Despite fluctuations in expectations surrounding the U.S.-Iran conflict, A-shares have demonstrated relative resilience. Prudent policies implemented earlier have prevented excessive market surges, forming a solid foundation for medium-term expectations. Furthermore, A-shares have shown significant improvement in pricing geopolitical conflicts this cycle, effectively integrating short, medium, and long-term projections. This reflects both shifts in relative national power and China's capacity to navigate complex international environments. A-shares are increasingly embracing a "competitive mindset," adapting to a landscape where geopolitical tensions are frequent.
While the U.S.-Iran conflict has dampened global risk appetite, leading to broad adjustments in equity markets, A-shares have remained comparatively resilient. The influence of changing relative national strengths on asset pricing is becoming more ingrained, an area often under-priced globally. The resilience of A-shares amid U.S.-Iran tensions may mark the beginning of this repricing. China is no longer a passive recipient of imported inflation nor a mere bystander in geopolitical conflicts. It possesses the capability to adeptly manage geopolitical maneuvers and cushion the impact of event-driven shocks. A-shares are currently undergoing a repricing based on long-term shifts in the "competitive landscape," adapting to an environment where frequent geopolitical conflicts necessitate proactive Chinese engagement. This represents a significant optimization of A-share market characteristics and serves as evidence of a solid bull market foundation.
A-shares are advancing along their own path, with the "two-stage bull market theory" currently playing out. Overall static valuations for A-shares are at historically high levels, increasing resistance to further valuation expansion. The market is in a transition phase from a structural bull market to range-bound movement. This period of consolidation is expected to build momentum for a comprehensive bull market.
A-shares are progressing on their own trajectory, with the market naturally transitioning from the "first stage upswing" to a "consolidation range." The U.S.-Iran conflict, for A-shares, primarily serves to confirm this phase shift.
Currently, static valuations for sectors like Communications, Electronics, Power Equipment, Defense Military, Computers, and Basic Chemicals are at historical highs, as is the overall valuation of the entire A-share market. Under these conditions, identifying new structural opportunities has become more challenging, creating a market-wide impetus to transition towards range-bound trading. This consolidation phase may persist for 1-2 quarters. If no significant negative industrial trends emerge, mid-2026 could potentially mark the start of Bull Market 2.0. Should quarterly-level industrial disruptions occur, the launch of Bull Market 2.0 might be delayed until the fourth quarter of 2026.
The structural characteristics of this market consolidation phase involve neither a simple shift from high to low valuations nor a broad style rotation. It is more akin to a diffusion within leading sectors. Front-running sectors and core stocks are entering a phase of high-level volatility. The scope and scale for discovering new opportunities have diminished. Nevertheless, promising investment opportunities with elasticity will likely still stem from extensions of core thematic assets and the expansion of macro narratives. Prior to the Q1 earnings season, the recommended structure revolves around a "focus on reality." Attention should be paid to Basic Chemicals, where price increases may materialize concentratedly in March-April. With the Nvidia GTC conference approaching, the "new inflationary segments" within the computing power chain present another window for exploration, highlighting investment opportunities in CPO.
Mapping this to the current situation, key focuses include: 1) Extensions of core thematic assets: Continue exploring new sub-segment opportunities within the AI industry chain and cyclical Alpha. The AI industry chain should be explored along the core industrial thread from Bull Market 1.0 (AI hardware) to Bull Market 2.0 (AI applications). The current "focus on reality" characteristic is likely to persist at least until the Q1 reporting season, with emphasis on the hardware end: optical components, PCBs, and other inflationary segments, and gas turbines accelerating their penetration into global supply chains. Subsequently, focus should shift towards the application end, paying attention to "pick-and-shovel" plays in applications (cloud computing, edge computing, robotics), and the potential for China's domestic AI chain to achieve rapid development (chains related to domestic tech giants). We still view AI's transformation of traditional industries as a future investment opportunity. Within the pro-cyclical theme, Basic Chemicals, where price increases are expected to materialize early, is a key direction for March-April. 2) Expansion of macro narratives: Monitor the potential for strengthened pricing of shifts in relative national power, which could lead to a re-rating of the manufacturing sector, representing a potential medium-term opportunity.
Risk warnings: Overseas economic recession exceeding expectations; domestic economic recovery falling short of expectations.