Looking ahead to spring, as policies advance and take effect in three major areas, confidence restoration will gradually spread from the technology sector to the economic sector. The strengthening of U.S. restrictions on China may be the biggest challenge for the market in spring, but it is also a touchstone for comprehensive confidence restoration. China's new tracks are budding, with new core assets that have the potential for a market value of hundreds of billions of dollars expanding, while about 30% of companies among traditional sector leaders are gradually showing operational turning points. The Hong Kong stock market is still in its early stages, while the previously relatively stagnant core assets of A-shares are accelerating their clearance. In the future, the GARP strategy may take over from the extreme elasticity strategy, and China's core assets are expected to welcome spring. Therefore, we have selected the &#34;New Core Assets 30&#34; portfolio from the technology, industrial, and consumer sectors, focusing on the reconstruction of industrial value driven by technological innovation, supply-side reforms guiding industry supply and demand clearance, and institutional optimization releasing consumption potential. We believe that after comprehensive confidence restoration, the differentiation between &#34;good companies&#34; and &#34;ordinary companies&#34; will far exceed the differentiation between &#34;good industries&#34; and &#34;ordinary industries.&#34;
<h2>Recent market high-cut low direction is diversifying; investors are more positive in facing adjustments</h2>
In the last week of February, the market showed a clear &#34;high wave&#34; cutting &#34;low wave.&#34; However, the &#34;high cut low&#34; did not simply occur in extreme defensive sectors like dividends. The sectors that benefited from low-level rebound were mainly distributed in consumption, some cyclical sectors, and steel, which may benefit from supply-side &#34;anti-involution&#34; policies. This week, sectors such as consumption (food and beverage, textiles and clothing, retail), lithium batteries, and steel performed relatively better than dividend sectors represented by banks, electricity, and public utilities. Clearly, the market has shifted from a bear market mentality to a bull market mentality. The &#34;barbell&#34; strategy to cope with confusion has shaken investors' confidence, leading to adjustment selling during each rebound of dividends, without corresponding strong performance.
<h2>Looking ahead to spring, confidence restoration will gradually spread from the technology sector to the economic sector</h2>
1) U.S.-China technology competition enters a new stage, and private enterprise symposium boosts micro-subject confidence. The global popularity of DeepSeek has changed investors' long-term macro narrative regarding China. Currently, investors tend to view concerns about policies, consumption, and real estate as short-term cyclical issues, and the valuation system of A-shares and Hong Kong stocks is gradually returning to a normal global level. From the PB-ROE framework, the Hang Seng Index, Hang Seng Technology Index, and CSI 300 Index have basically returned to the normal distribution range of PB-ROE for major global stock indices after this round of recovery since September. In addition, the valuation discount of private enterprises is also continuously repairing. The excess returns of the central enterprise 50 index relative to the private enterprise 50 index in A-shares and Hong Kong stocks rose to 47.1% and 60.2% respectively at their highest since 2022, but have now fallen back to 25.9% and 23.3%.
2) It is expected that the two sessions' policies will advance in technology, supply-side, and consumption promotion. After experiencing the normalization of the valuation system over the past few months, the market can no longer simply rely on macro narratives to sustain upward momentum. The sensitivity of micro-subject confidence to macro narratives will also decrease, and targeted policies to address economic and structural issues will need to be continuously implemented
We expect that the two sessions in March will promote three major aspects: technological innovation, supply-side anti-involution, and demand-side expansion of domestic demand. The industrial policy in the technology sector may involve &#34;AI+&#34; initiatives, robotics, and the low-altitude economy; supply-side policies may have four directions, including dual carbon constraints, procurement standards, cancellation of certain export tax rebates, and encouragement of mergers and acquisitions; demand-side policies generally include improving social security, expanding consumption subsidies to the service sector, and stabilizing the real estate and stock markets.
<h2>Strengthening U.S. Restrictions on China May Be the Biggest Challenge in Spring and a Touchstone for Comprehensive Confidence Restoration</h2>
Starting in April, the uncertainty of U.S. policies toward China may significantly increase. Key risk points to watch include the release of the results of the &#34;America First Trade Policy Memorandum&#34; investigation in early April, the implementation of the &#34;America First Investment Policy&#34; memorandum, and possible further export bans and restrictions in the semiconductor sector. We reviewed the adjustment situation of Hong Kong stocks after a significant increase of 25% since 2017, with external factors triggering adjustments including Federal Reserve tightening, geopolitical risk disturbances, and policy expectation failures. Historically, if only considering trade friction, the implementation of tariffs would lead to a pullback of about 10%; restrictions in the semiconductor sector would have a greater impact on sentiment, but considering that the market is already well-prepared and has expectations, the impact of this round of strengthened control restrictions is expected to be very limited; stringent investment bans may cause significant market volatility, but currently, the likelihood of short-term implementation is not high.
<h2>New Tracks Are Emerging, Traditional Tracks Are Gradually Showing Operational Turning Points</h2>
1) New core assets with the potential for a market value of $100 billion are expanding. DeepSeek brings the industrial trend of AI equity. Starting from industrial logic, we have sorted out cloud vendors, domestic computing power and AIDC chains, edge AI, AI software, physical AI, and other fields, further screening emerging sub-sectors with the potential to give birth to $100 billion market value companies from the perspective of market space and pricing power, including cloud computing power chips, edge computing chips, storage chips, advanced processes, advanced packaging, semiconductor equipment, data centers and communication network equipment, cloud vendors, AI software, high energy density batteries, and sensors, and identifying corresponding companies. We believe that the sustainability of future A-share increases must be based on these new core assets continuously striving for the &#34;100 billion&#34; scale.
