Quantitative Models and Factor Construction Quantitative Models and Construction Process 1. **Model Name**: A-share Style Factor System **Model Construction Idea**: The model is built to analyze and predict style factor performance in the A-share market, covering eight major categories and 20 style factors. It is also used for risk prediction and portfolio attribution. [19] **Model Construction Process**: - The model incorporates eight major categories of style factors, including value, volatility, liquidity, and size. - A covariance matrix is constructed using a multi-factor model, which decomposes the stock covariance matrix into a combination of factor covariance and idiosyncratic risk matrices. - The model is updated periodically to reflect the latest market data, such as the factor covariance matrix updated on 2025/01/24. [20] **Model Evaluation**: The model provides a comprehensive framework for risk prediction and portfolio attribution, enabling investors to analyze factor contributions to returns and risks. [19][20] 2. **Model Name**: Monthly Scoring Quantitative Model for Size Rotation **Model Construction Idea**: This model evaluates the relative performance of large-cap and small-cap styles on a monthly basis, combining quantitative scoring with subjective analysis to form monthly style rotation views. [19] **Model Construction Process**: - Monthly scoring is conducted based on quantitative factors, including historical performance and market conditions. - The model incorporates monthly seasonality effects and subjective analysis to finalize the style rotation view. - For February 2025, the model indicates a preference for small-cap style, leading to an overweight allocation recommendation for small-cap stocks. [20] **Model Evaluation**: The model effectively integrates quantitative and qualitative insights, providing actionable style rotation strategies. [20] Quantitative Factors and Construction Process 1. **Factor Name**: Volatility Factor **Factor Construction Idea**: Measures the sensitivity of stock returns to market volatility, capturing the risk-return tradeoff. [19] **Factor Construction Process**: - Historical stock price data is used to calculate the standard deviation of returns over a specific period. - The factor is normalized across the universe to ensure comparability. **Factor Evaluation**: The volatility factor has shown positive returns in 2024, indicating its effectiveness in capturing market risk dynamics. [19] 2. **Factor Name**: Value Factor **Factor Construction Idea**: Identifies undervalued stocks based on fundamental metrics such as price-to-earnings (P/E) and price-to-book (P/B) ratios. [19] **Factor Construction Process**: - Fundamental data is collected for all stocks in the universe. - Stocks are ranked based on their P/E and P/B ratios, with lower values indicating higher attractiveness. - The factor is standardized to ensure consistency across the universe. **Factor Evaluation**: The value factor has delivered strong positive returns both in the week before the Chinese New Year and throughout 2024, demonstrating its robustness. [19][21] 3. **Factor Name**: Liquidity Factor **Factor Construction Idea**: Captures the ease of trading a stock, with higher liquidity stocks expected to have lower transaction costs. [19] **Factor Construction Process**: - Average daily trading volume and turnover ratios are calculated for each stock. - Stocks are ranked based on their liquidity metrics, with higher values indicating better liquidity. - The factor is normalized for cross-sectional analysis. **Factor Evaluation**: The liquidity factor has shown negative returns in 2024, suggesting a preference for less liquid stocks during this period. [19] Backtesting Results for Models 1. **A-share Style Factor System**: - **Fund Heavyweight Index**: - Weekly excess return contribution: -0.07% (momentum factor -0.09%, growth factor 0.08%) - Weekly excess risk contribution: 68.61% (momentum factor 27.32%, size factor 22.53%) - 2024 excess return contribution: 0.72% (size factor 1.94%, volatility factor 1.70%) - 2024 excess risk contribution: 85.78% (size factor 52.04%, volatility factor 12.14%) [20] - **China Dividend Index**: - Weekly excess return contribution: 0.32% (value factor 1.01%, volatility factor -0.64%) - Weekly excess risk contribution: 90.99% (volatility factor 72.07%, value factor 8.01%) - 2024 excess return contribution: 3.44% (value factor 8.10%, volatility factor -8.22%) - 2024 excess risk contribution: 87.49% (volatility factor 65.21%, value factor 8.42%) [21] - **Micro-Cap Index**: - Weekly excess return contribution: -0.49% (value factor -0.47%, momentum factor -0.37%) - Weekly excess risk contribution: 98.03% (size factor 79.20%, volatility factor 11.20%) - 2024 excess return contribution: -0.66% (size factor -10.19%, volatility factor 9.87%) - 2024 excess risk contribution: 98.79% (size factor 89.31%, volatility factor 5.67%) [21] Backtesting Results for Factors 1. **Volatility Factor**: - Weekly excess return: -0.64% (China Dividend Index) - 2024 excess return: 1.70% (Fund Heavyweight Index) [20][21] 2. **Value Factor**: - Weekly excess return: 1.01% (China Dividend Index) - 2024 excess return: 8.10% (China Dividend Index) [20][21] 3. **Liquidity Factor**: - Negative returns observed in 2024, indicating underperformance. [19]

