The metals sector continues its strong performance at the start of 2026, solidifying its position as a top market performer. However, with prices and market sentiment reaching historic highs, investors are experiencing a mix of excitement and apprehension. As stock and commodity prices surge together, the key question is whether to continue riding the trend or to become cautious of potential overheating. With leading companies and growth stocks each presenting their own investment cases, should investors prioritize stability or potential for higher returns? Furthermore, when choosing between ETFs and individual stocks, what is the optimal approach for the average investor?

Regarding stock selection and investment strategy for the metals sector, CITIC SEC's chief metals analyst recently shared his perspective. He believes the long-term upward trend remains intact, but short-term risks are accumulating rapidly. For investors, a more suitable strategy at present is to maintain holdings but avoid chasing prices higher aggressively. If prices rise too quickly, considering a partial reduction could be prudent, as market adjustments are likely to present worthwhile entry opportunities.

The analyst further pointed out that stock selection should align with the market phase. When an upward trend is established, leading companies offer the strongest certainty. Investors with a higher risk tolerance could focus on growth-oriented companies with a compelling narrative of volume growth coupled with rising prices. He also highlighted potential "divergence" trading opportunities, suggesting that a scenario where commodity prices continue to climb while related stock prices stagnate often signals a temporary window for strategic positioning.

For risk identification, he advised closely monitoring four key signals: changes in interest rate expectations, regulatory developments, inventory data, and the realization of corporate profits.

In terms of specific metal preferences, the analyst continues to favor copper as the top choice for medium to long-term investment. He anticipates that as the domestic economy shows signs of阶段性回暖 (staged recovery), the market's focus will gradually shift from macro to meso factors, potentially leading to stronger performance for the copper sector.

Excerpts from the discussion follow:

When investing in the same bullish commodity market, such as copper, should investors opt for large industry leaders with substantial resource reserves for stability, or bet on mid-sized companies with new production capacity for potentially higher returns? What are the one or two most critical factors for successful stock selection in 2026, and is there a relatively simple method for ordinary investors to judge?

Regarding stock selection, investors can follow several principles, with the core being to accurately assess the current market phase. Firstly, research leading companies, such as large-cap representative firms in the industry. Historically, these leaders have often been able to acquire quality assets on favorable terms when commodity prices are low, a pattern that has been demonstrated. During price upcycles, they effectively translate these gains into profits, indicating sound management. Therefore, there is strong reason to believe in the sustainability of such enterprises. Once a trend is confirmed, holding these leading companies represents a choice with high certainty and reliability.

Secondly, investors can explore tactical opportunities. This includes companies in the second tier, or secondary leaders. These firms typically have smaller market capitalizations and often rely on a positive growth narrative. Within the metals sector, capital is particularly attracted to companies demonstrating both volume growth and exposure to rising commodity prices, as this combination makes earnings realization highly probable, often turning them into focal points for market trading. In the copper industry over recent years, the market has successively identified over a dozen such companies. These firms became market highlights at different stages, invariably supported by the volume-and-price growth story, with their market caps growing from 20-30 billion to 80-100 billion yuan. The market then continues searching for the next batch of companies with growth potential. Investment markets persistently seek growth stories, which often command higher valuation logics.

In summary, for relatively conservative investors bullish on the sector, embracing large, stable leading companies with high certainty is recommended. Investors with a slightly higher risk appetite can appropriately consider mid-sized companies with stronger growth potential and greater elasticity as a supplement to their trading strategy.

For ordinary investors looking to capitalize on this opportunity, is it better to participate through sector index funds/theme ETFs or by carefully selecting individual stocks? Which approach is more likely to capture structural opportunities in 2026?

Both ETFs and stocks are financial instruments, simply suited to different types of investors. Over the past three years, various ETFs have developed rapidly. As the universe of stocks expands, research difficulty increases significantly. Many investors find it more practical to directly invest in a favored sector via an ETF rather than struggling to research and select individual stocks. ETFs are quite suitable for investors with limited time, a basic understanding of the market, who wish to gain exposure to a sector they believe has potential without missing the trend.

