This year, the government work report proposed that government investment funds should take the lead in acting as patient capital. This fundamentally changes the current situation where venture capital institutions are reluctant to invest early or in small enterprises. Since government investment funds have an official background, leading as patient capital to invest in early-stage venture enterprises with development potential but not yet stable profits will set a strong example. This will encourage more venture capital institutions to invest in these technological innovation companies. At the institutional level, a practical and quantifiable error-tolerance mechanism for venture capital can be established. Previously, some venture capital institutions hesitated to invest in early-stage and small-scale companies mainly due to concerns that such investments might be viewed suspiciously during assessments, potentially seen as利益输送 or mistaken investments. By establishing a certain error-tolerance mechanism, allowing for investment failures when venture capital institutions invest in small or early-stage companies, a standard can be set for the acceptable failure ratio. For instance, achieving success in two or three out of ten investments could be considered acceptable, while three, four, or even five successes would be excellent results. Given the high risks associated with venture capital investments, standards can be tailored to different sub-sectors based on their specific characteristics. For example, industries with higher investment risks should have a higher error tolerance rate, encouraging more venture capital institutions to invest early and in small enterprises.

The report also proposed implementing a green channel for listing financing and mergers and acquisitions routinely for technology enterprises in key core technology fields, with a preference for hard technology. Currently, China's economy is in a transition period, with many traditional industries no longer meeting economic development needs. This necessitates the rise of more technological innovation enterprises. We are also amidst the fourth technological revolution, where AI technology will drive development across many sectors. Supporting these hard tech companies in accessing capital markets through green channels can enhance capital efficiency and bolster the listing of more tech innovation firms representing future economic directions, providing strong leadership for China's economic development. The report emphasized improving the mechanism for medium- to long-term capital entering the market. The influx of long-term funds such as insurance capital, pension funds, and wealth management capital will bring more institutional and incremental funds to the capital markets. However, some urgent institutional barriers need addressing. For instance, the assessment of fund managers for pension and insurance capital should focus more on long-term performance over three years or more, rather than excessive attention to short-term results. This would empower fund managers to increase allocations to equity assets confidently. Furthermore, reasonable benchmarks should be established for evaluating investment performance. With current bank deposit interest rates very low—around 1% for one-year fixed deposits—performance standards can be appropriately lowered. This grants fund managers greater discretion and flexibility to increase equity allocation ratios based on market changes, enabling them to withstand short-term market volatility and achieve long-term sound returns, thus preserving and enhancing capital value. This also favors the further deepening of the current slow-bull, long-bull market trend in China.

Recently, market movements have been volatile due to escalating conflicts in the Middle East, but the overall trend remains relatively strong. Despite significant declines early in the week, the market has begun a gradual rebound over the past two trading sessions. The Shanghai Composite Index strongly reclaimed the 4,100-point mark, continuing the slow-bull, long-bull trajectory. With the Two Sessions currently underway, the government work report signals proactive measures: more vigorous and effective macroeconomic policies this year, including stronger fiscal support, appropriately accommodative monetary policy, and increased backing for capital markets. These factors are conducive to sustaining the current slow-bull, long-bull行情. The Middle East conflict has significantly impacted international oil prices. Iran's blockade of the Strait of Hormuz, a critical global oil shipping route, has substantially pushed up oil prices, potentially leading to inflationary pressures. This has altered expectations regarding Federal Reserve interest rate cuts, and the US dollar index has risen accordingly. Reports indicate that only Chinese oil tankers are permitted passage through the Strait of Hormuz, which is encouraging news for investments. Given China's high dependence on oil imports, at 70%, ensuring the security of oil transportation is paramount. China's efforts to escort oil tankers from the Middle East further safeguard oil security. The strategic push in recent years to develop new energy sources as alternatives to traditional energy has significantly reduced reliance on crude oil. In hindsight, this appears a very wise and forward-looking decision.

In the AI era, attention should be paid to sectors benefiting from AI's major development, such as AI applications, humanoid robots, chips and semiconductors, computing power and algorithms, controlled nuclear fusion, military industry, and commercial aerospace. These areas are also key focuses of the 15th Five-Year Plan support. The year 2026 marks the beginning of the 15th Five-Year Plan period. The government work report detailed important aspects of the plan's outline, which is likely to boost the performance of sectors like technology and military industry. Conversely, in the AI era, competition for resources among nations is intensifying, particularly evidenced by the US stockpiling strategic resources like copper. Therefore, investment directions requiring close market attention this year include non-ferrous metals, chemicals, crude oil, natural gas, and even coal.

China's capital markets have currently established a slow-bull, long-bull trend. Supported by policies, the shift of household savings, inflows of foreign capital, and backing from institutional investors like insurance funds, social security funds, pension funds, public funds, and private funds, the overall market trend remains quite robust. Investors should maintain confidence and patience, seize the opportunities presented by this market phase, and strategically position for the medium to long term in high-quality industries, companies, and funds that represent economic transformation directions and possess certain scarcity. This approach can lead to wealth growth. It is a persistent view that a genuine long-bull market can effectively stimulate consumption, improve living standards, and enhance the sense of gain for investors. A stronger capital market will also attract more external capital. This year, with 50 trillion yuan in time deposits maturing, a portion of investors with higher risk appetite might flow into the capital markets to share the dividends brought by economic transformation.

This year's market trend also exhibits a barbell structure characteristic. One end focuses on technological innovation, while the other end consists of some undervalued blue-chip stocks. Recently, the term HALO trading has gained popularity, representing an investment strategy emerging in the artificial intelligence era. This concept was introduced by Wall Street investment banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase. The underlying logic is that against the backdrop of AI technology development, due to market concerns about AI's impact on traditional industries, some capital is shifting towards allocating to physical capacities and networks with high barriers and low susceptibility to technological obsolescence, as a hedge against risk. Amid geopolitical changes, supply chain adjustments, and叠加 AI capital expenditures, the market holds relatively high expectations for these capital-intensive, heavy-asset industries. This includes sectors like power, electrical equipment, utilities, railways, and resource stocks such as non-ferrous metals, all sharing these characteristics. Therefore, this year's barbell strategy involves technology stocks on one end and HALO assets on the other. This bears some resemblance to last year's barbell strategy of technology plus high-dividend sectors, but the underlying logic has slightly shifted. Overall, maintaining confidence and patience is crucial to seize the opportunities in this market trend. Investors should avoid excessive focus on short-term fluctuations and instead position for heavy-asset investments from a medium- to long-term perspective.