Investment Rating - The report indicates a neutral investment rating for the media sector, with a total increase of 1.58% in 2024, ranking 12th among 31 industries [1]. Core Insights - The media sector is expected to experience alternating defensive and thematic market trends throughout 2024, driven by the emergence of AI video models like Sora and PixVerse [1]. - The rise of domestic IP and the entry of Generation Z consumers are anticipated to sustain the trend of IP consumption, particularly in light of the "Cultural Power" strategy and "Cultural Confidence" values [1]. - AI technology is rapidly advancing, with significant developments in AI companionship, AI e-commerce, and AI marketing, which are expected to lead to more mature business models [2]. - Investment opportunities are projected to arise from the growth of IP consumption, AI applications, and the TikTok industry chain, particularly if TikTok successfully expands into the U.S. market [3]. Summary by Sections Media Sector Performance - In 2024, the media sector's performance was characterized by a 1.58% increase, with strong performance in publishing due to high dividend rates and stable earnings [1]. - The sector is expected to benefit from events like TikTok and Applovin, which could catalyze thematic market trends in Q4 2024 [1]. IP Consumption - The report highlights the ongoing rise of domestic IP, particularly among younger consumers, with a focus on products derived from anime and gaming [1]. - The term "谷子" refers to lightweight peripheral products derived from IP, which are expected to gain popularity among the youth demographic [1]. AI Applications - The report notes that AI technologies are evolving rapidly, with significant updates in large models and applications in companionship, e-commerce, and marketing [2]. - AI companionship is driven by social and educational needs, while AI e-commerce is transforming purchasing and sales processes [2]. TikTok Industry Chain - The report emphasizes the potential growth of TikTok's global revenue, which could reach $333 billion by 2029 if it successfully penetrates the U.S. market [3]. - Various sectors, including e-commerce, marketing, and content creation, are expected to benefit from TikTok's expansion [3].

Investment Rating - The report provides an investment rating for the pharmaceutical industry, indicating a positive outlook for investment opportunities [2]. Core Insights - The report emphasizes the deepening of centralized procurement in the pharmaceutical industry while maintaining a focus on innovation [2]. - It highlights the ongoing trends and changes within the industry that could impact future growth and investment strategies [2]. Summary by Sections - **Industry Overview**: The pharmaceutical industry is undergoing significant changes due to policy shifts and market dynamics, which are expected to influence investment patterns [2]. - **Market Trends**: There is a notable trend towards centralized procurement, which is reshaping pricing and competition among pharmaceutical companies [2]. - **Innovation Focus**: Despite the challenges posed by centralized procurement, the report stresses the importance of continuous innovation in product development and market strategies [2].

Investment Rating - The report suggests a positive outlook for the AIPC (AI Personal Computer) market, indicating a strong growth trajectory and an upgrade of the overall PC industry towards mid-to-high-end products [1][3]. Core Insights - The demand for AIPC is expected to surge due to the increasing need for higher specifications in local model deployments, leading to a significant upgrade in the PC industry [1][3]. - AIPC hardware products have been available for some time, but limited pre-trained model capabilities and reliance on foreign APIs previously hindered user motivation to upgrade. Recent developments, such as the Deepseek open-source model, have reduced hardware adaptation costs and improved inference performance, driving the need for local deployments [2][3]. - The AIPC market is projected to see rapid growth, with shipments expected to reach 100 million units by 2025 (40% market share) and 205 million units by 2028 (70% market share), reflecting a CAGR of 44% from 2024 to 2028 [3]. - The average price for consumer-grade AI laptops is estimated between 5,500 to 6,500 yuan, while AI desktop computers average around 4,000 yuan, indicating a shift towards higher-end products as AIPC shipments accelerate [3]. Summary by Sections Section 1: AIPC Market Growth - AIPC shipments are anticipated to grow rapidly, driving the overall PC industry towards a mid-to-high-end upgrade [1][3]. - The demand for AIPC is fueled by the need for local model deployments, which require higher specifications in PC hardware [2][3]. Section 2: Terminal Manufacturers and Component Demand - Terminal manufacturers are evolving from traditional hardware producers to ecosystem organizers, necessitating higher standards for software and hardware delivery [4]. - The deployment of AIPC local models is increasing the demand for high-capacity, high-speed memory and advanced cooling systems, as well as lightweight materials like magnesium alloy and carbon fiber [4]. Section 3: Market Dynamics - The report highlights that Lenovo is expected to benefit significantly from the AIPC upgrade trend, with a projected 4.7% increase in shipments in 2024, reaching 61.8 million units [4]. - The overall PC shipment volume is projected to grow by 1% year-on-year in 2024, with a total of 262.7 million units expected [4].

