Huatai Securities: A-share allocation recommendations focus on thematic investments and prosperity strategies

Huatai Securities points out that the spring surge is one of the calendar effects with relatively strong certainty in the A-share market. This year’s underlying logic of the calendar effect may still be valid, but there could be some differences compared to previous years: 1) The high trading volume after the holiday indicates liquidity remains abundant, but the visibility of risk premium further breaking through is reduced. The upward slope of the market may slow compared to previous years, increasing the need to identify structural opportunities; 2) In terms of style, there is a question whether the shift in funds from technology to cyclical sectors after the holiday is happening earlier. We believe that the transition from small-cap to large-cap stocks still requires a liquidity inflection point, a recovery trend in large-cap value stocks, and coordinated capital conditions. The observation window may be in March-April. For allocation, it is recommended to focus on thematic investments and prosperity strategies, prioritizing policy-oriented themes, and sectors such as communication equipment, minor metals, rare metals, batteries, and building materials.

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Huatai | A-Share Strategy: Focus on Policy Play Stocks

The spring surge is one of the calendar effects with relatively high certainty in the A-share market. This year’s spring surge shows obvious early signs. Market participants are wondering whether this pattern will remain stable this year. We believe that the underlying logic of the calendar effect may still be valid, but the trend may differ somewhat from previous years: 1) The high trading volume after the holiday still indicates ample liquidity, but the risk premium has fallen back to below the five-year average plus one standard deviation, reducing the visibility of further breakthroughs. The upward slope of the market has slowed, shifting from a “broad rally” to “wide-range fluctuations,” increasing the need to identify structural opportunities; 2) Regarding style, there is a question whether the shift from technology to cyclical sectors after the holiday is happening earlier. We think that the transition from small-cap to large-cap stocks still depends on a liquidity inflection point, a recovery trend in large-cap value stocks, and coordinated capital conditions. The observation window may be in March-April. For allocation, focus on thematic investments and prosperity strategies, prioritizing policy-driven themes, and sectors such as communication equipment, minor metals, rare metals, batteries, and building materials.

Core Views

Macroeconomic and microeconomic liquidity easing has historically driven spring surges

Reviewing the performance of the A-share market since 2010, the “spring surge” has almost never been absent. The period from the Spring Festival to the Two Sessions is the most successful time of the year for A-shares, with market risk appetite usually rising. Small-cap indices like CSI 1000 tend to rise more frequently during this period, showing stronger elasticity compared to CSI 300 and SSE 50. From an industry perspective, technology and cyclical sectors benefiting from construction expectations usually outperform. The reasons for this performance include: 1) The period from the Spring Festival to the Two Sessions is a window for policy expectations and earnings vacuum, where policies and earnings cannot be immediately invalidated, providing space for thematic investment; 2) Favorable liquidity environment: funds enter the market after the holiday, institutions start new year positions, and the central bank often injects liquidity around the Spring Festival, making macro and micro liquidity relatively ample.

Early spring surge, potential for wide-range fluctuations in indices

However, this year’s spring surge shows clear early signs. From late 2024 to early 2025, the Shanghai Composite Index experienced a series of gains. Market concerns arise: after the early surge before the Spring Festival, will the calendar effect still be stable? We believe the underlying logic remains valid, but the trend may differ from previous years: 1) After the Spring Festival, trading volumes in both markets remain stable, liquidity remains abundant, but risk premiums have fallen to below the five-year average minus one standard deviation, reducing the visibility of further breakthroughs. The upward slope of the market has slowed significantly, shifting from a “broad rally” to “wide-range fluctuations,” emphasizing the need to identify structural opportunities; 2) With the upcoming major meetings, macro stimulus expectations and industrial policies may be implemented, but markets tend to “buy the rumor,” which could create pressure on index breakthroughs.

Style switching may still need to wait; observation window in March-April

Historically, the post-holiday period favors small-cap tech growth stocks, but in the first week after the 2026 Spring Festival, there was a notable difference. Gains in tech growth stocks such as computers and media were realized, while under geopolitical influences overseas, funds shifted toward non-ferrous metals and other sectors with rising prices. Given that valuation divergence between large and small caps has reached a peak not seen since 2017, investors wonder whether the style switch will come earlier (“April decision”). We believe that the style switch still needs to be observed: 1) The switch in residual liquidity measured by M2-PPI-industrial added value remains to be confirmed, with the key observation window in mid to late March; 2) Cyclical stocks like non-ferrous metals still have accumulated gains, and the recovery trend of large-cap value stocks remains to be confirmed—pay attention to annual and Q1 reports; 3) Capital conditions still face upward pressure.

Allocation recommendations: Focus on policy play stocks

Although the spring surge in A-shares is early, considering that the liquidity foundation remains, and industry and policy improvements are relatively coherent, the underlying logic of the calendar effect may still be valid. The overall trend may be volatile, but small-cap stocks could still see a spring rally. The style switch observation window may be in March-April. Focus on: 1) High prosperity strategies such as communication equipment, minor metals, and rare metals; reversal strategies like building materials, aquaculture, batteries, logistics, optical electronics, and black appliances; 2) Thematic investments in new energy chemicals, building materials, policies expanding domestic demand, and service-oriented consumption; 3) Continue to focus on cyclical stocks with high dividends.

Risk warnings: 1) External risks exceeding expectations; 2) Domestic fundamentals underperforming expectations.

(Source: Southern Finance Network)