Xuanyuan Investment March Outlook: Awaiting New Cycle and New Capacity Main Theme

Part 1 Market Performance

01 Major Index Gains and Losses

02 Major Index Valuations (10-Year Range)

03 Market Brief

The overall market rose in February. The All A Index closed up 2.34%, with a median increase of 2.46%. Among them, the China Securities 2000, CSI 1000, CSI 500, and CSI 300 rose by 4.07%, 3.71%, 3.44%, and 0.09%, respectively. The SSE 50, ChiNext Index, and STAR 50 declined by 0.88%, 1.08%, and 1.42%.

At the industry level, steel, building materials, and machinery led the gains, while media, non-bank financials, and consumer services lagged. In terms of capital flow, the average daily trading volume across the two markets in February was 2.31 trillion yuan, down 24% from January, indicating decreased market activity.

Part 2 Macroeconomic Analysis

On the international front, tensions in the Middle East remain high, leading to significant increases in oil and other industrial commodity prices. Forward-looking inflation concerns have resurfaced, and markets are paying close attention to the pace of balance sheet reduction after Wosh’s upcoming appointment. At our annual strategy meeting, we suggested that the recent rally driven by excess liquidity overseas might face challenges this year. Currently, stricter requirements are being placed on AI narratives, and some overseas private funds are experiencing redemptions. This year, liquidity withdrawal risks should be closely monitored.

Domestically, the Two Sessions are approaching, with the 14th Five-Year Plan being a key focus, emphasizing policy marginal effects. Last year’s economic drivers—exports exceeded expectations, while consumption and investment fell short. 2024 marks the start of the 15th Five-Year Plan, with major projects expected to commence gradually after the Two Sessions, translating into tangible work volume.

Part 3 Industry Trends

In AI, overseas, software stocks further declined around the Spring Festival, especially in B2B business models, spreading from SaaS to financial services, logistics, and large enterprise services (like IBM). The market is beginning to compare this phase to the era when traditional media, such as newspapers, faced valuation cuts despite stable profits, similar to the rise of new media. Meanwhile, Nvidia’s earnings exceeded expectations, providing positive guidance, but its stock price has recently retreated after earnings. Market concerns are rising over Coreweave’s financials, especially its high debt ratio, with significant price declines post-earnings. The focus remains on 2026, where prices are expected to continue rising amid tight supply-demand, particularly in storage, optical fibers, upstream optical devices, and electronic glass fabrics. Domestically, the launch of the Ascend 950 chip and the upcoming DeepSeek V4, optimized for domestic chips like Huawei and Cambrian, enhance domestic computing power. The fundamentals are now entering a major upward phase, with the rhythm and investment targets determined by volume and price trends.

In semiconductor equipment, Changsun Changxin’s capital expenditure may significantly exceed expectations, and SMIC’s advanced capacity investments are increasing. Coupled with global resonance, there is ample room for growth. Semiconductor equipment has opportunities for systematic upward movement in quarterly investments, though short-term cycles are less favorable. After the listing of two storage companies, new signals are needed to drive the next rally. Equipment positions are gradually shifting from “storage” to “testing” and “measurement.”

Non-AI sectors such as non-ferrous metals, chemicals, steel, and building materials are experiencing continued strong trends amid reduced volatility in commodities. Allocations include rare earths and a small amount of industrial metals.

In consumer healthcare, the approach remains bottom-up, focusing on individual stocks and niche opportunities.

Part 4 Micro Trading Structure

In February, market turnover rate decreased month-over-month. Based on daily average transaction value, building materials and coal saw slight increases, while electronics, computers, and defense industries experienced notable declines.

Part 5 Strategy

From the short-term volume-price sentiment cycle perspective, recent macro pressures have suppressed market activity. The market has not expanded as expected and lacks strong main themes. Instead, it is characterized by rotation among niche trends. Currently, the market is at the tail end of the previous sentiment cycle, awaiting a new cycle and new capacity themes.