Investment Rating - The report does not explicitly state an investment rating for the industry. Core Insights - The release of the R1 open-source model by DeepSeek significantly enhances inference capabilities using reinforcement learning, achieving performance comparable to OpenAI's models with minimal labeled data [1] - The API service pricing for the R1 model is notably lower than that of OpenAI, leading to a rapid increase in daily active users, reaching 20 million within 20 days, making it the fastest-growing AI model globally [1] - Major cloud and chip manufacturers are integrating DeepSeek's technology, indicating strong market interest and potential for growth [1] - In the e-commerce sector, AI tools are expected to enhance content creation, customer service, and inventory management through data analysis, improving operational efficiency [1] - The smart glasses market is projected to see a significant increase in sales, with an expected 588% growth in 2024, driven by advancements in AI applications [2] - The education sector is witnessing a surge in AI-driven products, such as tutoring systems and personalized learning platforms, which are enhancing educational efficiency and have a strong user base willing to pay [2] Summary by Sections AI and E-commerce - AI tools will empower various aspects of cross-border e-commerce, including content creation and inventory management, by analyzing vast amounts of data to predict sales trends [1] AI and Smart Glasses - Smart glasses are positioned as a key platform for AI applications, with expected sales of 2.34 million units in 2024, marking a significant increase [2] AI and Education - The rapid iteration of AI models is leading to the development of educational AI products that improve efficiency and cater to a large, willing-to-pay user base [2]

Investment Rating - The report suggests an "overweight" rating for brokerage firms, financial information service providers, and pure life insurance companies with greater elasticity in equity investments [3] Core Insights - The proportion of equity assets held by domestic public funds has continuously declined from 64% in 2006 to 19% in 2023, significantly lower than the levels in the US (71%), Japan (60%), and Europe (41%) [1] - The capital market reforms in China are expected to drive both institutional and individual investors to increase their allocation to equity assets, with index funds being a crucial tool for market entry [2] - It is anticipated that public funds will achieve an annual inflow of over 500 billion yuan into the market over the next three years, with the goal of increasing the proportion of stock assets held to 21% [2] Summary by Sections Section 1: Equity Asset Allocation - Domestic public funds' equity asset allocation has decreased significantly, indicating a shift in investment preferences [1] - In contrast, the US and Europe have seen growth in equity fund investments driven by pension plans [1] Section 2: Capital Market Reforms - The current low-interest-rate environment in China is expected to enhance the demand for equity asset allocation [2] - The report highlights the need for public fund companies to innovate around index products and improve the assessment mechanisms for active products [2] Section 3: Investment Recommendations - The report recommends increasing investments in brokerage firms, financial information service providers, and life insurance companies with more flexible equity investment strategies [3]

Investment Rating - The report maintains a positive outlook on the innovative drug sector, emphasizing the support from incremental policies for high-quality innovative pharmaceutical companies and those undergoing transformation [1]. Core Insights - The innovative drug sector is expected to accelerate its entry into hospitals, with the new medical insurance catalog set to be implemented in January 2025, facilitating faster inclusion of several new innovative drugs [1]. - The report highlights the normalization of drug procurement processes, with significant price reductions anticipated in the upcoming rounds of procurement for chemical drugs, traditional Chinese medicine, and biosimilars [2]. - The medical device procurement is also progressing towards normalization, with a notable recovery in the bidding for medical equipment expected in 2025 [3]. Summary by Sections Innovative Drugs - The new medical insurance catalog will be executed starting January 2025, with several innovative drugs expected to enter hospitals more rapidly due to supportive policies [1]. - The first version of the Class B medical insurance catalog is anticipated to be released in 2025, which will likely include high-innovation products that are not covered by the Class A catalog [1]. Chemical Drugs - The tenth round of chemical drug procurement results is set to be implemented in April 2025, with high competition leading to significant price reductions [2]. - The rules for traditional Chinese medicine procurement are becoming clearer, with expected acceleration in the process and broader coverage in 2025 [2]. Medical Devices - The procurement of high-value consumables is expected to commence in early 2025, with gradual improvements in the bidding process for medical devices anticipated throughout the year [3]. - The bidding scale for medical devices showed a growth rate of 37% in December 2024, indicating a recovery in the market [3].