2) About 30% of companies among traditional core assets have emerged from operational turning points. We constructed a set of tracking indicators based on the marginal change trend of ROE to reflect the cyclical position of the industries where core assets are located and reveal the stages of different industries and companies among traditional core assets (represented by the Moutai Index + Ning Combination, totaling 49 companies). The results show that 31% of companies have emerged from the bottom operational turning point, 45% are still in the downward cycle, 14% are maintaining high prosperity, and 10% are stable development companies.
<h2>The Hong Kong stock market is still in its early stages, while the stagnant core assets of A-shares are accelerating their clearance</h2>
1) Leading companies in new sectors of Hong Kong stocks still have significant valuation recovery and growth potential. Currently, Hong Kong stocks account for only 5.2% of the global total market capitalization, which is at the 23.6% percentile since 2004. In April 2015, during the peak of the mobile internet boom, Hong Kong stocks once accounted for 9.1% of the global total market capitalization. Over the past 20 years (2004-2024), Hong Kong stocks contributed 5.5% of the global incremental market capitalization, second only to the United States (57.8%) and mainland China (11.5%), while in the past 5 years, it was only 0.2%. From a specific industry perspective, Hong Kong internet stocks still exhibit valuation discounts compared to leading U.S. stocks, semiconductor and AI application companies have significant market capitalization gaps, automobile companies still imply a huge valuation difference in terms of smart technology realization compared to Tesla, and innovative drug companies corresponding to 18A are continuously expanding their pipeline advantages with a completely cleared chip structure. As Hong Kong technology companies gradually catch up with the waves of AI, new energy, and biotechnology, and as many excellent blue-chip companies from A-shares gradually list in Hong Kong, it appears that Hong Kong stocks have only taken the first step towards recovery.
2) Some allocation-type positions in A-shares continue to shift towards Hong Kong stocks, and the clearing of core asset chips is in the final stage. Core assets in A-shares have begun to show certain allocation attractiveness, with the valuation percentile of the Ning combination comparable to that of the Hang Seng Technology Index, while the valuation percentiles of the Mao Index and the Wind Golden Warehouse 100 Index are significantly lower. During the valuation digestion process over the past few years, trading-type positions may have already left the core assets of A-shares, while allocation-type positions have gradually been migrating to Hong Kong stocks over the past six months. By the end of last year, active public funds with Hong Kong Stock Connect investment permissions held Hong Kong stocks, accounting for 28.5% of total stock holdings. From this perspective, when the long-term held allocation-type positions complete the balanced allocation of core assets between A-shares and Hong Kong stocks, it essentially means that the clearing of core asset chips in A-shares is in the final stage, and subsequent marginal changes in fundamentals will bring significant upward valuation elasticity.
<h2>GARP strategy may take over the extreme elasticity strategy, core assets welcome spring</h2>
In our style judgment framework, when the GARP strategy (which can also be seen as a quality growth stock strategy) is dominant, the market usually needs to meet five conditions: policy support, economic highlights, profit growth, incremental funds, and rational sentiment. Currently, we believe that even if these conditions are not fully met, they are gradually being realized: policies clearly depict and address structural issues, needing only time, and the market is more patient about this than in the past two years; the economy is beginning to show structural improvements, especially as the real estate sector has shown signs of stabilization and recovery; emerging industries continue to experience explosive growth, while some core assets in traditional industries have reached operational turning points; incremental funds continue to flow in, and sentiment has shifted from overly pessimistic to extremely exuberant and is now tending towards rationality. However, the clearing of quality growth stock positions is nearing its end, and even entering from the left side will improve the experience
<h2>Technology Ignition, Supply-Side Efforts, and Consumption Shortcomings: Focus on &#34;New Core Assets 30&#34;</h2>
The technology sector places greater emphasis on extreme innovation to generate new demand, focusing on four directions: domestic computing power, edge AI, high energy density energy carriers, and innovative drugs; supply-side efforts aim to accelerate the elimination of low-quality production capacity through five major policy measures, promoting the return of profits and the reshaping of valuations for high-quality production capacity, with a focus on aluminum, steel, and panels, while closely monitoring the implementation process of capacity optimization measures in the new energy sector; addressing consumption shortcomings involves releasing potential through counter-cyclical adjustments and structural reform measures, focusing on the dual offensive and defensive nature of consumer internet, and sectors such as dairy products and mass catering, which are expected to stabilize first, while selectively allocating to cyclical industries with obvious characteristics such as catering supply chain and hotels. Based on recommendations from industry analysts, we have selected the &#34;New Core Assets 30&#34; stock pool from the bottom up, which includes 14 companies in the new technology track and 16 traditional core assets.
Author: Qiu Xiang, Liu Chuntong, et al., Source: CITIC Securities Research, Original Title: &#34;The Spring of China's Core Assets&#34;
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Looking ahead to spring, as policies advance, confidence restoration will spread from the technology sector to the economic sector. The U.S. restrictions on China present market challenges but also serve as a touchstone for confidence restoration. New core assets are expanding, and leading companies in traditional sectors are experiencing operational turning points. The Hong Kong stock market is still in its early stages, while core assets in the A-share market are accelerating their clearance. In the future, the GARP strategy may take over from the extreme elasticity strategy. The market is diversifying in high-cut low directions, with investors maintaining a positive mindset, and sectors such as consumption, lithium batteries, and steel are outperforming dividend sectors. Confidence restoration will drive the value reconstruction of the technology, industrial, and consumer sectors

- As spring approaches, confidence recovery is expected to spread from the technology sector to the broader economy, with U.S. restrictions on China posing significant challenges.  
- New core assets with potential billion-dollar valuations are emerging, while about 30% of traditional sector leaders are showing operational turning points.  
- The market is transitioning from a bear to a bull sentiment, with a focus on the "New Core Assets 30" strategy, emphasizing technology innovation, supply-side reforms, and consumption potential.