Shenwan Hongyuan Strategy Weekly Review and Outlook: A-shares Moving Forward Along Their Own Path

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Source: Shanghai Shenwan Hongyuan Securities Research Institute

1. Expectations of US-Iran conflict fluctuate, but A-shares remain relatively resilient. Recent policies aimed at stability and long-term growth have prevented over-rapid gains, forming an important foundation for mid-term market expectations. Meanwhile, A-shares have significantly improved in pricing geopolitical conflicts, effectively integrating short-, medium-, and long-term projections to reflect changes in relative national strength and China’s ability to maneuver in complex overseas environments. A-shares are embracing “competitive thinking” to adapt to the frequent geopolitical conflicts.

US-Iran tensions suppress global risk appetite, leading to widespread adjustments in equity markets, but A-shares show resilience. Changes in relative national strength subtly influence asset pricing (globally, such pricing is generally insufficient, and the resilience of A-shares under US-Iran conflict may mark the starting point for proper valuation). China is no longer a passive recipient of imported inflation nor a bystander in geopolitical conflicts. China has the capacity to skillfully navigate geopolitical games and buffer the impact of sudden events. The pricing based on the long-term “competitive landscape” is ongoing. A-shares are adapting to the environment of frequent geopolitical conflicts, requiring proactive measures. This is a major improvement in the characteristics of the A-share market and a testament to the fundamental strength of a bull market.

2. A-shares are progressing along their own path, with the “two-stage bull market” unfolding. Overall, A-shares’ static valuation is at a historical high, increasing resistance to valuation expansion. Currently, the market is transitioning from a structural bull to a range-bound oscillation, which will serve as a preparatory phase for a full bull market.

A-shares are advancing along their own trajectory, and the market is in a transition from the “first upward phase” to a “range oscillation.” The US-Iran conflict mainly confirms this phase shift. Currently, the static valuations of sectors like telecommunications, electronics, power equipment, defense and military, computing, and basic chemicals are at historical highs, and the overall valuation of all A-shares is also at a high. Under these conditions, discovering new structural opportunities becomes more difficult, and the market generally seeks to transition into range-bound oscillation. This phase may last 1-2 quarters; if industry trends remain stable without significant negative shocks, 2026 could be the start of Bull Market 2.0. However, if quarterly industry disruptions occur, the launch of Bull Market 2.0 might be delayed until Q4 2026.

3. Structural features of the market’s accumulation phase: not a sharp cut from high to low, nor a style switch, but rather a dissipation of main themes. Leading sectors and core stocks are entering high-level oscillation zones. The space for discovering new opportunities is shrinking, and overall size is decreasing. Nonetheless, resilient investment opportunities mainly come from extending core assets and expanding macro narratives. Before the first-quarter earnings season, focus on “practical realism” by recommending structural opportunities. Pay attention to basic chemicals that may see price increases and realization in March-April, as well as NVIDIA’s GTC conference approaching, which offers a window for exploring new inflationary links in the computing chain. Also, consider CPO investment opportunities.

Currently, our focus is on: extending core assets—continuing to explore new sub-sectors within the AI industry chain and cycle alpha opportunities. The AI industry chain is being explored along the core trajectory from Bull Market 1.0 (AI hardware) to Bull Market 2.0 (AI applications). The “practical realism” characteristic is expected to persist at least until the first-quarter earnings report, with emphasis on hardware: optical components, PCB, and other inflation-sensitive links, as well as the accelerated penetration of gas turbines into global supply chains. Later, shifting toward applications—cloud computing, edge devices, robotics—domestic AI leaders are emerging rapidly. We still see AI transforming traditional industries as a future investment opportunity (opposite to HALO trades). Cyclical sectors, especially basic chemicals with early price increases, remain key in March-April. Expanding macro narratives involves monitoring the potential for valuation re-rating driven by changes in relative national strength, which could present a mid-term opportunity for manufacturing revaluation.

Risk warning: Overseas economic recession exceeding expectations, and domestic economic recovery falling short of expectations.