Recent market sentiment has fluctuated amid uncertainty, yet economic data from the beginning of 2026 indicates a quiet recovery. Industrial value-added has strengthened, retail sales growth has rebounded, and fixed-asset investment turned positive with a cumulative year-on-year increase of 1.8%. Meanwhile, the Citi Economic Surprise Index for China, which measures the extent to which economic data exceeds expectations, rose to 107, reaching its second-highest level since 2010. As the peak season window of "Golden March and Silver April" approaches, how will the market evolve?

1. Economic Data for January–February Shows Recovery on Both Supply and Demand Sides According to macroeconomic data released by the National Bureau of Statistics for January–February, both supply and demand sides have shown varying degrees of marginal improvement, with several core indicators exceeding market consensus expectations. This recovery is not an isolated rebound of a single indicator but reflects broad-based positive momentum.

1) Production Side: Industrial value-added growth for January–February exceeded expectations, primarily driven by a noticeable recovery in demand-side indicators such as investment and exports. The services production index also saw a slight rebound, benefiting from the extended Spring Festival holiday boosting service sector activity. Data shows that industrial value-added growth for large-scale enterprises accelerated from 5.2% in December to 6.3% in January–February, surpassing the Bloomberg consensus forecast of 5.3%. The average seasonally adjusted month-on-month growth rate rose from 0.5% in December to 0.6% in January–February. CITIC Securities attributes the improvement in industrial value-added growth primarily to demand recovery driving production restoration. Structurally, growth was mainly lifted by sectors such as computer and communication electronics, railway, ship, and aerospace equipment, electrical machinery and equipment, and food manufacturing. The services production index increased slightly, largely due to improved activity in transportation, accommodation, and catering services during the extended holiday. In terms of output, electricity generation growth rebounded from 0.1% in December to 4.1% in January–February. Huatai Securities suggests this may be linked to enhanced traditional power support amid recovering industrial operations. Notably, production growth for power generation equipment surged from 8.7% in December to 21.6%, industrial robot output growth rose from 14.7% to 31.1%, and machine tool production growth turned positive from -8.6% to 4.2%, indicating that stronger exports and holiday effects have boosted activity in export-related and high-end manufacturing sectors.

2) Investment Side: Fixed-asset investment growth stabilized after previous declines, with infrastructure investment performing particularly well. Data shows that nominal fixed-asset investment growth turned positive in January–February, rising from -15.1% in December to 1.8%, indicating a recovery in investment. Infrastructure, manufacturing, and real estate investment declines all moderated. Specifically, fixed-asset investment grew by 1.8% year-on-year in January–February, compared with a consensus expectation of -2.7%, marking a 5.6 percentage point improvement from the previous period. Infrastructure investment stood out, turning positive from -16% in December to 9.8%, significantly exceeding market expectations. Huatai Securities attributes this to proactive fiscal efforts and local governments advancing reserve projects. CITIC Securities points to three driving factors: front-loaded policy support, special bond allocations favoring project construction, and the concentrated rollout of new policy-based financial tools in the fourth quarter of last year. Looking ahead, CITIC expects that the newly allocated 800 billion yuan in policy-based financial tools for 2026 will gradually be put into use from March to April, providing sustained support for infrastructure investment growth. Huatai also notes that the National Development and Reform Commission advanced the allocation of 295 billion yuan for key projects and budgetary investment funds, an increase of 95 billion yuan year-on-year, which should further boost infrastructure investment growth. Manufacturing investment growth turned positive from -10.6% in December to 3.1% in January–February, possibly due to the orderly advancement of market-driven "anti-involution" measures and the gradual impact of accelerated fiscal fund disbursements supporting manufacturing investment.

3) Consumption: In January–February, retail sales growth exceeded expectations and previous figures, driven by multiple factors including the earlier launch of trade-in programs, differences in Spring Festival stocking schedules, and extended holidays boosting catering consumption. Total retail sales of consumer goods grew by 2.8% year-on-year, up 1.9 percentage points from December 2025 and above the Wind consensus forecast of 2.4%. Goods retail sales and catering revenue grew by 2.5% and 4.8%, respectively, increasing by 1.8 and 2.6 percentage points from previous levels. The extended Spring Festival holiday significantly boosted consumption, with categories such as tobacco and alcohol, clothing, gold and jewelry, and grain and oil food—typical holiday consumption items—achieving double-digit growth among large-scale retailers. The early-year rollout of trade-in policies supported growth in relevant categories. For instance, home appliance retail sales growth improved by 22 percentage points to 3.3%, returning to positive territory, while communication equipment retail sales grew by 17.8%, maintaining double-digit expansion. China Securities notes that after a slowdown in retail sales growth since May 2025, consumption showed a noticeable uptick at the start of this year, though the absolute growth rate remains relatively low. Overall, while marginal improvement in consumption is evident, its sustainability and extent of recovery warrant continued attention.

