Major stock indices closed higher today, with most broad-based indexes advancing. Trading volume shrank across the two main exchanges. The Shanghai Composite Index rose by 0.65% to 4123 points, while the ChiNext Index gained 3.04%. Hong Kong's Hang Seng Index also saw a significant increase, climbing 2.08%. Combined turnover for the Shenzhen and Shanghai markets was approximately 2.4 trillion yuan, indicating reduced trading activity.
Data from WIND showed a majority of the 31 primary Shenwan industries closed higher, with widespread gains among individual stocks. The Communications, Electronics, Mechanical Equipment, and Building Materials sectors led the gains, rising by 4.32%, 3.41%, 2.81%, and 2.07% respectively. In contrast, the Petroleum & Petrochemicals, Coal, Steel, and Agriculture sectors underperformed. Across the entire market, 4,531 of the more than 5,300 listed stocks advanced, indicating strong positive market breadth.
Market risk appetite saw a phased recovery, driven significantly by a de-escalation in Middle Eastern tensions. Previously, concerns that the Iran conflict could escalate had fueled fears of disruptions to regional energy supplies and broader instability, leading to a noticeable rise in risk-off sentiment. The situation showed signs of marginal easing yesterday evening. Public statements and social media posts conveyed clear signals aimed at reducing tensions, emphasizing that a full-scale war with Iran is not sought. It was also indicated that if Iran halts certain military actions, diplomatic channels would be pursued to resolve disputes, with hints of potentially restarting some form of negotiation framework. This rhetoric was interpreted by markets as creating room for de-escalation, suggesting a desire to avoid further escalation.
Concurrently, Iran issued a measured response. Relevant officials stated there are no plans to proactively widen the conflict and expressed willingness to use diplomacy to reduce tensions if external military pressure diminishes. This stance was viewed by markets as a reciprocal de-escalation signal. Following the conciliatory gestures, Iran refrained from further escalatory actions, demonstrating strategic restraint. These mutual signals of softening positions significantly altered prior market expectations of escalating conflict, leading to a decline in the geopolitical risk premium.
Against this backdrop, market dynamics exhibited characteristics of a "risk-on" trade. The geopolitical risk premium fell rapidly, global concerns about conflict escalation decreased noticeably, the demand for safe-haven assets weakened, and investor risk sentiment improved. Driven by this shift, the A-share market broadly advanced today. Previously suppressed technology and growth sectors, which had suffered during the risk-aversion phase, experienced a significant rebound, with pronounced capital inflows. The ChiNext Index opened higher and maintained strong momentum throughout the session, closing up 3.04%, significantly outperforming the major broad-based indices. Furthermore, segments related to the AI industry chain became the market's strongest theme. The computing hardware sector saw a collective surge, with the optical communication segment performing particularly well; the optical module index rose approximately 8%. High-growth technology sectors regained market attention.
Domestically, policy remains supportive. The annual sessions are underway, with the Government Work Report maintaining the general principle of "seeking progress while maintaining stability." The report's deployment of macro policies for the year continues the overall tone set by the Central Economic Work Conference. On one hand, counter-cyclical policy strength remains broadly stable, growth targets are largely as expected, and there is continued emphasis on expanding domestic demand while also balancing investment and consumption, with efforts to promote investment potentially increasing marginally. On the other hand, long-term development strategies maintain continuity and foresight. Keywords like new quality productive forces, technological development, high quality, security, and low carbon continue to rise in frequency, with related structural policies advancing steadily. Overall, policy retains a positive tone, expected to help stabilize and recover the economy. However, some market views note that the budget deficit target implies limited growth for broad fiscal measures, which may only lead to a modest rise in the PPI midpoint, with relatively constrained elasticity.
Looking ahead, the pressure from geopolitical risks has eased somewhat, and A-shares have shown relative resilience. Domestically, trading dynamics over recent sessions were significantly influenced by geopolitical factors. The phased intensification of Middle Eastern tensions elevated global risk-off sentiment, contracted risk appetite, and suppressed some high-beta sectors, leading to cautious overall market performance. However, with the recent marginal easing of tensions, expectations for further escalation have cooled noticeably. The geopolitical risk premium has begun to recede, reducing an external headwind for A-shares. In this context, capital that flowed out due to earlier risk-off sentiment may gradually return to the equity market, and risk appetite is expected to enter a sustained recovery phase. Additionally, the upcoming meeting between the leaders of China and the US is anticipated, with potential areas of cooperation being watched. Furthermore, as A-shares enter the first-quarter earnings season, market focus on corporate results will intensify. It is believed that with policy support, the domestic economy could see a recovery in the first quarter, and resilient exports may provide more profit-driven opportunities. Overall, with external geopolitical risks easing coinciding with a window for internal economic recovery, overall A-share risk appetite may gradually improve.
Regarding sector allocation, focus short-term on oversold technology and growth stocks, while maintaining a balanced allocation between technology and cyclical/manufacturing sectors medium-term. For the technology direction, industrial logic supported by external demand persists. Overseas power grid expansion and computing infrastructure construction continue to fuel the "power shortage" narrative, potentially boosting sentiment for sectors like grid equipment. Meanwhile, expanding AI computing demand coupled with sustained memory price increases provides ongoing support for the memory industry chain. Also, driven by domestic energy security concerns and policy expectations from the sessions, related chains like computing-power coordination and green electricity warrant attention. In the value segment, traditional midstream cyclicals like steel, building materials, and chemicals might see improved first-quarter results supported by price increases. Moreover, temporary stability of the rennaibi, potential outcomes from high-level visits, and improvements in February manufacturing PMI for Europe and Japan could benefit export-oriented chains and upstream cyclical resources. Priority attention should be given to manufacturing within the export chain and segments linked to the US housing market, which might deliver positive surprises.
