Group 1: Commercial Vehicles - The core conclusion for heavy trucks indicates that exports will surpass domestic sales in 2026, with a focus on leading exporters [2] - In 2025, the total wholesale volume for heavy trucks is expected to reach 1.143 million units, a year-on-year increase of 26.7%, with domestic sales at 814,000 units (+35.2%) and exports at 332,000 units (+14.3%) [11][12] - The penetration rate of electric heavy trucks is projected to rise to 30%-35% in 2026, with natural gas trucks also expected to gain market share [2][11] Group 2: Buses - The bus sector is expected to see stronger external demand than internal demand in 2026, with a projected growth of 3% for domestic sales and 30% for exports [3][22] - The key players in the bus industry, such as Yutong and King Long, are anticipated to benefit from the recovery in both domestic and overseas markets [3][22] - The overall profitability of the bus sector is expected to improve, driven by the recovery in demand and the performance of leading companies [23][39] Group 3: Motorcycles - The motorcycle industry is projected to achieve a total sales volume of 19.38 million units in 2026, a year-on-year increase of 14%, with large-displacement motorcycles expected to grow by 31% [4][29] - Exports of large-displacement motorcycles are expected to reach 830,000 units in 2026, reflecting a 50% increase compared to the previous year [4][29] - Leading motorcycle manufacturers, such as Chunfeng and Longxin, are expected to benefit from the continued growth in exports and large-displacement motorcycle sales [4][30]

Group 1: AI Applications - The report is optimistic about AI applications in cloud services and entertainment sectors, predicting significant productivity releases in 2026. Key areas of focus include programming, search, and office productivity, with a notable increase in token consumption across these fields [3][17][21] - Major obstacles to the large-scale deployment of AI agents include reliability issues, severe product homogeneity, and unresolved cost problems. The report emphasizes that the reliability of AI agents is crucial, especially in high-stakes environments like customer service [22][23][24] - The competition among major cloud service providers is expected to intensify, with cloud vendors being the most certain beneficiaries of the AI market growth. Vertical agents focusing on specific industries are likely to establish more viable business models compared to general-purpose agents [30][25] Group 2: Gaming Industry - The gaming industry is entering a cycle of gameplay innovation, with a long-term potential for female-oriented gaming segments. The report highlights the transition from simple romance simulations to more complex narratives incorporating elements like strategy and science fiction [4][62] - The report notes that the gaming market is stabilizing, with a slight decline in revenue year-on-year but a recovery in the quarter-on-quarter performance due to new game launches and the sustained operation of mature products [58][62] - AI is expected to enhance gaming experiences by introducing new interaction forms and personalizing gameplay based on player preferences, which could significantly improve player engagement and satisfaction [46][44] Group 3: Hong Kong Internet Sector - The report indicates that Hong Kong's leading internet companies are currently undervalued, with adjusted profit valuation multiples ranging from 15 to 20 times for major players. E-commerce platforms like JD and Pinduoduo are valued around 10 times, while social and content platforms like Tencent and Bilibili are valued around 20 times [5][30] - The report recommends several companies in the Hong Kong internet sector, including Tencent Holdings, Xiaomi Group, and Meituan-W, citing their potential for growth driven by AI-driven advertising and stable gaming revenues [5][30]

Economic Outlook - The US economy is expected to gradually move towards expansion in 2026, with economic growth potentially higher than in 2025, characterized by a front-loaded low and a back-loaded high throughout the year [5][15]. - The first quarter of 2026 may represent a relative low point due to the prolonged government shutdown in October 2025, but subsequent recovery is anticipated driven by fiscal and monetary policy support [15][37]. - Consumer spending is projected to steadily recover, supported by the gradual realization of benefits from the "Big Beautiful Act" (OBBBA), which will reduce tax burdens and increase disposable income [15][20]. Market Performance - The US stock market is expected to see further gains in 2026, primarily driven by earnings growth, with an overall EPS increase of over 12% anticipated [5][43]. - The technology sector is expected to continue its dominance in the first half of 2026, while a shift towards cyclical sectors is anticipated in the latter half as economic recovery progresses [49][50]. Sector Analysis - Small-cap stocks are expected to show greater elasticity in 2026, supported by lower borrowing costs and pent-up demand as the economy enters the early stages of recovery [5][49]. - The technology sector is projected to maintain its leading position in the first half of the year, with significant contributions from earnings, while the second half may present risks due to potential stagnation in capital expenditures [49][50]. - Cyclical sectors such as industrials, real estate, consumer discretionary, and financials are expected to benefit from the economic recovery, particularly as real estate begins to thaw and new home sales show signs of improvement [5][49][57].

