2026: Must pay attention to "4 rebalancing"

Core Conclusion: The "rebalancing" towards institutional investors for 2026 is underway, essentially transitioning from "new over old" in 2025 to "new and old dancing together" in 2026. In short: AI new technologies must be allocated in 2026, but there must also be a significant increase in allocation to cyclical (manufacturing, cyclical goods) "old things," which is the most important rebalancing. At the same time, there are some important marginal changes that will affect the performance of this rebalancing in three other aspects: 1. Internal Rebalancing in Technology: The essence of "new" is that "AI technology is moving downstream," gradually transitioning to the fourth stage of supply-demand gap (upstream gaps are in copper, storage, and power equipment; downstream gaps are in AI applications, components, etc.); 2. Internal Rebalancing in Going Abroad: The essence of "old" is that "exports are moving upstream," with traditional industries shedding the burdens of old models, leading to increasingly significant stabilization and growth of profits brought by overseas business, extending from mid-to-lower manufacturing to mid-to-upper manufacturing (engineering machinery, wind power, chemicals, building materials, industrial metals); 3. Internal Rebalancing in Resource Products: In 2026, the pricing of resource products may not adapt to the assumption of a weak dollar throughout the year, and there may be a possibility of "the dollar not being weak," emphasizing the return of commodity attributes and the decline of financial attributes. Resource products that rise based on supply-demand fundamentals are more worthy of continued optimism. Based on observations of institutional holdings in Q4 2025 and quarterly report views, the structural consensus among institutional investors is clearly AI technology + going abroad equipment + globally priced resource products. In fact, this can also be seen in the significant leading performance of these three directions in the A-share market before the Spring Festival. In this process, it is crucial to deeply understand: 1. Regarding Technology + Going Abroad: As the proportion of A-share profits (excluding finance) from technology + going abroad approaches 40% in 2025, and based on the "30%-60%" rule generally lasting 6-8 years, we believe that technology + going abroad is not only the most important dual mainline of industrial fundamentals in the next 3-5 years, but also that more and more industries' revenue and profit structures have actively aligned with high-end technology/manufacturing or going abroad in recent years. Traditional industries represented by the original real estate chain have achieved a turnaround in profit growth from negative to positive, and the two strong forces of technology + going abroad are profoundly reshaping the profit structure of A-shares, likely driving A-share profits into a new upward cycle in 2026-2027. 2. Regarding Globally Priced Resource Products: Especially represented by gold, it is essentially part of the ongoing process of increasing allocation of major asset classes based on narratives of de-globalization, de-financialization, and long-cycle productivity stagnation. It can be observed that in 2025, there is severe internal differentiation in the pricing of global resource products, with resource products that have significant financial attributes priced overall much stronger than those primarily based on commodity attributes. In the short term, under the catalysis of interest rate cuts and a weak dollar, trading sentiment is continuously heating up towards an extremely exuberant state. In the annual strategy report "Three Bulls Opening the Way, New and Old Dancing Together," we repeatedly emphasize at the structural level: looking towards 2026, when the PPI no longer declines significantly and stabilizes, the structure will transition from "new over old" in 2025 to "new and old dancing together" in 2026, which is essentially a rebalancing process, meaning AI technology must be allocated However, there should be a significant increase in allocation to cyclical sectors (manufacturing, cyclical goods) as these "old things" correspond to the structural core of 2026, which is the "Four Great Kings." At the same time, there are some important marginal changes that will affect the subsequent rebalancing in the other three aspects: 1. Internal Rebalancing in Technology: The essence of the "new" is that "AI technology is moving downstream," gradually transitioning to the supply-demand gap in the fourth stage (the upstream gap is in copper, storage, and power equipment; the downstream gap is in AI applications, components, etc.); it is worth noting to avoid a simple trading game model of "high risk appetite moving downstream, low risk appetite turning back." 2. Internal Rebalancing in Overseas Expansion: The essence of the "old" is that "exports are moving upstream," with traditional industries shedding the burdens of old models, leading to increasingly significant stabilization and growth of profits brought by overseas business, extending from downstream manufacturing to midstream and upstream manufacturing (engineering machinery, wind power and power equipment, chemicals, building materials, industrial metals); essentially, compared to the downstream export experience, there is a clear valuation increase, and midstream and upstream have a greater probability of a Davis double play. 3. Internal Rebalancing in Resource Products: In 2026, the pricing of resource products may not adapt to the assumption of a weak dollar throughout the year, and there is a possibility that "the dollar is not weak," which requires attention to the return of commodity attributes and the decline of financial attributes. Resource products that are based on