Hua Jin Strategy: Continued Slightly Bullish Volatility in March, Growth Dominates

Reviewing history, A-shares in March tend to be volatile, mainly driven by policies, external events, liquidity, and the increasing impact of fundamentals after the Two Sessions. (1) March performance of A-shares has been relatively volatile: since 2010, only 7 out of 16 years has the Shanghai Composite Index risen in March. (2) The trend in March is primarily influenced by policies, external events, liquidity, and the rising importance of fundamentals after the Two Sessions. First, policies and external events are the core factors affecting March’s market trend. Second, liquidity also has a certain impact on March’s market. Third, the influence of fundamentals on market performance after the Two Sessions has increased: firstly, corporate earnings significantly impact the market after the Two Sessions; secondly, the start of the five-year plan may lead to an earlier reflection of fundamental factors.

Currently, in March this year, A-shares may experience sideways to slightly stronger fluctuations, continuing the spring rally. (1) Policies during the Two Sessions in March are likely to be relatively proactive, with limited external risks. First, policies may be more positive: for example, fiscal and monetary policies in 2026 may continue to be accommodative; secondly, support policies for modern industrial systems and expanding domestic demand may be further detailed and implemented. Second, external risks in March may be limited: first, US-China relations might improve in March; second, negotiations between the US and Iran could continue, reducing the risk of conflict. (2) Liquidity in March may further ease. First, macro liquidity could remain loose. Second, capital inflows into the stock market may stay at a certain level. (3) Economic and earnings data in March may further recover. First, the economy may continue its modest recovery trend. Second, corporate profit growth may continue to rebound in March.

Growth and cyclical sectors may continue to outperform in March, with a bias toward small and mid-cap stocks. (1) Historically, growth and consumer styles tend to lead in March, mainly driven by policies and industry trends. (2) This year, growth and cyclical sectors may continue to perform relatively well: first, technological support policies and industry trends in March are likely to remain positive, with liquidity staying ample, favoring growth styles; second, short-term indicators such as CPI, retail sales growth, and consumer confidence are still relatively low, making it difficult for consumption to generate excess returns in March; finally, policy support and price increases may persist, favoring cyclical styles. (3) Small and mid-cap stocks may also perform relatively better in March: first, historical data shows that small and micro caps tend to outperform in March; second, this year, the performance of niche industry leaders within the tech growth sector may be favorable, benefiting small and mid-cap stocks; third, liquidity may remain loose, supporting small-cap stocks; lastly, the trend of rising prices in non-ferrous metals, chemicals, and related commodities may continue, benefiting mid-cap stocks.

Industry allocation: continue to buy on dips in March, focusing on technology growth and some cyclical sectors. (1) Sectors with higher performance growth in March, such as cyclical and tech industries, may outperform: historically, industries with high performance growth in March tend to do well. (2) Currently, industries like automotive, machinery, military, non-ferrous metals, electronics, etc., with high 2025 annual report growth, are promising; similarly, sectors like non-ferrous metals, chemicals, petrochemicals, machinery, and computers are expected to have high growth in the first quarter of 2026. (3) The policy focus during the Two Sessions this year suggests opportunities in technology and consumer sectors. (4) If Trump visits China at the end of March, related sectors such as petrochemicals, non-ferrous metals, electronics, automobiles, new energy vehicles, household appliances, agriculture, forestry, animal husbandry, and fishery may outperform. (5) Valuations in growth sectors like pharmaceuticals, automobiles, and computers remain relatively low. (6) In March, continue to buy on dips in sectors such as: electronic (semiconductors, AI hardware), military (commercial aerospace), communications (AI hardware), non-ferrous metals, chemicals, machinery (robots), new energy vehicles, media (AI applications, gaming), computers (AI applications), pharmaceuticals (innovative drugs), as well as sectors with potential for catch-up and marginal fundamental improvement like non-bank financials and consumer sectors.

Risk warning: past experience may not predict future performance, policy surprises, and economic recovery falling short of expectations.

(Source: Huajin Securities)