CITIC Securities: In an environment of rising sentiment, the A-share market may fluctuate upward after the start of the year

The Zhitong Finance App learned that CITIC Securities released a research report saying that the biggest difference in expectations in 2026 comes from the balance between external demand and domestic demand. “Taxing” the outside world and subsidizing domestic demand should be the general trend, and this year is an important start. Standing at the beginning of the year, considering that capital was not very popular at the end of last year, there is a higher probability that the market will fluctuate and improve after the beginning of the year in an environment where people's mentality is rising. In the medium term, it is recommended to adopt the mindset of “money to earn performance without expecting to be valued”. They prefer sectors where popularity and concentration of positions are relatively low, but where attention is beginning to increase, and where there is room for long-term ROE improvement, such as chemicals, construction machinery, power equipment, and new energy sources, etc., and are relatively cautious about sectors with high prosperity and high popularity but stagnant stock prices. At the same time, some new industrial topics (such as commercial aerospace) may be interpreted over and over again, and this also deserves continued attention.

Judging from the money-making effect of institutions, 2025 can rank third in the past 10 years and sixth in the past 20 years

The sample actively managed public fund tracked by CITIC Securities had a median yield of 28.2% in 2025, performing third in the past 10 years (since 2016), after 51.9% in 2020 and 37.7% in 2019, ranking sixth in the past 20 years. Judging from the degree of differentiation in product yield, the first 10% quantile of yield in 2025 was 60.8%, and the difference between the two was 5.4%. The difference between the two was 55.4 percentage points, ranking second in the past 10 years, after 71.9 percentage points in 2020. The performance of balanced products in the structured bull market was relatively weak. CITIC Securities counted the performance of 30 representative balanced stock selection fund managers in 2025. The average return for the whole year was 28.0%, which is basically comparable to the increase of Wandequan A (+27.6%).

The market not only enjoyed “valuation money” brought about by poor expectations, but also earned “performance money”

1) The general trend of A-shares and Hong Kong stocks in 2025 can basically be divided into five stages. Wandequan A rose 27.7% for the whole year, and the Hang Seng Technology Index rose 23.4% for the whole year, but there was a clear difference in the dominant range between A shares and Hong Kong stocks. The first stage is from New Year's Day to before the Spring Festival. After adjustments at the beginning of the year, the market experienced a brief period of agitation, but the main line continued the consensus sector (autonomous and controllable technology, end-side AI, robots, etc.) at the end of 2024, mainly active capital participation, and the overall market is still in a volatile pattern. The second phase was from after the Spring Festival to the end of March. DeepSeek completely reversed the market's narrative about China's independent technology, and also brought imagination about AI applications. At this stage, Hong Kong stocks experienced the biggest rise of the year. From after the holiday until the implementation of equal tariffs on April 7, the Hang Seng Technology Index rose 12%, significantly outperforming A shares (Wandequan A rose 4%). This relative strength continued until the end of May. The third phase is from April 7 to late June. The market experienced a tariff shock that exceeded expectations and a rapid recovery. The overseas sector (innovative drugs, games), which were less affected by tariffs, and new consumption with domestic demand narratives and structural highlights performed well. The fourth phase was from late June to September. After the Sino-US talks in Geneva and London were successfully held, the Sino-US economic and trade negotiation framework was gradually established, and uncertainty declined markedly. The explosion of AI reasoning demand brought about the main rise in the North American computing power chain and the valuation expansion of independent technology. The main incremental liquidity of A-shares in this range was mainly leveraged capital, and the financing balance increased by nearly 700 billion yuan. The performance of Hong Kong stocks dominated by domestic demand exposure was significantly weaker than A shares dominated by external demand exposure. The fifth stage was a high level of fluctuation since October, and part of the capital was shifting from pursuing profits to redeeming profits.

