intensified recently, particularly because this year’s Lunar New Year falls later than usual—raising questions about whether the rally might start earlier.
Historically, seasonal "credit easing-expectation easing" dynamics have weakened, and the government’s early bond issuance could pull forward the timing of the spring rally. Additionally, higher allocations from insurance funds and early positioning needs may also accelerate the rally. So, what factors could drive an earlier rally this year?
**Potential Drivers of an Early Spring Rally: Valuation Adjustments & the 15th Five-Year Plan** Historical patterns suggest that spring rallies are more likely when markets are in a state of divergence across the three DDM factors. In contrast, strong pricing power in either the numerator or denominator tends to weaken the rally. Currently, the economy is in a moderate recovery phase, with limited room for large-scale stimulus amid high-quality development goals, making a spring rally highly probable.
As noted in our report *The Rhythm and Layout of Spring Market Trends*, the "learning effect" has led to earlier rallies since 2018, with increased chances of a pre-New Year surge. This year’s late Lunar New Year also raises the likelihood of policy, economic data, or risk events catalyzing an early rally, as seen in 2013 and 2018.
Spring rallies often reflect early bets on shifting expectations, with low valuations amplifying the effect. This explains why late-bear markets—such as 2009, 2019, and 2023—saw early rallies. The depth of prior corrections also matters, so the current adjustment phase warrants close monitoring.
Moreover, 2026 marks a transitional year as the first of the 15th Five-Year Plan (2026–2030), setting the stage for future growth. Markets tend to price in high expectations during such periods.
**Five-Year Plan Proposals Intensify Spring Rallies, Boosting Related Themes** Historically, spring rallies gain momentum after the release of Five-Year Plan proposals. For example: - In 2010, markets rose post-proposal but corrected due to central bank tightening, only to rebound strongly during the spring rally. - In 2015, an initial uptrend was disrupted by circuit breakers, but the spring rally brought a recovery. - In 2020, the rally persisted post-proposal without major setbacks, extending beyond the Lunar New Year.
Growth stocks typically outperform after proposal releases, though risks remain. For instance, after the 14th Five-Year Plan proposal, value stocks briefly led before growth regained dominance—a pattern seen in prior cycles, where growth rebounded after risk-driven pauses.
Sectors highlighted in Five-Year Plans tend to outperform during spring rallies: - The 12th Plan (2011–2015) emphasized IT, clean energy, biotech, and advanced manufacturing, driving gains in these areas. - The 13th Plan (2016–2020) added infrastructure, digital economy, and agriculture, boosting related stocks. - The 14th Plan (2021–2025) prioritized next-gen tech, new materials, and green industries, fueling expansions in these fields.
**15th Five-Year Plan: Upgrading Traditional Industries + Scaling Emerging Sectors + Future-Tech Foresight** Key adjustments in the 15th Plan include: 1. **Seizing the tech revolution**: Accelerating self-reliance in core technologies, integrating innovation with industry, and leveraging China’s AI lead to drive growth via "new productive forces." 2. **Reprioritizing tasks**: Modernizing industrial systems (focusing on smart, green, and integrated development), expanding high-level openness, and advancing common prosperity through employment and public services. 3. **New emphasis**: Adding "space power" to industrial goals, alongside manufacturing, quality, transport, and cyber strength, while pushing rural revitalization and agricultural modernization.
Sector-wise, the plan targets: - **Traditional industries**: Enhancing global competitiveness in mining, metallurgy, chemicals, textiles, machinery, and shipbuilding. - **Emerging industries**: Accelerating clusters in new energy, materials, aerospace, and low-altitude economy. - **Future tech**: Pioneering quantum computing, biomanufacturing, hydrogen/fusion energy, brain-computer interfaces, embodied AI, and 6G.
**Investment Implications** Mid-term, the Plan’s tech focus reinforces growth-stock narratives. Strategically, innovation is paramount, with global liquidity shifts (Fed rate cuts) likely benefiting RMB assets and growth styles. China’s engineering talent, vast market, and manufacturing edge position it well for global tech leadership.
Short-term, hard-tech sectors face rotation pressures, but spring rally expectations are rising. Historically, Plan-related themes gain traction during rallies, suggesting opportunities in: 1. **Tech trends**: AI applications and undervalued consumer electronics. 2. **High-growth**: Semiconductors, energy storage/lithium batteries, machinery, and wind power. 3. **Rotation plays**: Robotics and biopharma. 4. **Policy bets**: Quantum tech, biomanufacturing, hydrogen/fusion, brain-computer interfaces, embodied AI, and 6G.
**Risks**: Slower-than-expected domestic recovery, delayed Fed cuts, inadequate policy support, tech stagnation, or geopolitical tensions.
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