In contrast, investing in individual stocks places higher demands on investors, requiring a deep understanding of the specific company. Just as one might compare brands and specifications carefully when buying a phone or other product, investing real money in stocks necessitates dedicating effort to research and build knowledge. Therefore, stock investment is likely more suitable for investors who possess a certain level of understanding, learning ability, and research capacity.

The metals sector is known for high volatility. Are there relatively simple signals that could indicate the market might be overheating? At the current juncture, what risks require the most vigilance?

For assessing market trends and risks, the following areas warrant attention: Firstly, market sentiment. However, tracking related indicators can be challenging. For instance, while dramatic single-day surges are rare and might still present opportunities, predicting when a reversal occurs is difficult. For globally priced commodities like gold, silver, and copper, a key observation point is the interest rate level, particularly expectations for short-term rate changes. This is arguably the most sensitive factor in the current market. For example, U.S. inflation data exceeding expectations could alter market perceptions of the Federal Reserve's interest rate cut timeline, triggering price volatility. Recent market adjustments have almost consistently correlated with Fed communications or shifts in rate expectations.

Secondly, closely monitor regulatory dynamics, such as exchanges issuing risk warnings, increasing margin requirements, or adjusting daily price limits. When regulators frequently issue notices highlighting risks, it might be prudent to consider avoiding related sectors and refraining from risky operations at high levels.

Thirdly, risk can be gauged from economic data. For instance, inventory levels in the battery industry are a closely watched metric. If inventory accumulation far exceeds expectations, it could lead to a rapid release of short-term risk. Therefore, fluctuations in data like inventories can influence trend assessments.

Finally, from a stock investment perspective, focus on the profit realization of listed companies. Even if leading companies are currently demonstrating strong profit releases, caution is advised regarding market-favored niche leaders or mid-sized companies. If their profit realization pace falls short of expectations, or deviates significantly from market forecasts, it could negatively impact related stock segments.

In 2026, what will primarily dictate the overall trajectory of the A-share metals sector: how much higher commodity prices can climb, or the sustainability of listed companies' profits? If a short-term divergence occurs between the two, how should investors balance their approach?

We often view "divergence" as a verifiable trading opportunity. The prices of metals stocks fundamentally fluctuate around commodity prices over the long term. Sustained trends in commodity prices ultimately reflect in corporate profits. Although stock prices might deviate temporarily due to various disturbances, they eventually revert. When a situation arises where "commodity prices keep rising, but stocks fail to follow," there is no need for panic; patience is key. Typically, corporate profit realization lags commodity price movements by 3 to 6 months. Observing this divergence can often identify a阶段性 (staged) buying opportunity.

Another logic is when commodity prices remain high, but stocks may no longer be pricing in further gains. At this point, one must be cautious about whether commodity prices might subsequently decline, while stocks might have already peaked or bottomed ahead of time. Different judgments are required for different metal varieties.

What is the single most core and direct piece of advice for ordinary investors considering investing in the metals sector in 2026?

First, it is crucial to recognize that the long-term trend is not over. This is not a short-term, year-based concept, but a logic spanning a longer dimension. However, short-term risks are充分聚集 (fully accumulating). No market rises indefinitely without corrections; after a period of ascent, a阶段性调整 (staged adjustment) is inevitable. This subsequent period is likely the真正值得关注的进场时机 (truly noteworthy entry opportunity).

From a trading strategy perspective, maintaining exposure to the sector, whether through ETFs or stocks, remains viable. However, if prices rise too rapidly, considering阶段性减持 (staged reduction) and profit-taking is advisable. Simultaneously, investors can watch for divergence opportunities. For example, in the rare earths sector, after adjustments, commodity prices have rebounded to previous highs, but related stocks haven't risen correspondingly or have risen slowly. Such tactical opportunities are worth investors exploring based on their own analysis.

We still consider copper-related assets as the preferred direction for medium to long-term investment. Entering 2026, the domestic economy is expected to experience阶段性回暖 (staged recovery), and the market's trading logic is anticipated to gradually shift from macro to meso factors. This transition window is highly probable in the second half of the year, potentially extending into the first half of next year, during which sectors including basic industries might demonstrate better performance.

Finally, investors are reminded that against the backdrop of高度聚集 (highly concentrated) short-term risks, it is essential to operate according to individual risk tolerance and investment preferences, implementing appropriate risk prevention measures.