Xuanyuan Investment March Outlook: Waiting for the New Cycle and New Capacity Mainline

Part 1 Market Performance

01 Major Index Gains and Losses

02 Major Index Valuations (Last Ten Years Range)

03 Market Brief

The overall market rose in February. The All A Index closed up by 2.34%, with a median increase of 2.46%. Among them, the Guozheng 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 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 23.1 trillion yuan, down 24% from January, indicating reduced market trading activity.

Part 2 Macroeconomic Outlook

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 noted 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 as a key focus, emphasizing policy marginal effects. Last year’s economic drivers—exports, consumption, and investment—performed differently than expected, with exports exceeding expectations while consumption and investment fell short. As the first year of the 14th Five-Year Plan, major projects are 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 like newspapers saw stable profits but declining valuations. Meanwhile, Nvidia exceeded earnings expectations and provided strong guidance, but its stock price has recently retreated after earnings. Market concerns have resurfaced about Coreweave’s high debt ratio, with significant price cuts in the latest earnings reports. The focus remains on 2026, where prices are expected to continue rising amid tight supply-demand, especially in storage, optical fibers, upstream optical devices, and fiberglass electronics.

Domestically, new developments include the Ascend 950 chip industry information and the upcoming DeepSeek V4, primarily optimized for domestic chips like Huawei and Cambrian. These developments enhance domestic computing power, with fundamentals now favoring a significant upward trend, aligned with volume and price dynamics for investment targets.

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 the two storage companies, new signals are needed to drive the next wave of market trends. The overall equipment position is gradually shifting from “storage” to “testing” and “measurement.”

In non-AI sectors such as non-ferrous metals, chemicals, steel, and building materials, commodity volatility has decreased, supporting continued growth in segments related to volume increases. Allocations include rare earths and some industrial metals.

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

Part 4 Micro Trading Structure

In February, market turnover rate declined month-over-month. Based on daily average transaction amounts, there was a slight increase in building materials and coal sectors, while electronics, computers, and defense industries saw notable declines.

Part 5 Strategy Outlook

From a short-term volume-price sentiment cycle, recent macro pressures have suppressed market activity. The market has not expanded as expected and lacks strong main themes, mainly rotating through niche trends. Currently, we are at the tail end of the previous sentiment cycle, awaiting a new cycle and new capacity themes.