Huajin Securities: A-shares may fluctuate with a bias towards strength in May. Technology and cyclical industries are relatively advantageous.

Huajin Securities released a research report stating that, as of the current situation, the A-share market in May may see a strong oscillation. (1) In May, policies may still lean towards being positive, and external risks may ease. Firstly, actively positive policies may continue to be introduced and implemented in May. Secondly, external risks may ease in May. (2) The economic and profit fundamentals in May may continue to improve. Firstly, the economy may continue to recover in May. Secondly, short-term corporate profits may further improve in May. (3) Liquidity in May may remain loose. Firstly, macro liquidity may remain loose in May. Secondly, capital inflows into the stock market in May may continue to rise. In terms of industry allocation, Huajin Securities recommends continuing to allocate technology growth, some cyclical, and consumer industries on dips. (1) Technology and cyclical industries may have a relative advantage in May. Firstly, historical review shows that the first-quarter performance growth rate has weak predictive power for industry performance in May. Secondly, historically, industries trending positively with policies and trends are relatively advantaged in May. Thirdly, currently, technology and cyclical industries may have a relative advantage in May. (2) Recommended industries to allocate on dips in May include those trending positively with policies and industries such as electric (AI power, lithium battery), military (commercial aerospace), media (AI applications, games), computers (AI applications), non-ferrous metals, electronics (semiconductors, AI hardware), communications (AI hardware), innovative pharmaceuticals, and chemicals, as well as industries with potentially improving fundamentals like securities and consumer industries. Concerns over risks during the holiday period did not materialize, and the A-share market after the holiday may continue its trend of strong oscillations. (1) Geopolitical conflict risks did not worsen during the holiday period. Firstly, negotiations between the US and Iran continued during the holiday, but no new conflicts emerged. Secondly, Sino-US relations remained stable during the holiday. (2) US economic data released during the holiday fell below expectations, and overseas liquidity expectations remained relatively stable. Firstly, US economic growth and employment remained below expectations during the holiday, but inflation pressures increased slightly. Secondly, the US dollar index continued to remain at a low level, while the RMB exchange rate showed a tendency of strength, and overseas liquidity expectations did not change significantly in the short term, with minimal impact on the domestic market. (3) Travel and consumption within China during the "May Day" holiday continued to see some growth, and real estate sales remained stable. Historical analysis shows that the main factors influencing the May A-share trend are policies and external events, fundamentals, and liquidity. (1) A-share performance in May tends to be weak: from 2010 to the present, the Shanghai Composite Index has only risen in May six times in 15 years. (2) The main factors influencing the May A-share trend are policies and external events, fundamentals, and liquidity. Firstly, a loose policy environment or positive external events may lead to the Shanghai Composite Index rising in May; otherwise, A-share performance may be weak. Secondly, the strength of the fundamentals also has a certain impact on A-share performance in May. Thirdly, liquidity is an important factor determining the rise and fall of A-shares in May. (3) If there was a trend of strong oscillation in April, then the first-quarter profit growth rate would have a significant impact on A-share performance in May. Firstly, if there was a trend of strong oscillation in April, A-share performance in May tends to be weak. Secondly, if there was a trend of strong oscillation in April, the year-on-year profit growth rate of listed companies would have an important influence on the May A-share performance. In May, small and medium-cap growth styles may be relatively advantageous. (1) In May, cyclical styles may be relatively advantageous. Firstly, historical analysis shows that consumer styles tend to lead in May, mainly driven by industry trends and fundamentals, and policies. Secondly, cyclical styles may have a relative advantage in May this year: firstly, the prosperity of technology growth industries such as AI hardware may continue to rise in May, while cyclical industries may also maintain a high level of prosperity in May; secondly, policy support for technology growth and cyclical industries may be further introduced in May; finally, the US dollar index may continue to remain at a low level of fluctuation in May, liquidity may remain loose, and both technology growth and cyclical styles may benefit. (2) Small and medium-cap styles may be relatively advantageous in May. Firstly, historically, small and medium-cap stocks usually have a relative advantage in May. Secondly, there may be a bias towards small and medium-cap styles in May this year: firstly, liquidity in May may be relatively loose, which is favorable for small and medium-cap styles; secondly, risk preferences may increase in May, favoring small and medium-cap styles; finally, technology growth and some cyclical industries may see an upward trend in May.