Core Insights - The report is optimistic about the recovery of upstream orders and emphasizes the importance of brands that can adapt and innovate in response to consumer needs [2][19]. Brand Apparel - The domestic brand apparel industry has entered a phase of stock competition, with limited growth opportunities. The performance of leading brands is increasingly reliant on their ability to attract consumers rather than on channel expansion [2][19]. - Three key areas for growth are identified: new home textiles, functional apparel, and strongly differentiated brands. Notable recommendations include: - New Home Textiles: Driven by the sleep economy and self-care consumption, brands like Mercury Home Textiles and Luolai Life are expected to perform well [2]. - Functional Apparel: Brands such as Anta Sports, Li Ning, and Bosideng are positioned to benefit from the growing health and outdoor lifestyle trends [2]. - Strongly Differentiated Brands: Companies like Cotton Era, focusing on 100% cotton products, are experiencing rapid growth [2]. - High dividend stocks recommended include Hailan Home, Luolai Life, and Semir Apparel [2]. Textile Manufacturing - The report notes a decrease in uncertainty regarding tariff policies, stabilization in European and American retail, and low inventory levels among international brands, suggesting a potential recovery in upstream orders [2][19]. - Recommendations for textile manufacturing companies include Shenzhou International, Weixing Co., and Huali Group, with a focus on high dividend stocks like Yuyuan Group and Jingyuan International [2]. Market Performance Review - The textile and apparel sector has seen a slight underperformance compared to the broader market, with a year-to-date increase of 12.45% as of December 9, 2025, compared to a 16.84% increase in the CSI 300 index [7][10]. - The apparel and home textile segments have shown similar performance, while the accessories segment has outperformed, with a 17.1% increase [13][14]. Consumer Environment - The domestic consumption environment remains weak, with apparel retail performance lagging behind overall retail growth. For instance, the cumulative year-on-year growth for apparel retail was only 2.9% from January to October 2025 [27][23]. - The consumer confidence index has shown a slight recovery but remains at historical low levels, indicating ongoing challenges in consumer spending [25][27]. Company Performance - The report highlights that many key apparel companies have experienced revenue declines, while a few have maintained growth. For example, companies like Anta, Li Ning, and Bosideng have shown consistent revenue expansion [30][32]. - The profitability of the brand apparel sector has been under pressure, with net profits not keeping pace with revenue growth in many cases [28][32].

