Holding stocks during the May Day holiday is a favorable option this year. From a long-term perspective, the current bull market is far from over. In the short term, the rebound that began in April still has room to continue upwards, according to Zhang Qiyao, Chief Strategist and Assistant President of the Economic and Financial Research Institute at Industrial Securities Co., Ltd.

Zhang stated that both the economy and corporate earnings are showing a continuing recovery trend, which bodes well for market performance in May. From an external viewpoint, Chinese assets remain a preferred choice for global investors, whether considering capital flows or global export market share. There should be greater confidence in Chinese assets.

Regarding allocation, Zhang believes the overall market does not carry significant risks, but structural rebalancing is advisable. This involves diversifying or rotating from sectors with high crowding levels to those with lower crowding and stronger earnings performance, which represents a sound strategic choice at present.

In terms of sectors, the second quarter favors technology, with artificial intelligence (AI) and overseas expansion being key focuses. Investment opportunities are expected to broaden and become more comprehensive in the second half of the year, with potential rotation into undervalued sectors such as real estate and consumer goods.

The bull market is far from concluding. Zhang emphasized that despite a volatile market performance this year—strong in January and February but experiencing fluctuations in March—the rebound that started in April has further upside potential. A survey of domestic institutional investors indicates that most expect the Shanghai Composite Index to reach around 4200 points during this rebound, suggesting room for growth from current levels.

Additionally, most investors surveyed plan to maintain their current positions while making structural adjustments, with relatively few opting to significantly increase or decrease their holdings. This indicates general satisfaction with current positioning and low inclination to realize profits or reduce exposure.

Recent corporate earnings reports, despite overall market volatility, show that sectors with strong financial performance maintain clear advantages. First-quarter results have generally been positive. Continued recovery in the economy and corporate earnings supports a favorable outlook for May, making holding stocks during the holiday a reasonable choice.

The current market volatility stems partly from high concentration or crowding in certain sectors, raising concerns about overheating. However, this overheating is localized or structural. While some areas, like optical modules, exhibit high crowding levels, most sectors—including cyclical, consumer, and even many technology segments—remain at moderate to low crowding levels. This structure supports the sustainability of the market rally.

With the majority of A-share sectors not excessively crowded, systemic risk is limited. Nonetheless, rebalancing by shifting from overheated sectors to less crowded, fundamentally sound areas is a prudent strategy. Instead of broadly reducing positions, investors concerned about high crowding should consider rotating into sectors with better valuations and earnings prospects.

From a global perspective, manufacturing powerhouses and energy-independent nations tend to benefit most following significant geopolitical turmoil, and China meets both criteria. With coal as a primary energy source and strength in renewable energy, coupled with strong manufacturing capabilities, China's industries stand to gain from global supply chain adjustments, potentially increasing their global market share.

China's economic foundation has shifted towards midstream manufacturing, heavily supported by exports. Geopolitical conflicts may further enhance China's export competitiveness and global market share over the medium to long term, driving economic recovery. From a valuation standpoint, global capital reallocation post-conflict may favor Chinese assets, as investors—including those from the Middle East—rebalance between U.S. and Chinese markets.

Overall, both capital flows and export dynamics support medium- to long-term benefits for Chinese assets, warranting increased confidence.

In terms of allocation, last year's earnings landscape was starkly divided between outperformers and underperformers. This year, however, presents a more nuanced picture. While AI computing and hardware—last year's leaders—continue to show strength, sectors like renewable energy, solar, commodities, and consumer goods, which faced pressure previously, are showing marginal improvement and potential for recovery. This expands investment opportunities but also increases allocation complexity.

For the second quarter, investors should focus on structural allocation clues from first-quarter 2026 and full-year 2025 earnings reports. This involves tracking sustained strength in outperformers while identifying turnaround opportunities in underperformers.

In May and June, high-growth sectors like technology and manufacturing remain key battlegrounds, with AI and global expansion being top priorities. Within AI, while optical modules may be crowded, other sub-sectors offer growth potential and are less saturated, making diversification within AI a viable strategy.

New energy, including energy storage, lithium batteries, wind power, and solar, is another promising area, with improving fundamentals across the supply chain. Manufacturing, new energy, high-end equipment, and AI are expected to be core themes in May. Investors should adjust allocations based on sector crowding levels.

In the second half of the year, rotation into undervalued sectors like real estate and consumer goods is possible. The logic is that AI and global expansion in manufacturing will act as economic engines, driving broader recovery in the economy, household income, consumption, and real estate. Cyclical opportunities may emerge in the second half or fourth quarter.

Overall, this year's market is expected to be more diversified than the previous two, with a wider range of investment opportunities. The second quarter leans towards technology, while the second half may see broader and more comprehensive gains.