2. Citi Economic Surprise Index Hits Second-Highest Level Since 2010 Multiple economic indicators for January–February, reflecting both domestic and external demand, exceeded market expectations. Export growth strengthened significantly, fixed-asset investment growth unexpectedly turned positive, and service consumption potential continued to be released. Driven by synchronized recovery in domestic and external demand, the Citi Economic Surprise Index for China surged to 107 as of March 16, 2026, marking its second-highest level since 2010, only surpassed during the initial post-pandemic normalization phase in the first quarter of 2023. This index measures the difference between actual data releases and market consensus forecasts. A rising index in positive territory indicates that China's economic performance is better than previously anticipated, serving as strong evidence of economic resilience. Historically, the index exhibits a strong calendar effect, with seasonal uptrends typically occurring during March–April and July–October each year. From a policy perspective, domestic macroeconomic policies often follow a "front-loaded" approach, aiming to set the tone for annual growth in the first half of the year, especially the first quarter. After the government work report outlines annual targets at the Two Sessions, special bond issuance, major project approvals, and various fiscal support tools tend to accelerate, creating a concentrated policy effect that boosts economic activity in March–April. Additionally, the domestic economy has two traditional peak seasons—"Golden March and Silver April" and "Golden September and Silver October"—when industrial production, infrastructure project starts, and property sales are particularly active. These periods also coincide with seasonal upticks in high-frequency economic activity indices, creating an environment conducive to economic outperformance.

3. Short-Term Volatility Should Not Lead to Excessive Pessimism While current market uncertainties and external shocks are undeniable, excessive pessimism is unwarranted, as underlying economic conditions are gradually improving in many areas, even if unnoticed by many. Market sentiment may fluctuate, but overreacting to volatility could be counterproductive.

1) Meso-Level Focus: Short-Term Fiscal Stimulus and Long-Term Consumption Structure Shifts The consumption market is currently at a critical juncture of weak recovery and policy expectation博弈. Based on marginal improvements in macro data and validation from micro high-frequency data, CITIC Securities suggests that 2026 could be a pivotal year for establishing an inflection point in consumption sector sentiment. Short-term, beta opportunities may arise from potential fiscal stimulus policies, while long-term allocation should emphasize structural shifts in consumption. For short-term investment, a "barbell strategy" can be adopted: on one end, betting on policy flexibility and wealth effect transmission through service consumption; on the other end, building a defensive position with high-dividend assets, while closely monitoring opportunities from CPI turning positive, which could boost both volume and prices in the catering supply chain. Long-term allocation should again emphasize structural changes in consumption. A longer-term perspective reveals that the underlying logic of the consumption market is shifting. Total growth may no longer be the sole metric; structural optimization and upgrading are becoming the core drivers of long-term growth. Subtle yet firm transitions—from "having or not" to "good or not," from "buying goods" to "buying services," and from "mass market" to "personalization"—are reshaping the entire consumption landscape.

2) Continued Divergence in Technology Sector, Likely Rotational Moves with Upstream Catalysts The technology sector is increasingly showing a divergent pattern, which is not chaotic but a natural outcome of rising industry maturity. Different technological paths, application scenarios, and commercialization speeds are placing tech firms into distinct value quadrants. The era of broad-based gains may be fading, replaced by structural rotations dominated by specific segments. Founder Securities notes that rotational moves are likely to prevail, with upstream technology segments also offering catalysts from price increases worth close attention.

3) Seasonal Characteristics of Pro-Cyclical Sectors, Represented by Price Increase Chains From a seasonal perspective, March–April and July–October are periods when market sentiment toward the macro economy tends to be most positive, and optimistic expectations for pro-cyclical sectors are most likely to ferment, providing favorable windows for price-increase trades. Industrial Securities points out that price increase chains often exhibit strong excess returns during the "Golden March and Silver April" and "Golden September and Silver October" peak seasons, while underperforming during off-peak periods.

Summary The recovery in January–February macroeconomic data, though somewhat unexpected, is reasonable upon closer examination. These signs of improvement may be quietly building momentum for the market, preparing for the next upswing.