Economic Outlook - The Central Economic Work Conference held on December 10-11, 2025, highlighted the normalization of external challenges and emphasized the "strong supply and weak demand" contradiction domestically[1] - The conference identified three main issues: external challenges, supply-demand imbalance, and risk hazards, indicating a worsening external environment due to trade frictions[1] Economic Goals and Macro Policies - The focus shifted from "preventing and resolving risks" to "better coordinating domestic economic work and international trade struggles," indicating a more proactive approach to external challenges[1] - Emphasis on stabilizing employment, enterprises, markets, and expectations, moving away from merely stabilizing asset prices[1] - The goal is to achieve qualitative improvements and reasonable quantitative growth, enhancing the sense of gain for residents and enterprises[1] Fiscal Policy - Fiscal policy is to "maintain necessary" rather than "increase intensity," indicating a lower necessity for further increases in deficit and special bonds[1] - The emphasis on addressing local fiscal difficulties has increased, with a focus on ensuring basic livelihood, wages, and operations[1] - The conference proposed reforms to the local tax system to alleviate fiscal pressures, including adjustments to consumption tax and shared tax distribution[2] Monetary Policy - The goal of "price recovery" has been explicitly included as a monetary policy target, indicating a significant increase in the importance of price stability[3] - The terminology for interest rate cuts has shifted from "timely" to "flexible and efficient," suggesting a more responsive monetary policy approach[3] - There is a renewed focus on "expanding domestic demand," with monetary policy aimed at supporting consumption and innovation[3] Investment and Consumption - The conference aims to "stop the decline in investment," with specific measures to increase central budget investment and optimize the use of local government bonds[3] - A systematic approach to increasing residents' income has been proposed, moving from short-term subsidies to a comprehensive income increase plan[3] - The focus on consumption remains paramount, with a shift from merely increasing funding to improving efficiency in consumption policies[3] Real Estate Market - The strategy has shifted from "stopping the decline" to "stabilizing" the real estate market, emphasizing inventory reduction and supply optimization[4] - The conference proposed reforms to the housing provident fund system to support cross-city home purchases and improve access to funds[4] Capital Market - The focus has moved from stabilizing the stock market to ensuring the normal operation of market mechanisms and building confidence[4] - Emphasis on deepening capital market reforms and innovating financial services to better support new productive forces[4] Price and Competition - Price pressures are expected to decrease, with a lower emphasis on price targets compared to previous years[4] - The approach to "anti-involution" has shifted from "comprehensive rectification" to "in-depth rectification," indicating a focus on regulating competition and industry structure[4]

Investment Direction 1: Dividend Strategy - Recommended companies include China National Offshore Oil Corporation (CNOOC), China Petroleum & Chemical Corporation (Sinopec), and China National Petroleum Corporation (PetroChina) with an expected Brent oil price range of $60-70 per barrel in 2026 [2][3] - CNOOC is committed to maintaining a dividend payout ratio of no less than 45% from 2025 to 2027, while PetroChina benefits from domestic natural gas market reforms [2][3] Investment Direction 2: Capital Allocation to Undervalued Chemical Leaders - Recommended companies include Wanhua Chemical, Baofeng Energy, Satellite Chemical, and Hualu Hengsheng, which are expected to benefit from industry barriers related to cost, technology, and market [2][3] - The report suggests prioritizing capital allocation to chemical ETFs and leading companies as their performance is expected to stabilize [2][3] Investment Direction 3: Price Increases Driven by Downstream Demand - Traditional demand sectors such as food additives, pesticides, and fertilizers are highlighted, with companies like New Hope Liuhe and Jiangshan Chemical expected to benefit from stable growth in demand [2][3] - Emerging demand in phosphorous and fluorine chemicals is driven by the needs of new energy battery and AI cooling applications, with companies like Chuanheng Chemical and Juhua Co. being key players [2][3] Investment Direction 4: Domestic Anti-Competition Driving Price Increases - The report emphasizes the focus on large refining and chemical companies such as Hengli Petrochemical and Rongsheng Petrochemical, which are expected to benefit from anti-competitive measures in the domestic market [2][3] - The organic silicon sector is entering the end of its expansion cycle, with major companies like Sinan Silicon Material adjusting industry operating rates [2][3] - The soda ash industry is facing capacity controls and the need to phase out outdated production, with companies like Boyuan Chemical under observation [2][3] Oil Price Analysis - The report anticipates a Brent oil price range of $60-70 per barrel in 2026, with a slight oversupply expected [11][12] - OPEC+ has postponed production increases for Q1 2026, indicating a cautious approach to market conditions [11][12] - The report highlights geopolitical factors, including the ongoing Russia-Ukraine conflict and U.S.-Venezuela relations, which may impact oil supply dynamics [12][13] Three Major Oil Companies Insights - CNOOC is focused on increasing reserves and production while reducing costs, while PetroChina is benefiting from natural gas market reforms [34][36] - Sinopec is concentrating on domestic refining and chemical anti-competition developments [34][36] - The overall profitability of the three major oil companies is expected to be supported by the anticipated oil price stabilization [34][36]

