Investing in stocks requires reading the research reports of Golden麒麟 analysts, which are authoritative, professional, timely, and comprehensive, helping you uncover potential thematic opportunities! Source: Chen Guo Investment Strategy Summary Market volatility intensified this week due to factors including escalating geopolitical tensions, the finalization of the Federal Reserve Chair nomination, and a dense period of earnings releases in both China and the US. We believe that current external risk disturbances are not the primary factor determining the trend of the A-share market. Looking ahead to February, the still-favorable micro-liquidity environment, coupled with fermenting policy expectations ahead of major meetings, is expected to continue supporting the unfolding Spring Rally. However, changes in liquidity and fundamental expectations are anticipated to lead to some shifts in the leading market themes. Integrating three factors—the profit cycles of various styles, market valuation dispersion, and the historical performance rhythm of market styles during past commodity price increase cycles—we assess that a major, long-term style rotation remains at a relatively early stage. This week, some pro-cyclical sectors showed tentative price signals aligned with news flow. A clearer improvement in the probability of success for such a rotation may require further catalysts, such as increased policy certainty and a broader diffusion of the reflation narrative. On a smaller structural scale, compared to high-volatility, high-valuation assets, portfolio allocation could appropriately shift towards sectors with sound growth logic that have not experienced extreme gains since the start of this Spring Rally. Long-term style rotation remains early-stage: 1. From a growth perspective: As of January 31st, approximately 2,133 A-share listed companies had disclosed their 2025 annual earnings forecasts. In terms of earnings realization, sectors with upward earnings revisions (exceeding expectations) over the past month remain concentrated in the two main growth themes of [price increases + AI]. Furthermore, the Q4 2025 quarter-on-quarter average net profit growth forecasts for AI hardware (semiconductors, components, communication network equipment, etc.) and the price increase chain (industrial metals, energy metals, agrochemicals, etc.) have shown further improvement compared to Q3 2025. Concurrently, it is noteworthy that sustained upstream price increases have begun to raise concerns about potential profit growth deceleration for some midstream manufacturing sectors in Q4 2025, a trend that may persist into Q1 2026. 2. Valuation perspective: The degree of valuation dispersion among Shenwan secondary industries has historically been a good indicator for timing switches between high/low P/E (i.e., growth/value) styles. For instance, in years like 2010, 2014, and 2021, when the difference between the 90th percentile and 10th percentile P/B values for Shenwan secondary sectors reached highs above 5, significant style rotations lasting 3-4 years often occurred. Currently, while this indicator is above the median level since 2010, it has not yet entered a highly cautionary zone. A sustained improvement in the value style's success rate would likely require further catalysts from policy signals and a shift in relative earnings strength trends. 3. Historical review perspective: Rising commodity prices do not necessarily lead to growth styles underperforming entirely, nor do they guarantee a rotation into consumer styles. Taking the 2008-2011 upcycle as an example, the electronics sector delivered stellar returns driven by the smartphone wave, and the overall growth style was the most dominant. The consumer style did outperform during the 2008-2011 and 2016-2017 cycles but underperformed in 2022. We previously highlighted opportunities in the price increase chain as early as December. However, having played out significantly since then, a tactical adjustment in market structure is now warranted. The metals sector has shown strong performance from December to date, accumulating substantial paper profits. Yet, short-term futures price volatility persists, and factors like the Fed Chair nomination are marginally impacting medium-term weak US dollar expectations. Medium-term, the macro logic remains intact—globally accommodative liquidity, tight supply-demand dynamics for some cyclical products, and synchronized fiscal expansion in China, the US, and Europe. However, historical stock performance suggests that if commodity prices oscillate at high levels, the overall cyclical style tends to struggle to significantly outperform, awaiting a clear price breakout signal. Compared to high-volatility, high-valuation assets, recent portfolio allocation could explore sectors with solid growth logic that haven't seen extreme gains during this Spring Rally, such as Electronics (components/semiconductors), Communications, and Non-Bank Financials. Key industry focuses: Electronics (memory/semiconductors, etc.), Insurance, Media, Machinery & Equipment, Communications, Chemicals, etc. Key thematic focuses: Robotics, Autonomous Driving, AI Applications, etc. Risk warnings: Domestic demand policy effectiveness below expectations; significant further increases in tariff rates; potential errors in data statistics. 