supply-demand fundamentals and are likely to increase in price are more worthy of continued optimism. If we shift our perspective to the short term, particularly around the Spring Festival, whether there will be a style switch or a high-cut-low is a very worthy topic to explore. Leading up to the Spring Festival, the sectors that have surged are globally priced resource products + technology + overseas equipment, while those that have lagged behind are the domestic inflation chain and banks, corresponding to "saying goodbye to the deflation chain." There is a certain catalyst for pricing around "saying goodbye to deflation" after the Spring Festival, such as expectations for policies from the Two Sessions after the Spring Festival. Current assessments indicate that for 2026, the debate lies in the elasticity and space for CPI and PPI to continue rising. Our consistent view is that the essence of truly saying goodbye to deflation in 2026 is the easing of the turbulent political cycle and the rebound of the economic cycle, for example, the resonance of relatively low inventory under the backdrop of loose fiscal and monetary policies in China and the U.S., similar to the transition from late 2019 to 2020. So far, the data validation of this logic has not been observed, and we are still in the process of tracking and observing. At the same time, we have observed the following key changes in the stock market ecology worth noting in the 2025 Q4 fund quarterly report: 2025 Q4 Stock Market Ecology Observation 1: The increase in FOF products is the most prominent, with fixed income + products showing continuous improvement, indicating strong demand for stable income products based on major asset allocation; 2025 Q4 Stock Market Ecology Observation 2: The scale of passive funds continues to rise and dominate, while active funds have seen a sequential decline, reflecting an almost irreversible trend of passive bulls rising; 2025 Q4 Stock Market Ecology Observation 3: The trend of southbound funds has significantly slowed down, with a substantial decline in the proportion of Hong Kong stock holdings. Essentially, the rise of Hong Kong stocks in technology in 2025 is largely due to valuation (based on AI), while the decline is more related to fundamentals (price wars) 2025 Q4 Stock Market Ecological Observation 4: In 2025, active equity funds continue to experience overall redemptions, with better-performing funds facing relatively fewer redemptions. Even after the market continues to warm up following 924 in 2024, active funds still underperform expectations compared to the market. 2025 Q4 Stock Market Ecological Observation 5: The positions of active public funds have increased month-on-month, currently reaching the highest historical levels in recent years. Additionally, the current dynamic observations of ordinary and equity-oriented funds in 2025 Q4 are as follows: First, Q4 institutional buying logic: 1) Resources with price increase expectations + some financial attributes (such as electrolytic aluminum, copper, gold, minor metals, chemical products); 2) Core directions of the AI industry chain (overseas computing power optical modules); 3) Equipment benefiting from overseas prosperity (power equipment, engineering machinery, etc.) Second, Q4 institutional selling logic: 1) AI sectors with weaker performance realization (computers, media, some electronics, etc.); 2) Some domestic demand-related consumption and innovative drugs (pharmaceuticals, food and beverages, real estate, etc.) By industry, the top five sectors for institutional buying in 2025 Q4 are: non-ferrous metals, communications, basic chemicals, non-bank financials, and machinery; the top five sectors for selling are: pharmaceuticals, computers, electronics, media, and power equipment and new energy. In 2025 Q4, institutional allocations to the AI industry chain began to show divergence, with the TMT sector's holding ratio falling back to 37.95%. The main reason is the reduction in positions in directions with average performance realization, while directions with high performance realization, such as CPO, continue to see increases. Among them, optical modules (+2.11 pct) increased, while integrated circuits (-1.19 pct), computer equipment (-1.15 pct), gaming (-0.83 pct), and consumer electronics components (-0.23 pct) saw reductions, with funds clustering in sectors with strong performance realization. In 2025 Q4, institutional investors significantly increased their positions in resource products benefiting from price increases, mainly concentrated in the non-ferrous and chemical sectors, such as copper (+0.78 pct), aluminum (+0.74 pct), lithium battery chemicals (+0.53 pct), and potassium fertilizers (+0.28 pct). In 2025 Q4, institutional investors also showed differentiation in the offshore industry chain, with core increased holdings in mid-to-upstream equipment, especially equipment related to energy products. Specifically, grid equipment (+0.22 pct), photovoltaic equipment (+0.30 pct), and specialized machinery (+0.25 pct) saw clear increases. In 2025 Q4, institutions concentrated their increased holdings in the large financial sector, particularly in insurance. Insurance (+0.85 pct) saw significant increases, securities (+0.17 pct) saw slight increases, while banks (-0.05 pct) saw slight reductions. In 2025 Q4, institutions showed reductions in the domestic consumption sector, with reductions in liquor (-0.57 pct), passenger cars (-0.32 pct), and pharmaceuticals (mainly chemical preparations, raw materials, etc., -1.68 pct). Risk Warning: Changes in overseas monetary policy exceed expectations; supply-side clearing in some industries is less than expected; historical experience may not necessarily represent the future Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at their own risk