A-shares experienced volatile adjustments this week. Major broad-based indices generally closed lower. The Shanghai Stock Exchange 50 Index, the Small and MidCap 100 Index, and the Shanghai Composite Index saw relatively smaller declines, while the STAR 50 Index, the ChiNext Index, and the CSI 500 Index experienced more significant drops. From a valuation perspective, indices such as the STAR 50 Index and the Wind All-A Index currently have relatively high valuation percentiles. As of February 6, 2026, their PE (TTM) percentiles since 2010 are all above 90%.
In policy developments, the Central Document No. 1 for 2026 was released, focusing on comprehensively promoting rural revitalization. Three government departments jointly issued a notice on the "zero-tariff" policy for inbound consumer goods for residents of Hainan Free Trade Port, effective immediately. The 2026 National Conference on Service Consumption and Trade was held in Beijing, summarizing work in 2025 and the 14th Five-Year Plan period, while planning for 2026 and the 15th Five-Year Plan.
Industry-wise, data from the China Index Academy indicates a recovery in the secondary housing market in several key cities in January. Preliminary data from the China Passenger Car Association estimates that wholesale sales of new energy passenger vehicles reached 900,000 units in January, a 1% year-on-year increase. A national power supply and demand forecast report predicts electricity consumption may reach 11 trillion kilowatt-hours in 2026. Internationally, the US announced a reduction of its so-called "reciprocal tariffs" on Indian goods from 25% to 18%. The European Central Bank decided to keep its three key interest rates for the eurozone unchanged during its monetary policy meeting on February 5. Iran and the US held indirect talks in Muscat, Oman, on February 6, agreeing to continue negotiations.
Amid short-term volatility, maintaining positions for the holiday is advised. The spring market rally remains promising, with potential positive developments in policy and fundamentals in the coming months. However, market performance may not be smooth, potentially entering a brief corrective phase before the Spring Festival. Historical trends show trading activity typically cools before the holiday, linked to tightening liquidity and reduced investor enthusiasm. While structural bull markets often see corrections after breaking through consolidation ranges, we still recommend holding positions. Post-holiday, trading activity is expected to rebound, potentially leading to a new upward trend supported by high-frequency holiday data and industry news.
Sector-wise, focus on electronics, power equipment, machinery, non-ferrous metals, communications, and computers. Thematically, short-term opportunities lie in the "price increase" theme within chemical raw materials and petroleum sectors. Medium-term, consider accumulating metal sector assets on dips. A five-dimensional industry comparison framework highlights electronics, power equipment, machinery, non-ferrous metals, communications, and computers as top-scoring sectors, primarily in growth and independent growth directions, warranting investor attention in February. Thematically, short-term focus should be on chemical raw materials and petroleum sectors within the "price increase" theme that have limited overall gains and relatively low valuations. Medium-term, consider accumulating metal sector assets after volatility subsides following consolidation.
Risk factors include slower-than-expected policy implementation, a significant decline in market sentiment, economic growth falling substantially short of expectations, and a major deterioration in Sino-US relations.