Economic Forecast - GDP growth forecasts for Q4 2025 to Q4 2028 have been revised up by 0.1pct, 0.5pct, 0.1pct, and 0.1pct to 1.7%, 2.3%, 2.0%, and 1.9% respectively[2] - The unemployment rate for 2027 has been lowered by 0.1pct to 4.2%[2] - PCE inflation forecasts for Q4 2025 and Q4 2026 have been reduced by 0.1pct and 0.2pct to 2.9% and 2.4% respectively[2] FOMC Meeting Insights - The December FOMC meeting resulted in a 25bps rate cut, with a 9-3 vote, indicating a slight hawkish stance[4] - Six FOMC members opposed the rate cut, reflecting a more hawkish sentiment overall[4] - The Fed announced a "light expansion" of its balance sheet, purchasing $40 billion in short-term Treasury bills monthly[4] Market Reactions - Powell's dovish comments during the press conference led to a rise in gold, U.S. stocks, and commodities, while U.S. Treasury yields and the dollar index fell[3] - The market is pricing in a 22% chance of a rate cut by January, 78% by April, and 221% by December 2026[5] Risks and Considerations - Risks include a faster-than-expected decline in U.S. employment and prolonged high interest rates potentially leading to liquidity crises[5] - Inflation risks are seen as significantly weakened, while GDP downside risks have eased[2]

Macro Strategy - The report highlights a shift in policy focus from "preventing and mitigating risks in key areas and external shocks" to "better coordinating domestic economic work and international economic struggles," indicating a more proactive approach to external economic conditions [1][16] - There is a transition from stabilizing asset prices to stabilizing microeconomic entities, emphasizing the importance of employment, enterprises, markets, and expectations over real estate and stock markets [2][16] - The policy language has evolved from "extraordinary counter-cyclical adjustments" to "increasing counter-cyclical and cross-cyclical adjustment efforts," reflecting a balance between short-term stimulus and long-term economic structure considerations [2][16] Economic Indicators - The report anticipates a continued decline in the growth rate of social financing in November, while export growth is expected to turn positive [3][17] - The ECI supply index is reported at 49.93%, indicating a slight decline, while the demand index is at 49.87%, showing a marginal increase [17] - The report notes that the financing demand remains low, with expectations for November's new loans to be between 450 billion to 500 billion RMB, reflecting a year-on-year decrease [17] Industry Insights - The semiconductor industry is expected to see structural opportunities driven by the explosion of AI computing power and accelerated domestic production [11] - In the electronics sector, the demand for AI-driven OS agents is anticipated to lead to a smartphone replacement wave, with AR glasses expected to see significant market entry in 2026 [11] - The report emphasizes the importance of domestic enterprises in the storage sector, which are benefiting from increased procurement by cloud service providers, leading to a "super cycle" in pricing [11] Investment Recommendations - The report suggests a balanced and proactive ETF allocation strategy in the A-share market, anticipating a period of range-bound trading with potential for sector rotation [7] - Specific recommendations include focusing on companies in the engineering machinery sector that have high export profitability, as well as those in the semiconductor and AI equipment sectors [12]

