Hua Jin Strategy: The spring market rally is not over; hold stocks through the holiday. Technology growth and cyclical sectors may still outperform relatively.

Investment Highlights

The short-term trend of A-shares before the Spring Festival may influence the market performance after the holiday. Since 2010, over 16 years, the Shanghai Composite Index performed strongly (weakly) within the first five trading days before the festival, while it declined (rose) on the first trading day after the festival; in 12 of those years, the direction of the index’s movement in the five days before the festival was the same as in the five days after.

The spring market rally is not over, and risks during the festival period may be limited, so holding stocks through the holiday is advisable. (1) Economic and profit expectations may improve during this year’s Spring Festival: First, travel and consumption data during the festival may be favorable. Second, real estate sales during this year’s festival may see a rebound: firstly, due to low base effects, year-over-year growth in real estate sales during the holiday may increase; secondly, strong regional policy expectations to stimulate real estate sales may sustain a recovery trend during the holiday. (2) Liquidity during the festival may remain accommodative: First, macro liquidity may stay loose during the holiday period. Overseas, the US January CPI data will be released on February 11, and retail sales data on February 17, likely keeping the dollar index subdued, with limited external constraints on domestic liquidity easing; domestically, before the festival, the central bank may increase net liquidity injections amid seasonal tightness. Second, stock market funds may remain at certain levels before the festival and accelerate inflows afterward. (3) Risk appetite during the festival may stay neutral: External geopolitical risks may persist but have limited domestic impact—such as minimal US-China game risks during the festival, and ongoing geopolitical tensions like US-Iran conflicts, which may only affect oil prices and have limited impact on global capital markets. Additionally, expectations for more proactive policies before and after the festival remain strong.

Short-term adjustments notwithstanding, technology growth and cyclical sectors may still outperform. (1) Historical review shows that after corrections, mainline industries supported by policies and industry trends may regain favor: First, sectors that outperformed before the spring market correction tend to do so again, driven by policy support and upward industry trends. For example, in 2016, the top five sectors before the spring correction—electronics and light industry—recovered strongly; in 2019, electronics, computers, and media; in 2021, petrochemicals, beauty, and basic chemicals; in 2023, non-ferrous metals and communications. Second, sectors with low valuations or sentiment before correction may catch up afterward. (2) Currently, after short-term corrections, technology growth and cyclical sectors may still be relatively favored: First, these sectors benefit from ongoing policy support and industry upward trends—such as policies promoting 6G, quantum tech, biotech, hydrogen energy, brain-machine interfaces, and embodied intelligence, along with catalysts like commercial aerospace, AI, and rising commodity prices in metals and chemicals. Second, sectors like pharmaceuticals, computers, chemicals, non-bank financials, and consumer staples may rebound: their valuation quantiles are relatively low, with growth potential.

Industry allocation: Before the festival, a balanced allocation across technology growth, some cyclical, and consumer sectors is recommended. (1) Automobiles, military industry, beauty and personal care, machinery, and communications may perform well in the short term, supported by 2025 annual reports. (2) Consumer sectors’ short-term rebound may be valuation-driven; sustainability remains uncertain. Historically, consumer confidence, low valuations, and profit growth drive short-term upward trends. However, current indicators—such as consumer confidence indices, profit margins, and valuation levels—suggest the rebound’s sustainability needs monitoring. (3) Growth sectors like pharmaceuticals, automobiles, computers, and machinery currently have low valuations. (4) During the festival, consider buying on dips in sectors with policy and industry support, such as semiconductors, AI hardware, media, AI applications, military aerospace, communications, robotics, new energy, medicine, non-ferrous metals, and chemicals, especially those with potential for rebound or marginal fundamental improvements.

Risk warnings: Past experience may not predict future performance; policy surprises or deviations from expectations; economic recovery may fall short of forecasts.