1 Spring Rally Not Over Yet, How Will Market Structure Shift? Market volatility intensified this week due to factors including escalating geopolitical tensions, the finalization of the Federal Reserve Chair nomination, and a dense period of earnings releases in both China and the US. We believe that current external risk disturbances are not the primary factor determining the trend of the A-share market. Looking ahead to February, the still-favorable micro-liquidity environment, coupled with fermenting policy expectations ahead of major meetings, is expected to continue supporting the unfolding Spring Rally. However, changes in liquidity and fundamental expectations are anticipated to lead to some shifts in the leading market themes: This week, some pro-cyclical sectors showed tentative price signals aligned with news flow. We assess that a major, long-term style rotation remains at a relatively early stage, based on an integrated analysis of three factors: the profit cycles of various investment styles, market valuation dispersion, and the historical performance rhythm of market styles during past commodity price increase cycles. 1. Earnings Previews: How Are Different Styles Performing? The recent dense earnings release period in both China and the US has become a significant factor influencing style volatility. As of January 31st, approximately 2,133 A-share listed companies had disclosed their 2025 annual earnings forecasts, accounting for 39.0% of the total. At the annual level, the positive ratio (turning losses to profits, pre-announcing increases, slight increases, continuing profitability) reached 52.1%. Using the arithmetic average of the forecast ranges, under the current disclosure rate, the Q4 2025 quarter-on-quarter net profit attributable to parent company shareholders growth for disclosed companies declined compared to Q3 2025. Specifically, for all A-shares (disclosure rate 39.0%), the single-quarter net profit growth reached +33.9% year-on-year, down 18.0 percentage points compared to Q3 2025 on a comparable basis. Excluding financials (disclosure rate 39.3%), the growth was +30.3%, down 16.0 percentage points compared to Q3 2025, though potential over/underestimation due to disclosure rules should be noted. Among Shenwan primary industries, the top three sectors by positive ratio were Non-Bank Financials, Steel, and Nonferrous Metals. Considering potential accuracy issues with primary industry data due to low disclosure rates, we further analyze Shenwan secondary/tertiary subsectors. High-growth sectors—with current disclosure rates >30%, positive ratios >60%, and average Q4 2025 single-quarter net profit forecast growth >30%—remain primarily concentrated along the themes of [Price Increase Chain + Technology + Advanced Manufacturing]: 1) Cyclicals: Industrial Metals, Precious Metals, Energy Metals, Fiberglass Manufacturing, Agrochemical Products, etc.; 2) Manufacturing: Batteries, Marine Equipment, Ground Weaponry, Auto Parts, Motorcycles, etc.; 3) Technology: Semiconductors, Components, Communication Network Equipment & Components (Optical Modules), Electronic Chemicals, etc.; 4) Consumer: Internet E-commerce, Personal Care Products, Cosmetics, Medical R&D Outsourcing (Concho Resources), etc.; Among these, under comparable disclosure rates, both AI hardware (semiconductors, components, communication network equipment, etc.) and the price increase chain (industrial metals, energy metals, agrochemicals, etc.) showed further improvement in their average Q4 net profit growth forecasts compared to Q3 2025. In contrast, sectors like Batteries, Marine Equipment, Auto Parts, and Medical R&D Outsourcing (Concho Resources) experienced some degree of growth deceleration relative to Q3 2025. On the other hand, Shenwan primary industries with higher negative ratios included Coal, Petroleum & Petrochemicals, and Light Industry Manufacturing. Among Shenwan secondary subsectors, those with current disclosure rates >30%, negative ratios >60%, and average Q4 2025 single-quarter net profit forecast growth <10% are mainly concentrated in [Ferrous Metals Chain, Traditional Consumption, Property Chain] sectors: 1) Cyclicals: Refining & Trading, Coal Mining, Chemical Raw Materials, Non-Metallic Materials, Decoration Building Materials, etc.; 2) Manufacturing: Aerospace Equipment, etc.; 3) Consumer: Home Furnishings, General Retail, Hotels & Catering, Baijiu (White Spirits), Kitchen & Bathroom Appliances, Animal Husbandry, etc.; 4) Finance/Property/Staples: Housing Construction, Communication Services, Logistics, etc. From the perspective of earnings forecast adjustments over the past month, Shenwan secondary/tertiary sectors with the largest upward revisions (exceeding expectations) are also primarily concentrated in [Price Increase Chain + Technology + Advanced Manufacturing]: 1) Cyclicals: Potash/Phosphate Fertilizers, Lithium, Copper, Minor Metals (Tungsten, Cobalt), Fiberglass Manufacturing, etc.; 2) Manufacturing: Commercial Vehicles, Lithium Batteries, Power Transmission & Transformation Equipment, Electrical Instrumentation, etc.; 3) Technology: Film & Animation Production, Digital Chip Design (Memory), Communication Network Equipment (Optical Modules), PCB Bancorp, etc.; 4) Consumer: Medical R&D Outsourcing (Concho Resources), Personal Washing & Care Products, Watches & Jewelry, Baked Goods, etc.; 5) Finance/Property/Staples: Thermal Power Generation, Nuclear Power Generation, etc. Therefore, from an earnings realization perspective, the [Price Increases + AI] theme remains a relatively clear growth主线. On one hand, sectors like Nonferrous Metals, Memory, and Optical Modules continue to show significantly better-than-expected performance. On the other hand, their robust growth is spilling over to upstream and downstream industries, with recent price increases observed in electronic components and minor metals. The inflection point for Traditional Consumption + Property Chain remains unclear, awaiting further policy support. Meanwhile, it is noteworthy that, considering sustained upstream price increases, Q4 2025 earnings previews already hint at growth deceleration concerns for some midstream manufacturing segments, a phenomenon likely to persist into Q1 2026. 