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

Short-term trends in A-shares before the Spring Festival may have some influence on post-holiday market performance. Since 2010, in 16 years, the Shanghai Composite Index strengthened (weakened) during the first five trading days before the festival, while the index fell (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.

Spring market rally is not over; risks during the holiday may be limited, and holding stocks through the festival is feasible. (1) Economic and earnings expectations may improve during this year’s Spring Festival: First, travel and consumption data during the holiday may be favorable. Second, real estate sales during the Spring Festival may see a rebound: firstly, due to low base effects, year-over-year growth in real estate sales during the holiday may pick up; secondly, strong policy expectations to stimulate real estate sales across regions may sustain a warming trend during the holiday. (2) Liquidity during the festival may remain accommodative: First, macro liquidity may stay loose during the holiday period. For example, on February 11, the US January CPI data will be released, and on February 17, US retail sales data will be announced, likely keeping the dollar index low and limiting external constraints on domestic liquidity. Additionally, domestically, before the holiday, 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 holiday may stay neutral: External geopolitical risks may persist but have limited impact domestically—such as minimal US-China strategic risks during the festival, and potential geopolitical tensions like US-Iran conflicts, which may only affect oil prices and have limited influence on global capital markets. Furthermore, expectations for more proactive policies before and after the festival remain strong.

Post short-term correction, technology growth and cyclical sectors may still be relatively favored. (1) Reviewing history, sectors supported by policies and industry trends may regain favor after corrections: First, sectors that outperformed before the correction may reassert strength, driven by policy support and upward industry trends. For example, in spring 2016, the top-performing sectors like electronics and light manufacturing regained top positions after correction; similar patterns occurred in 2019 with electronics, computing, and media; in 2021 with petrochemicals, beauty, and basic chemicals; and in 2023 with non-ferrous metals and communications. Second, sectors with low valuations or sentiment before correction may catch up afterward. (2) Currently, after a short-term correction, technology growth and cyclical sectors may still be relatively advantageous: First, these sectors benefit from ongoing policy support and industry momentum—such as policies promoting technological innovation, 6G, quantum tech, biotech, hydrogen energy, brain-computer interfaces, and embodied intelligence, with recent breakthroughs and catalysts in commercial aerospace, AI, and related commodities like non-ferrous metals and chemicals. Second, sectors like pharmaceuticals, computing, chemicals, non-bank financials, and consumer staples may see a rebound: their valuation levels are relatively low, with growth in biotech and computing, and low valuation quantiles in chemicals, steel, non-bank financials, agriculture, and consumer sectors.

Industry allocation: Before the festival, a balanced approach across technology growth, some cyclical, and consumer sectors is recommended. (1) Automotive, military, beauty, machinery, and communications sectors with strong 2025 annual reports may perform well in the short term. (2) The recent rebound in consumer sectors may be valuation-driven; sustainability remains uncertain. Historically, consumer confidence, low valuations, and profit growth have driven short- to medium-term upward trends. However, the current rebound’s sustainability is uncertain: consumer confidence remains weak, profit turning points have not appeared, and valuation recovery has been substantial. (3) Valuations in biotech, automotive, computing, and machinery sectors remain low. (4) Low-cost entry points before the festival include sectors with upward policy and industry trends: electronics (semiconductors, AI hardware), media (AI applications, gaming), computing (AI), military (commercial aerospace), communications (AI hardware), machinery (robots), new energy (fusion, energy storage, space PV), pharmaceuticals (brain interfaces, innovative drugs), non-ferrous metals, and chemicals; as well as sectors with potential for catch-up and marginal fundamental improvements, such as non-bank financials and consumer staples (food, retail, social services).

Risk warnings: Past experience may not predict future outcomes; policy surprises; economic recovery may fall short of expectations.

Main Text

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

(a) Short-term market trends before the festival may influence post-holiday performance

Short-term trends in A-shares before the festival may impact post-holiday market performance. Since 2010, in 16 years, the Shanghai Composite Index outperformed (underperformed) in the five trading days before the festival, while on the first trading day after, it declined (rose). 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 instances of divergence.

(b) Spring market rally is not over; hold stocks through the festival

This year’s holiday travel and consumption data may be favorable, real estate sales could rebound, and economic and earnings expectations may improve. (1) Travel and consumption during the holiday may be positive: First, according to the State Council Information Office, 2026 Spring Festival travel will start on February 2, with an estimated total cross-regional passenger flow of 9.5 billion, likely surpassing historical peaks; second, data from the Ministry of Public Security suggest a 3% increase in daily highway traffic during the holiday compared to 2025; third, the Civil Aviation Administration expects a record high in air passenger volume, reaching 95 million, with daily average around 2.38 million, up about 5.3%. On the consumption side: First, the Ministry of Commerce and other agencies issued the “2026 ‘LeGou New Year’ Spring Festival special activity plan,” focusing on new economy, digital, green, smart, health, and inbound consumption, with policies accelerating implementation; second, internet platforms’ “red envelope campaigns” involving over 1.5 billion yuan in rewards, integrating AI with holiday activities—such as AI-generated Spring Festival couplets, greeting videos, and social AI interactions—may boost short-term consumption expectations. (2) Real estate sales during the holiday may improve: In 2025, sales volume during the holiday was low, especially in first- and third-tier cities, with transaction quantities at low base levels; this year, with rising second-hand home sales in cities like Shenzhen and Beijing, and strong regional policies, real estate sales may continue to recover during the holiday.