2) The “big money” of a structured bull market comes from huge differences in expectations and increased performance. Almost all of the “big money” in 2025 came from rising valuations due to correction of differences in expectations, and at the same time, significant performance growth was realized. The first is the expected difference in the structure of domestic demand and external demand. From the beginning of the year until the equal tariff war, the market's expectations for external demand, overseas supply chains, and going overseas continued to turn pessimistic. As a result, the geographical pattern and external demand between China and the US continued to exceed expectations throughout the year. By October, there was even a G2 pattern narrative. It was already a market consensus that they were open to foreign demand at the end of the year. The second is poor expectations for the evolution of the AI industry. The explosion of inference demand has largely filled the slowdown in pre-trained scaling laws and the industrial vacuum in the process of migrating the Hopper architecture to the Blackwell architecture. At the beginning of the year, DeepSeek once gave the market a narrative of excessive computing power. After the implementation of equal tariffs, overseas AI supply chain companies continued to be under pressure. Based on consistent expectations of net profit forecasts for 2025, the lowest valuations for the year were only 10 times, 12 times, and 20 times respectively, but by the end of 2025, they had been repaired to 40 times, respectively. 106 times and 142 times. As can be seen, the part where industry trends actually make money is also at the stage of huge differences in expectations and bias correction, not the pattern stage after consensus is formed (communication ETFs rose 84% in the third quarter, compared to only 15% in the fourth quarter). Earning money from industry trends also requires great persistence and insight. Other structural opportunities last year also basically followed this characteristic. For example, the main increase in new consumption occurred before the “new consumption” concept was formed and widely spread, and the rise in innovative drugs mainly occurred before the market discussed the BD process intensively. The only sector that was bullish last year with no major pullback was resource stocks. Although expectations were less obvious, the market was still biased against this traditional manufacturing industry for most of the time.

3) Incremental liquidity is only the result of poor expectations and the process of implementing performance. Investors have overestimated the impact of incremental capital on the market. From June 20 to September 25 of last year, the balance of the two finance loans increased by 623.5 billion yuan. The Shanghai Composite Index rose 14.6%, while the annual increase of only 18.4% was only 18.4%. Excluding the three months of the surge in financing, the index basically fluctuated at other times. But that doesn't mean there aren't incremental capital inflows at other times. For example, excluding the above time period, the net inflow of ETFs for the year was 23.6 billion yuan (net outflow of 102.4 billion yuan in the above time range); insurance added 5.76 trillion yuan in premiums for the whole year, which is 1.73 trillion yuan in potential market entry capital based on a 30% market entry caliber. There is no simple correlation between capital inflows and rising exponential water levels. Liquidity is only the result of poor expectations and the process of implementing performance rather than the underlying reason for the rise in the market. There is no shortage of money in the market at all; all it lacks is sufficient capacity to invest in production and imagination.

The biggest expected difference in 2026 will come from the balance between external demand and domestic demand. “Taxing” the outside world and subsidizing domestic demand should be the general trend

