Last week's market performance was indeed unfavorable, with weakness observed in assets like gold and Bitcoin, alongside growing skepticism towards technology stocks. The Hang Seng Index fell below the 27,000-point mark, retreating to its 60-day moving average. This week, market attention will remain focused on the Middle East situation. Should the US take military action, Iran is expected to retaliate against US military bases in the region, potentially dragging the entire area into conflict. Results from the recent Japanese House of Representatives election show the ruling coalition securing a majority, with Prime Minister Sanae Takaichi continuing her administration; subsequent developments warrant close observation. A cluster of key US data releases is scheduled for this week, including non-farm payrolls and inflation reports. Domestically, January's aggregate financing and inflation figures are also due. Barring any major unforeseen events, the final week before the holiday is expected to pass relatively smoothly.

Regarding market themes, the State Council executive meeting emphasized in-depth planning and promotion of a batch of major projects and significant engineering initiatives in key areas such as infrastructure and urban renewal. Fujian Province released implementation opinions on urban renewal work, while Hainan plans 393 urban renewal projects for the year. The stability of the property market significantly impacts broader market conditions. Several developments occurred in commercial aerospace: China successfully launched a reusable experimental spacecraft, and the US Falcon 9 rocket received clearance to resume flights, with a Crew Dragon manned mission scheduled for February 11. Additionally, Tesla is evaluating multiple US locations to expand its solar cell manufacturing operations, targeting an annual solar manufacturing capacity of 100 gigawatts within three years. Space-based solar power is expected to continue benefiting from these trends.

The Spring Festival Gala will feature performances by companies including Unitree, Galaxy General, Magic Atom, Dreame Technology, Songyan Power, and Zhiyuan. In a recent interview, Elon Musk again emphasized the importance of dexterous robotic hands. Observers are watching for any related developments in robotics. The Spring Festival holiday has become a key battleground for promoting AI applications, with giants like Alibaba and ByteDance engaging in a subsidy war involving tens of billions of yuan. New models such as DeepSeek and Grok are poised for release. Within the AI sector, focus is primarily on application-end companies that are less susceptible to disruption.

This week's featured stock is Pop Mart (09992). The company targets over 100 million global registered members by the end of 2025 (domestic registered members reached 46 million by the end of 2024 and approximately 60 million by H1 2025, with a smaller overseas base). It currently operates over 700 stores globally. Theme park visitor traffic has exceeded expectations, growing 77% year-on-year compared to 2024; notably, non-parent-child family visitors accounted for 59%, and non-local tourists comprised 58%, indicating a broader potential visitor demographic than anticipated. Planning is underway for the second phase of the Chaoyang Park theme park. Guohai Securities estimates that Labubu sales have surpassed 100 million units. Primarily a plush toy line, Labubu is priced at 99 yuan domestically and up to approximately 200 yuan (28 USD) overseas. Blind box figurines are priced from 69+ yuan domestically, reaching up to 140+ yuan (20 USD) overseas. Assuming an average price of 130 yuan across categories, full-year sales are estimated to exceed 130 billion yuan. Sales across all product categories and IPs are estimated at over 400 million units. Assuming an average unit price of 100 yuan (plush average likely exceeding 100 yuan, other categories slightly lower), full-year revenue could reach 400 billion yuan (with estimated profits around 140 billion yuan, based on a rough 35% profit margin). Guohai Securities forecasts a significant improvement in gross margin for 2025 compared to 2024, reaching approximately 70%-75% (70% in H1 2025), with supply chain efficiencies saving 3.4 billion yuan.

In industry observations, the primary used housing market in key cities continued its "price-for-volume" trend at the beginning of 2026. Data from the China Index Academy shows 118,000 transactions of second-hand homes across 20 cities in January, a slight decrease of 3.1% month-on-month but a 15.3% increase year-on-year, indicating sustained market activity. Since Q4 of last year, the volume of new and existing listings in major cities has decreased, and sellers' bargaining room has slightly narrowed, reflecting some alleviation of short-term supply pressure and a modest improvement in market sentiment. Shanghai recently introduced new property market policies, initiating the acquisition of second-hand homes for use as government-subsidized rental housing. On February 2, the first batch of such projects was formally signed, with pilot programs launched in Pudong New Area, Jing'an District, and Xuhui District, supported by financial backing from China Construction Bank. Shenwan Hongyuan Group believes the trough in China's real estate fundamentals is gradually approaching. On one hand, land acquisitions and new construction starts in China have fallen by 75% since 2021, a steeper decline than the 50%-70% drops seen in the US, Japan, and Germany. Second-hand home prices in China have declined by 40% since 2021, also exceeding the average 34% decline across 42 countries. On the other hand, achieving the goals of "halting declines and stabilizing the market" and "prudently defusing risks" still requires further policy support. Recent announcements of significant profit declines or losses by state-owned and central enterprises, which runs counter to policy intentions, may signal an impending policy inflection point. A February 2nd article in *Qiushi* clarified real estate's financial attributes, emphasized household balance sheets, reiterated the sector's important economic role, and suggested providing sufficient policy support upfront, marking a significant shift in tone towards the industry and signaling a further pivot towards supporting households and demand. Furthermore, *Qiushi* published 14 consecutive articles on urban renewal from January 15 to January 25, leading the market to anticipate that urban renewal may re-emerge as a key policy focus this year, also reflecting the important economic status of the property sector. In Hong Kong stocks, focus is on KE Holdings Inc. (02423), China Res Land (01109), CHINA JINMAO (00817), and LONGFOR GROUP (00960).

According to Hong Kong Exchanges data, the total open interest for Hang Seng Index futures (February) is 116,413 contracts, with a net open interest of 47,742 contracts. The settlement date for February Hang Seng Index futures is February 26, 2026. With the Hang Seng Index at the 26,560-point level and a high concentration of bull contracts below the central axis, the index shows a downward bias. As the earnings season progresses, Hong Kong stocks may open higher on Monday, following the strong rally on the US market last Friday. However, the overall market still lacks leading sectors to drive the index upward, suggesting a bearish outlook for the Hang Seng Index this week.

Recent market activity has displayed a clear characteristic of rotation from high-valuation to low-valuation sectors. This is influenced by the significant correction in precious metals and concerns in the US AI industry about AI potentially cannibalizing software. Many investment managers hold a consistent view that the first half of the year will continue to see speculation in AI and technology, with a rotation towards domestic demand expected in the second half. However, markets tend to price in such shifts early. Consequently, after a rally in technology stocks, the market has begun anticipating this rotation, shifting towards domestic demand-oriented sectors. These two directions are likely to see continued rotation in the future.