Liquidity during the festival may remain loose. (1) Macro liquidity may stay ample: First, overseas, the US January CPI data (Feb 11) and retail sales (Feb 17) will influence the Fed’s rate outlook, but forecasts suggest CPI will stay around 2.7%, supporting expectations of no rate hikes. The dollar index may remain low, limiting external constraints. Second, domestically, before the holiday, the central bank’s open market operations tend to inject liquidity, and with seasonal tightness, further net liquidity injections and policy easing (reserve ratio cuts, rate cuts) are possible. (2) Stock market funds may stay at certain levels before the holiday and accelerate inflows afterward: Historically, since 2015, foreign net inflows increased in the five days after the holiday, and market sentiment remains resilient despite small pre-holiday outflows driven by liquidity and policy factors.

Risk appetite during the holiday may stay neutral. (1) External geopolitical risks may persist but have limited impact domestically: Recent US-China calls and statements suggest improved relations, reducing short-term strategic risks. However, overseas conflicts like US-India trade tensions and Iran-US negotiations may still pose risks, mainly affecting oil prices and limited global market impact. (2) Local legislative sessions before and after the festival may signal policy optimism: Many regions, including Beijing and Guangdong, emphasize stabilizing growth through service sector expansion, digital and elderly care, and infrastructure; policies supporting artificial intelligence, integrated circuits, and future industries are also expected to advance, reinforcing policy-driven growth expectations.

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

(a) After corrections, technology growth and cyclicals may still be relatively favored in the short term

Post-correction, sectors supported by policies and industry trends may regain favor. (1) Historical review shows that sectors outperforming before the correction tend to rebound after adjustments, driven by policy support and industry momentum. For example, in spring 2016, electronics and light manufacturing sectors that led gains before correction regained top positions afterward; similar patterns occurred in 2019 with electronics, computing, and media; in 2021 with petrochemicals, beauty, and chemicals; and in 2023 with non-ferrous metals and communications. These sectors benefited from policies like domestic smartphone rise, 5G deployment, and digital infrastructure. (2) Sectors with low valuations or sentiment before correction may catch up: for instance, in 2016, electronics had low valuation quantiles (~66%) and saw significant rebound; in 2019, similar low valuation levels (~40%) preceded strong gains. Currently, sectors like electronics, chemicals, and some industrials remain undervalued, supported by ongoing policies and industry catalysts such as 6G, quantum tech, biotech, commercial aerospace, and AI.

(2) Short-term sectors like pharmaceuticals, computing, chemicals, non-bank financials, and consumer staples may see a rebound: their valuation quantiles are low, and recent trading volumes are below historical averages, indicating potential for catch-up.

(b) Leading industries by annual report performance may outperform in the short term

Automotive, military, beauty, machinery, and communications sectors with strong 2025 annual report forecasts may perform well temporarily. (1) Historical data shows that sectors with top forecasted earnings growth tend to outperform shortly after the report disclosures: in the past 10 years, 8 out of 10 times, sectors with top five forecasted growth ranked in the top five gainers within 10 trading days; similarly, within 30 days, 5 out of 10 times. (2) Currently, sectors like automotive, defense, beauty, machinery, and communications forecast high growth rates (e.g., 471%, 398%, 378%, 275%, 242%) and may show short-term strength.

© Consumer sectors’ short-term rebound may be valuation-driven; sustainability is uncertain

Consumer sector rebounds may be valuation repairs; their continuation needs observation. (1) Historical review indicates that long-term downtrends in consumer sectors appeared mainly after 2021; since then, six rebounds averaged 70 days and 21.56% in magnitude. (2) Key drivers include consumer confidence, low valuations, and profit growth: rising confidence has historically led to short-term gains; low valuations and profit improvements also support rebounds. (3) Currently, consumer confidence indices have declined slightly, profit growth has slowed, and valuation recovery has been substantial, suggesting limited sustainability.

(d) Valuation sentiment remains low in emerging sectors like biotech, automotive, computing, and machinery

Primary growth sectors such as power equipment, media, and autos have low PEG ratios (e.g., 0.68, 1.00, 1.10). Their trading volumes and valuation quantiles are also low, indicating potential for future gains.

Secondary growth sectors like auto services, passenger cars, medical devices, and pharmaceuticals also show low sentiment and valuation levels. PEG ratios are low (e.g., 0.28, 0.48, 0.62, 0.68), and trading volumes are below historical averages.

Theme sectors such as innovative drugs, robotics, and energy storage exhibit low sentiment as well. PEG ratios are around 0.64–0.96, with low trading volume quantiles, indicating room for sentiment improvement.

(e) Balanced pre-festival allocation to technology growth, some cyclicals, and consumer sectors

Before the festival, consider deploying at dips into sectors with upward policy and industry trends: electronics (semiconductors, AI hardware), media (AI applications, gaming), computing (AI), military (commercial aerospace), communications (AI hardware), machinery (robots), new energy (fusion, energy storage, space PV), pharmaceuticals (brain interfaces, innovative drugs), non-ferrous metals, and chemicals. Recent data shows DRAM prices (DDR5) hitting new highs, and major industry events like Korea’s semiconductor expo and global AI summits are upcoming, supporting sector optimism.

Other sectors like aerospace, energy storage, and pharmaceuticals also have significant events and technological advancements expected, providing opportunities for strategic deployment.

3. Risk warnings

1. Past experience may not predict future outcomes: The historical analysis has limitations; market conditions, industry trends, and global environments vary over time, affecting investment results differently. Past performance is for reference only.

2. Policy surprises: Macroeconomic policies influenced by external shocks, geopolitical developments, or unexpected events may deviate from expectations, impacting investment decisions.

3. Economic recovery may fall short: External disruptions, trade disputes, natural disasters, or other unpredictable factors could cause economic recovery to fluctuate, affecting investment outlooks.

(Source: Huajin Securities)