In a context where the market is unanimously optimistic about external demand and cautious about domestic demand, we need to see where the biggest difference in expectations for 2026 is. The reason investors have extremely high expectations for the beginning of the year is largely based on a game of expectations that “Trump wants to visit China → Sino-US relations are unhindered before his visit to China”. However, in reality, the trade environment facing China this year is more complicated than last year, and it is no longer a simple Sino-US relationship that can be covered. Beginning on January 1 of this year, Mexico officially imposed import tariffs of up to 50% on countries, including China, that have not signed free trade agreements with it, involving 1,463 items such as automobiles, steel, and textiles; the EU Carbon Border Regulation Mechanism (CBAM) officially entered the “charging period,” and 6 types of products such as steel, cement, aluminum, fertilizer, electricity, and hydrogen were first included; Japan will also cancel the policy of exempting small-value imported goods from consumption tax for 36 years starting this year. We also need to see some adjustments in China's attitude towards exports. Strict export controls on strategic resources and materials, stricter export scrutiny for industries with technical advantages such as lithium batteries, and export licensing systems for industries such as pure electric passenger vehicles and steel. These changes mean that China's foreign trade policy is shifting from simply large-scale efforts to stabilizing chains, protecting profits, and controlling risks. The dominant industries are shifting from external “subsidies” to external “taxation”, and foreign trade also needs to be transformed from a simple growth engine to a policy tool that serves domestic demand, industrial upgrading, and economic security. Under the big wave of “anti-domestic sales,” corporate overseas, and global operations, there is more and more limited room for China to continue to pursue value-added tax growth, but there is huge room for income tax growth based on profits realized in the global market, and fiscal benefits are also historically gradually converging with shareholders' interests. This is also an important source of future sustainable subsidies for domestic demand. Foreign “taxing” and subsidizing domestic demand ultimately achieves a balance between external demand and domestic demand. This major structural adjustment has never occurred in history, and it is difficult for the market to quickly and fully price in the short term. This is not only a source of poor expectations, but also a source of potential performance growth.

The popularity of capital at the end of last year was not very high, and the probability that the market will fluctuate upward after the beginning of the year is even higher

1) At the end of 2025, the overall “agitation” of the market was very restrained. Most of the capital that redeemed the earnings in the early period is still waiting for the time to enter the market, which also means that it is difficult for the market to make obvious adjustments without a significant risk of exceeding expectations. Looking at investor sentiment indicators, as of December 31, 2025, the daily frequency index MA10 reading was 57.5 (value range 0-100), which is in the lower quantile of 24.3% since the 2024 924 market. As of December 26, 2025, the latest active private equity position in the channel survey sample was 80.0%. It has been at 80% or below for 5 consecutive weeks. Although it is still above the historical median, it also reflects that the funds previously cashed out the proceeds have yet to return on a large scale. Hong Kong stocks have also reached a phased sentiment low, and the Hang Seng Technology Index has stabilized above the annual line. Furthermore, US stocks have continued to fluctuate since November 2025, and the price of Bitcoin, which is a “weather vane” for overseas risk assets, has been trading sideways for more than a month in the 87,000-89,000 US dollar range, and there has been an upward trend since the beginning of the year.

2) In an environment of “rising people's minds”, in the short term, as long as the position is cleared, it may become a reason for the rise. The probability of “getting on the bus after adjustment” is likely to be the main consideration of institutional funding, such as non-ferrous, overseas computing power, autonomous and controllable semiconductors, etc. Of course, some types of deviant capital also fall into this category, such as commercial aerospace, robots, etc. The anti-consensus type is the consideration of some allocation-type incremental capital. The typical direction is to capture policy changes that exceed expectations during the year by increasing the allocation of small positions for domestic demand consumption. Industries related to travel services such as tax exemptions and aviation should be the focus of incremental layout, and high-quality real estate developers are also being considered. Furthermore, Hang Seng Technology is a relatively simple choice to lay out domestic demand exposure. The only pain point in the short term is that there has been no systematic decline in the allocation ratio of allocated capital to Hong Kong stocks.

3) In the medium term, it is recommended to adopt the mindset of “money to earn performance without expecting to be valued”. CITIC Securities favors some sectors where popularity and concentration of positions are relatively low, but attention is beginning to increase, and where there is room for long-term ROE improvement, such as chemicals, construction machinery, power equipment, and new energy sources. It is relatively cautious about sectors with high prosperity and high popularity but stagnant stock prices. At the same time, some new industrial topics (such as commercial aerospace) may be interpreted over and over again, and this also deserves continued attention. Furthermore, CITIC Securities is still paying close attention to and tracking the trend of RMB appreciation. Recently, the popularity of industries such as paper and aviation has risen rapidly. In the future, we will pay more attention to changes in policy logic caused by continued appreciation. From this perspective, brokerage firms and insurance are defensive configuration choices.