This strategy summary outlines Shenwan Hongyuan's 2027 A-share investment outlook, focusing on the construction of a "second-stage advance" after the current correction phase.

The 2026 market featured a symmetric pattern between rising and correcting waves in terms of capital supply and demand. During rising waves, extreme divergence occurred under stock-game conditions, with sector-focused funds creating powerful positive feedback loops through leverage. During correcting waves, various types of capital broadly reduced positions amid widespread pessimism, and concerns about position cuts by allocation-oriented and absolute-return funds drove negative capital feedback loops. Conditions for restoring medium-to-short-term capital supply-demand balance have improved. However, sector-focused and allocation-type funds still hold high positions in the computing power chain, and long-term clearing has not yet been completed. New industry trends, a certain degree of position rotation, and policy and institutional adjustments are the conditions needed for long-term clearing.

Currently, the overseas asset allocation environment faces headwinds, but a turning point may come from Warsh's monetary policy framework reform, with opportunities for improvement in the 2027 overseas allocation environment. Domestic A-share corporate earnings will face pressure from cost accounting effects in Q4 2026 through Q1 2027, with a rebound expected in Q2 2027, returning toward normal levels but with limited elasticity. Domestic government transition is advancing rapidly, with policy execution strengthening at a faster pace. External demand is expected to be high in the first half and low in the second, while domestic demand may be low initially and high later. Overall, the 2027 domestic asset allocation environment is likely to be broadly stable.

AI is "not wrong," but computing power inflation may be "wrong." There is no widespread computing power inflation in the long-term outlook for the AI industry. Opportunities exist in both the phase dominated by computing power inflation and the phase dominated by computing power deflation, but the transitional period in between represents headwinds for capital markets. The probability of a major wave advance based on the logic of computing power inflation reconstruction has significantly decreased. Taking a longer view, waiting for breakthroughs in AI large models and application endpoints to build the "second-stage advance" is the appropriate approach.

Revisiting the "two-stage advance theory": It is an objective judgment that AI application endpoints still have room to open new tracks, and it is an objective trend that the AI industry continues to progress. The space for household asset allocation migration toward equities has not yet been effectively utilized. The next major wave advance will still be dominated by AI industry trends as the baseline scenario. The adjustment period between the two stages of advance may last several quarters, but not multiple years.

There is already a timetable for long-term cost-performance clearing. As computing power chain fundamental expectations are revised downward, valuation declines and cost-performance improvements are matching rapidly. From a reverse DCF perspective, the matching of long, medium, and short-term logic and valuation models across various segments of the computing power chain is approaching a well-aligned state. This is a characteristic of nearing a medium-term bottom. Only a larger-scale fundamental downward revision would extend the major wave adjustment, requiring all remaining optimistic expectations to be revised down, which remains a low-probability scenario. If 2027 can complete the "construction of the second-stage advance," the market rally can fully unfold on the basis of well-matched logic and valuations.

Positioning across long, medium, and short-term waves: Long-term, A-shares are in a "2018-level adjustment phase between two stages of advance." Medium-term, the defense-dominated unilateral adjustment is already in its latter stage, potentially followed by a bottoming phase with active thematic trading, which is a necessary process for building the "second-stage advance." Short-term, oversold rebound momentum is accumulating, capital supply-demand balance is being rebuilt, and a spring rally in 2027 around the year-end and New Year period can be expected, with an earlier oversold rebound also being reasonable.

Core conclusion of market trend assessment: Before March-April 2027, oversold rebound activity may unfold, and A-shares overall are unlikely to make new lows during this window. After March-April 2027, the current market adjustment may reach the absolute bottom zone, after which structural opportunities will increase and themes will become active, with new consensus potentially forming during this process. In H2 2027, the "second-stage advance" construction is anticipated. The year 2027 may mark a clear turning point from a resonance of headwinds across asset allocation environment, industry trends, and capital supply-demand, toward a resonance of tailwinds. Correspondingly, investment opportunities in H2 2027 may be better than in H1 2027, and 2027 investment returns may exceed those of 2026.

In 2027, emphasis should be placed on thematic investing, seeking new industry consensus from thematic clues, which is also a necessary process for building the "second-stage advance." Future directions with high attention in AI application endpoints include enterprise office solutions, healthcare AI, embodied intelligence, and AI security. Among non-technology directions, attention should be paid to cyclical assets with advantageous supply-demand dynamics, combining domestic demand trading with high-quality factors and high-dividend factors.

Risk warnings: Overseas economic recession exceeding expectations; domestic economic recovery falling short of expectations.