Last week, the A-share market generally displayed a pattern of volatile adjustment, with major broad-based indices showing mixed performance and significant structural characteristics. Notably, technology applications showed some strength, the oil and petrochemical sector recorded substantial gains for two consecutive weeks, and the commercial sector continued to fuel enthusiasm for the defense industry, while the new energy sector experienced a pullback.
Sector-wise, oil and petrochemicals, defense (commercial aerospace), media and computers (AI applications and digital yuan), and machinery and equipment (robotics) led the gains, whereas utilities and power equipment sectors turned downward.
Macro Analysis: Domestic December PMI Rebounds Against Seasonal Trends, Expectations Improve Domestically, the manufacturing PMI rebounded against seasonal patterns, indicating a marked improvement in corporate expectations. Statistical data reveals that the manufacturing PMI for December 2025 was 50.1%, an increase of 0.9 percentage points from November, marking its first rise into expansion territory since April. Among the 21 industries surveyed, 16 saw their PMI readings improve compared to November.
The primary reasons for this are: firstly, the ongoing optimization of the trade environment, with a replenishment of external demand orders serving as the main driver; secondly, domestic policies have intensified counter-cyclical and cross-cyclical adjustments; thirdly, energy supply guarantees and the resumption of operations in some industries also contributed to the PMI improvement, with rising sentiment in the services and construction sectors driving the December PMI rebound. We believe that, supported by policies, domestic demand is expected to continue improving in the short term, though attention must be paid to price fluctuation risks.
From a policy perspective, macro policies are becoming more proactive and effective, with the pace expected to be front-loaded. Specifically, first, the Ministry of Finance has pre-allocated the 2026 quota for new local government debt. Second, the National Development and Reform Commission has organized and issued the list for the first 2026 batch of major national projects and key infrastructure projects, along with the central government investment plan, totaling approximately 295 billion yuan, which will accelerate the allocation and utilization pace of various funds. Third, the plan for the first 2026 batch of 62.5 billion yuan in ultra-long-term special treasury bonds to support consumer goods trade-ins has been pre-allocated. It is important to note that policy adjustments focus on long-term and strategic considerations, ensuring a certain level of policy force while reserving sufficient policy space.
Overseas, economic data released last week generally exceeded expectations. U.S. pending home sales rose 3.3% month-on-month in November, significantly higher than the expected 0.9%; initial jobless claims unexpectedly dropped to 199,000 for the week ending December 27, against an expectation of 218,000.
Concurrently, the minutes from the December Fed FOMC meeting were released, conveying a somewhat hawkish signal. Most participants believed that if inflation declines gradually as expected, further rate cuts might be appropriate; most participants supported the December rate cut, with supporters generally citing increased downside risks to employment in recent months; most participants viewed rate cuts as helpful in preventing a deterioration in the labor market, while some pointed out the risk of inflation becoming entrenched. Participants unanimously agreed that reserve balances have fallen to an ample level and that short-term Treasury purchases would be conducted for reserve management (RMP) as needed.
Investment Strategy: Bullish on Tech Growth, Non-Bank Finance, and Pro-Cyclical Assets With the new beginning of 2026, the Chinese stock market is poised to cross and stabilize at important thresholds. Short-term supportive factors include: 1) The mystery surrounding the next Fed Chair is about to be solved, and the market is beginning to anticipate the prospect of U.S. rate cuts in 2026. Looser overseas liquidity, coupled with pre-holiday forex settlement, is expected to promote the stability and appreciation of the Renminbi. 2) Continued inflows of incremental funds, represented by products like the A500 ETF,叠加 the insurance industry's strong start to the year, are expected to further solidify the liquidity base through allocation demand. 3) Decision-makers have for the first time proposed "promoting a halt to the decline and stabilization of investment," and Qiu Shi has emphasized "improving and stabilizing expectations for the real estate market," elevating the necessity for further policy efforts to boost growth, with expectations for intensified "counter-cyclical and cross-cyclical adjustments."
Overall, we believe that as economic transformation accelerates, risk-free returns decline, and capital market reforms proceed, the inherent trend of China's "transformation market行情" is quite evident.
In terms of investment direction, under the trends of AI and industrialization in emerging markets, China's emerging technology and capital goods exports exhibit strong current prosperity and high potential. Simultaneously, focus on the opportunity for bottom-fishing in pro-cyclical valuations amidst efforts to expand domestic demand.
Specifically: 1) Tech Growth Direction: Global breakthroughs in chip technology and the ongoing trend of rising memory prices continue, domestic computing infrastructure faces shortages with accelerated localization potential, and token consumption by leading manufacturers shows non-linear growth. Focus can be placed on Hong Kong-listed internet/electronics/media/computer sectors, as well as manufacturing exports with global competitive advantages (e.g., power equipment/machinery and equipment). 2) Non-Bank Finance Direction: Benefiting from the shift of household deposits and growing wealth management demand, capital market reforms are expected to boost risk appetite. Focus can be placed on sectors like insurance/securities. 3) Pro-Cyclical Direction: Sector valuations and positioning are at low levels, with marginal improvements appearing at the cyclical bottom, and potential benefits from policies to expand domestic demand and stabilize the property market. Focus can be placed on tourism services/hotels/consumer staples, as well as cyclical commodities with tight supply-demand dynamics like non-ferrous metals/chemicals.
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