2. Sector Valuation Dispersion: Is It Extreme Yet? The degree of valuation dispersion among Shenwan secondary industries has historically been a good indicator for timing switches between high/low P/E (i.e., growth/value) styles. For instance, in years like 2010, 2014, and 2021, when the difference between the 90th percentile and 10th percentile P/B values for Shenwan secondary sectors reached highs above 5, significant style rotations lasting 3-4 years often occurred. Currently, while this indicator is above the median level since 2010, it has not yet entered a highly cautionary zone. A sustained improvement in the value style's success rate would likely require further catalysts from policy signals and a shift in relative earnings strength trends. 3. How Did Styles Perform in Past Commodity Price Upcycles? Reviewing three distinct periods of significant rise in the Nanhua Composite Index since 2008—namely Dec-2008 to Feb-2011, Nov-2015 to Feb-2017, and Apr-2020 to Jun-2022—we find that rising commodity prices do not necessarily lead to growth styles underperforming entirely, nor do they guarantee a rotation into consumer styles: 1) Both Cyclical and Consumer styles achieved excess returns relative to the Shanghai Composite Index during all three upcycles, while the performance of other CICC styles (Growth, Financials, Stable) varied. However, in terms of timing, the Cyclical style's excess returns tended to persist throughout the entire Nanhua Index upcycle, whereas the Consumer style's outperformance was less consistent (e.g., significant underperformance in 2022), potentially related to weak downstream demand transmission. 2) Under inflation-driven trading, Growth styles do not necessarily underperform entirely; it depends on the existence of a supportive industrial cycle. Taking the 2008-2011 cycle as an example, the Electronics sector delivered stellar returns driven by the smartphone wave, and the overall Growth style was the most dominant. 3) In the three past cycles, approximately six months after the Nanhua Composite Index peaked, the index often remained at relatively high levels. However, market performance showed that the Cyclical style's excess returns relative to the Shanghai Composite Index narrowed significantly, the Financial style demonstrated stronger resilience, and the overall market style shifted towards mid-to-low valuation segments. Therefore, a major, long-term style rotation still awaits clearer signals for improved probability of success. However, a tactical adjustment in market structure is also warranted. The metals sector has shown strong performance from December to date, accumulating substantial paper profits. Yet, short-term futures price volatility persists, and factors like the Fed Chair nomination are marginally impacting medium-term weak US dollar expectations. Medium-term, the macro logic remains intact—globally accommodative liquidity, tight supply-demand dynamics for some cyclical products, and synchronized fiscal expansion in China, the US, and Europe. However, historical stock performance suggests that if commodity prices oscillate at high levels, the overall cyclical style tends to struggle to significantly outperform, awaiting a clear price breakout signal. Compared to high-volatility, high-valuation assets, recent portfolio allocation could explore sectors with solid growth logic that haven't seen extreme gains during this Spring Rally, such as Electronics (components/semiconductors), Communications, and Non-Bank Financials. Risk Analysis 1) Domestic Demand Policies Below Expectations: If subsequent data on domestic property sales, investment, new construction starts, etc., fail to recover, credit conditions remain weak, infrastructure project initiation lags expectations, inflation stays persistently low, consumption shows no significant boost, and corporate profit growth continues to decelerate, leading to a disproval of the economic recovery narrative, then the overall market trend could face pressure, and overly optimistic pricing expectations would require correction. 2) Significant Further Increases in Tariff Rates: If the US continues to impose tariff hikes on China beyond market expectations, concurrently employing various sanctions and threats to block Chinese products from entering the US via re-export channels, and further initiates financial conflicts or forces delisting of China concept stocks, it could significantly negatively impact Chinese exports, economic growth, and financial markets, affecting A-share fundamentals and investor risk appetite. 3) Potential Errors in Data Statistics.