Investment Strategy Overview - The report highlights a significant investment opportunity in the electronic industry, driven by the dual forces of domestic cloud computing capabilities and the explosive growth of AI at the edge, marking a pivotal moment for the sector leading up to 2026 [1] Semiconductor Manufacturing - Capital expenditure in semiconductor manufacturing is set to reach new heights, with domestic fabs expected to experience a dual expansion in memory and advanced logic production in 2026, supporting a sustained high level of demand in the wafer foundry sector [2] - The semiconductor equipment sector is anticipated to witness a "β+α" resonance market, with a focus on industry leaders benefiting from expansion dividends and companies like Jingzhida and others that have a clear technology realization logic [2] Cloud Computing Chips - Global cloud service providers (CSPs) are increasing capital expenditures, with the combined capital expenditure of the four major overseas CSPs (Google, Amazon, Microsoft, Meta) reaching $97.9 billion in Q3 2025, a 10% quarter-on-quarter increase [5] - Domestic cloud computing is catching up, with significant growth potential as demand for computing power rises, particularly from leading firms like ByteDance [5][17] - Companies such as Cambricon and Haiguang Information are recommended for investment due to their expected performance release in the domestic computing power sector [5][17] Edge Computing Chips - The strategic importance of edge AI is rapidly increasing, with major tech companies integrating AI models into core products, enhancing the demand for System on Chip (SoC) manufacturers [7][36] - Companies like Amlogic and RichChip are positioned to benefit from the growing demand for edge AI applications, particularly in smart home devices [7][39] Storage Sector - The storage sector is experiencing a strong cyclical upturn, with DRAM and NAND indices showing significant increases of 101% and 79% respectively from September to November 2025 [5] - Major CSPs are increasing their procurement of storage products, leading to a sustained rise in storage prices and creating a "super cycle" in the industry [5] Analog Sector - The analog sector is seeing growth driven by increasing automotive demand, although price pressures are expected to persist [5] - The sector is poised for opportunities related to new AI applications as the industry evolves [5] Consumer Electronics - AI is driving a transformation in terminal interactions, with a notable shift in smartphone upgrades and the emergence of AR products [7] - The AR glasses market is expected to see significant growth in 2026, with major companies like Meta and Apple launching new products [7] PCB/CCL Market - The PCB/CCL market is set to benefit from increased capital expenditures by global cloud providers, with the AI PCB market projected to reach 60 billion yuan in 2026, a 229.8% year-on-year increase [7] - The introduction of low-loss materials and advanced architectures is expected to significantly enhance the value of PCB products [7]

Group 1: Equipment Export - The engineering machinery sector is expected to see a full domestic recovery and moderate export recovery in 2025, with a projected revenue growth of 12% year-on-year in the first three quarters of 2025 [52] - Key recommended companies for engineering machinery include SANY Heavy Industry, XCMG, Zoomlion, LiuGong, and Hengli Hydraulic, which are expected to benefit from both domestic and international demand [3][52] - The oil service equipment sector is poised for significant growth due to historical opportunities in the Middle East and the Belt and Road Initiative, with recommended companies including Jereh and Neway [3] Group 2: Domestic Demand Improvement - The photovoltaic equipment sector is entering a platform integration phase, with significant advancements in perovskite and heterojunction technologies, leading to increased equipment value [3] - The lithium battery equipment sector is expected to benefit from ongoing capacity expansions and solid-state battery technology, with recommended companies including Lead Intelligent and Hanke Technology [4] - The semiconductor equipment sector is experiencing a recovery driven by domestic substitution and AI-related demand, with key recommendations including Northern Huachuang and Zhongwei [4] Group 3: High-Growth Sectors - The PCB equipment sector is entering a new expansion cycle driven by AI, with high demand for advanced HDI and SLP boards, with recommended companies including Dazhu CNC and Ding Tai High-Tech [5] - The liquid cooling equipment market is growing rapidly as it becomes a standard for AI server cooling, with key recommendations including Hongsheng and a focus on Invec [5] - The gas turbine and diesel generator sectors are expected to see significant growth due to increased electricity demand driven by AI, with recommended companies including Jereh and Yingliu [5] Group 4: New Technologies and Directions - The mass production of humanoid robots is anticipated, with domestic component manufacturers expected to benefit from cost reductions, with recommended companies including Hengli Hydraulic and New Coordinates [5] - The integration of new technologies in the photovoltaic sector is leading to industry transformation, with a focus on innovative solutions [5] Group 5: Performance Analysis - The semiconductor equipment and PCB equipment sectors are leading in revenue growth, with semiconductor equipment benefiting from advanced process expansions and PCB equipment driven by AI server demand [33] - The profit growth in the PCB equipment and general automation sectors is notable, with improvements in product structure and scale effects [33] - The overall machinery sector is experiencing a mild upward trend, with significant performance disparities among sub-sectors [11][20]