Investment Rating - The report suggests a positive investment outlook for the AI infrastructure sector, particularly in light of the ongoing U.S. investment and global competition in AI technology [1]. Core Insights - The U.S. is investing approximately $500 billion in AI infrastructure through the Stargate project, which is expected to significantly increase demand for high-density GPUs, liquid cooling, and optical communication technologies [1]. - The domestic AI sector is showing resilience and potential for long-term growth despite short-term pressures on local GPU chip manufacturers due to the competitive landscape [1]. - OpenAI is leading the transformation of AI Agents from information processing to behavioral execution, with products like Tasks and Operator enhancing task efficiency and commercial viability [2]. - Chinese AI companies are innovating in commercialization and technology independence, with firms like Doubao focusing on C-end applications and emotional design to carve out new market opportunities [2]. Summary by Sections AI Infrastructure Investment - The U.S. Stargate project is a major driver for AI infrastructure investment, with a projected $500 billion allocation [1]. - The demand for advanced computing technologies is expected to surge, benefiting domestic GPU manufacturers in the long run [1]. AI Agent Commercialization - OpenAI's advancements in AI Agents signify a shift towards practical applications, enhancing user interaction and task automation [2]. - The introduction of Tasks and Operator products marks a significant step in the commercial deployment of AI technologies [2]. Chinese AI Market Dynamics - Chinese AI firms are navigating U.S. technology restrictions by focusing on innovative commercialization strategies and developing proprietary technologies [2]. - Doubao's advancements in voice interaction technology are setting new standards in user satisfaction, surpassing existing models like GPT-4o [2]. - ByteDance's Seed Edge initiative aims to achieve breakthroughs in computational power and algorithm frameworks, supporting the dual strategy of commercialization and technological independence [2].

Group 1: Market Trends - China is transitioning from a production-oriented society to a consumption-oriented society, emphasizing the importance of emotional value in consumer behavior[2] - The consumption sector is expected to stabilize and gradually recover, with a projected steady performance in the first half of 2025[4] - The pet industry is anticipated to grow at approximately 12%-13% in 2024, driven by an increase in pet ownership and demand for high-quality products[11] Group 2: Investment Strategies - The recommendation for Q4 2024 is to prioritize growth stocks, particularly in the snack and cosmetics sectors, which are expected to perform well[4] - The second wave of investment should focus on stable categories like beer, beverages, and condiments, which are currently undervalued[4] - Emphasis on the "trade-in" investment theme, benefiting sectors like home appliances and textiles due to supportive policies[8] Group 3: Emotional Value in Consumption - Emotional value is becoming a primary source of premium pricing, with consumer demand shifting from functionality to emotional connections[7] - The "谷子经济" (Guzi Economy) is emerging, providing emotional value through cultural derivative products, with a market size projected to reach 168.9 billion yuan in 2024, growing over 40% year-on-year[17]

Investment Rating - The report suggests a positive outlook for leading sports brands with strong marketing capabilities, indicating a favorable investment rating for companies that excel in product strength, marketing strength, and channel strength [1]. Core Insights - The scarcity and importance of sports marketing resources are highlighted, with brands competing in three main categories: event sponsorship, national team sponsorship, and athlete/celebrity endorsements. The report emphasizes that existing marketing advantages have high barriers to entry, making brand migration of marketing resources challenging [1][2]. - Short-term improvements in consumer spending are anticipated due to domestic policy stimulation, while long-term growth is expected for leading sports brands that possess the "three strengths" [1]. - Historical examples illustrate how leading brands have leveraged top-tier sports marketing resources to achieve significant revenue growth, such as Nike's partnership with Michael Jordan leading to a nearly 40-fold increase in revenue [1]. Summary by Sections Sports Marketing Resources - Three categories of sports marketing resources are identified: 1. **Events**: Li Ning focuses on athletics, basketball, and badminton, targeting the youth market, while Anta is closely tied to the Olympics and emphasizes basketball and athletics [2]. 2. **National Teams**: Anta and Li Ning dominate sponsorship of national teams in key sports, while Nike and Adidas focus on their core categories [2]. 3. **Athlete/Celebrity Endorsements**: Different brands have varying strengths in athlete endorsements, with FILA excelling in celebrity endorsements [2]. Competitive Landscape - The report notes that breaking the current competitive landscape is challenging due to financial resources and historical partnerships. Recent developments include Li Ning becoming the official sportswear partner for the Chinese Olympic Committee and the national sports team from 2025 to 2028, which is expected to enhance its brand image and market share [2].