Main Content

1. To hold stocks or cash during the Spring Festival?

(1) Short-term market trends before the festival may influence post-holiday performance. Since 2010, in 16 years, the Shanghai Composite Index’s performance in the five days before the festival has often been opposite to the first day after, with 9 instances of strong (weak) performance before the festival and declines (gains) afterward. In 12 of those years, the direction of the index’s movement in the five days before the festival was consistent with the five days after, with only four years showing divergence.

(2) The spring market trend is not over; holding stocks through the festival is advisable. This year, travel and consumption data during the festival are expected to be favorable, and real estate sales may rebound, improving economic and earnings outlooks. Travel data: the State Council announced that 2026 Spring Festival travel will start on February 2, with an estimated total cross-regional flow of 9.5 billion person-trips, likely surpassing historical peaks; highway traffic is expected to increase by about 3% year-over-year; civil aviation passenger volume may reach a record 95 million, up 5.3%. Consumption: policies promoting digital, green, smart, and health-related consumption are accelerating; major internet platforms are launching large红包 campaigns, integrating AI into festival activities, boosting short-term consumption. Real estate sales during this year’s festival may improve due to low base effects last year and strong policy expectations, with second-hand sales also showing signs of recovery in cities like Shenzhen and Beijing.

Liquidity during the festival may stay loose: (1) macro liquidity may remain ample, with US CPI and retail data influencing Fed policy but likely keeping rates low; the dollar index may stay subdued, limiting external constraints. Domestically, before the festival, the central bank may increase net liquidity amid seasonal tightness, with room for reserve ratio cuts or rate adjustments. (2) Stock market funds may stay at certain levels before the festival and accelerate inflows afterward, supported by historical patterns of foreign and domestic capital flows.

Risk appetite during the festival may stay neutral: external geopolitical risks exist but are limited—US-China relations may improve slightly; geopolitical tensions like US-India trade and US-Iran conflicts may persist but mainly affect oil prices, with limited impact on global markets. Policy expectations remain positive, with local governments announcing measures to stabilize growth and support emerging industries.

2. Industry allocation: balanced across technology growth, cyclicals, and consumer sectors before the festival.

(1) After corrections, technology growth and cyclicals may still outperform, supported by policy and industry trends. Historical data shows sectors like electronics, computers, media, and metals tend to rebound after corrections driven by supportive policies and industry upgrades. For example, in 2016, electronics and light industry led gains; in 2019, electronics, computers, and media; in 2021, petrochemicals and beauty; in 2023, non-ferrous metals and communications. Valuation and sentiment lows during corrections often precede rebounds. Currently, sectors like tech and cyclicals benefit from policies promoting 6G, quantum tech, biotech, commercial aerospace, and rising commodity prices. Short-term, pharmaceuticals, computers, chemicals, non-bank financials, and consumer staples may also catch up, given their low valuation quantiles.

(2) Industries with high growth potential in annual reports may perform well short-term, such as autos, defense, beauty, machinery, and communications, based on historical patterns of post-report performance.

(3) Consumer sectors’ short-term rebound may be valuation-driven; sustainability uncertain. Historical rebounds average 70 days with about 21.56% gain, driven by consumer confidence, low valuations, and profit growth. Current indicators suggest the rebound’s sustainability needs monitoring, as consumer confidence and profits are still weak.

(4) Growth sectors like pharmaceuticals, autos, computers, and machinery currently have low valuations and sentiment. The same applies to sub-sectors like auto services, medical devices, and chemical pharmaceuticals, which show low trading activity and valuation levels.

(5) Thematic sectors such as innovative drugs, robotics, and energy storage also exhibit low sentiment, with low valuation forecasts and trading activity.

(6) Before the festival, consider deploying capital into sectors with policy and industry support, including semiconductors, AI hardware, media, AI applications, military aerospace, communications, robotics, new energy, medicine, non-ferrous metals, and chemicals, especially those with rebound potential or fundamental improvements.

3. Risk warnings: past patterns may not repeat; policy surprises; economic recovery may underperform expectations.

(Article source: Huajin Securities)