Core Viewpoint - Bank of America Securities predicts that 2026 will be a "Red Horse Year" for the Chinese base metals market, driven by favorable conditions for electrification and AI power infrastructure in 2023 due to factors such as a weak dollar and the US interest rate cut cycle [1] Group 1: Market Drivers - The supply of copper and aluminum remains tight [1] - Demand drivers for this year include a 10% year-on-year increase in grid investment, a 27% growth in electric vehicle battery production, a 41% increase in energy storage systems, and rising AI power demand [1] - The anti-involution policy is becoming more balanced, although recent enforcement has been weak [1] Group 2: Stock Recommendations - Preferred stocks include aluminum companies as alternative investments for AI power supply, with a forecasted price-to-earnings ratio between 8 to 10 times [1] - Positive outlook on gold, copper, lithium (including battery materials), and cobalt stocks; neutral view on coal; bearish on solar energy and construction materials (like steel) due to weak demand and declining steel profit margins [1] Group 3: Specific Stock Picks - Key stock picks include China Aluminum (601600) (02600), Zijin Mining (601899) (02899), China Hongqiao (01378), Shandong Gold (600547) (01787), and Ganfeng Lithium (002460) (01772) [1] - Underperforming stocks identified include Tongwei Co. (600438) (600438.SH), Xinyi Solar (00968), Ansteel (000898) (00347), and China Resources Cement (01313) [1]

Group 1 - The core viewpoint of the article is that 2026 is identified as the "Year of the Red Horse," which is favorable for the Chinese base metals market due to several key factors, including a weak US dollar and a US interest rate cut cycle benefiting metals [1] - Key demand drivers for this year include a 10% year-on-year increase in grid investment, a 27% growth in electric vehicle battery demand, a 41% increase in energy storage systems, and rising AI power demand [1] - Supply constraints for copper and aluminum are expected to continue, contributing to the overall market dynamics [1] Group 2 - The preferred investment stocks include aluminum companies, with a forecasted price-to-earnings ratio between 8 to 10 times, and a "buy" outlook on gold, copper, lithium (including battery materials), and cobalt stocks [1] - The company holds a neutral view on coal and a bearish outlook on solar energy and construction materials (such as steel) due to weak demand and declining steel profit margins [1] - Key stocks that are expected to underperform the market include Tongwei Co., Ltd. (600438.SH), Xinyi Solar (00968), Ansteel Group (00347), and China Resources Cement Technology (01313) [1]

Group 1 - The core viewpoint of the report is that China Hongqiao (01378) maintains a "buy" rating due to the upward trend in aluminum prices, which have reached a high of 24,000 yuan, driven by supply disruptions from the Mozal aluminum smelter in Mozambique and the narrative of aluminum replacing copper [1] - The overseas supply disruptions are intensifying, with the Mozal aluminum smelter in Mozambique set to officially close in March 2026 due to rising electricity costs, leading to long-term challenges for overseas aluminum production capacity [1] - The aluminum market is entering a tight supply cycle, with domestic production nearing its ceiling and expected growth in global demand for electrolytic aluminum averaging about 1.8 million tons per year from 2023 to 2025, with a CAGR of 2.5% [3] Group 2 - China’s electrolytic aluminum companies are becoming globally competitive, with China Hongqiao expected to see significant shareholder returns as aluminum prices rise, potentially increasing EPS by about 30% for every 10% increase in aluminum prices [4] - China Hongqiao's integrated advantages ensure stable high profitability, with plans to continue transferring production capacity to Yunnan and a commitment to maintaining stable dividend levels, having increased its payout ratio from nearly 45% in 2019 to 63% in 2024 [5] - The company is expected to see a significant reduction in capital expenditures starting in 2026, leading to improved free cash flow and further potential for dividend growth [5]

Core Viewpoint - The report maintains a "Buy" rating for China Hongqiao (01378), citing a significant rise in aluminum prices driven by supply disruptions from the Mozal aluminum smelter in Mozambique and the narrative of aluminum replacing copper [1] Group 1: Supply Dynamics - The Mozal aluminum smelter in Mozambique will officially close in March 2026 due to rising electricity costs, exacerbating supply disruptions in the overseas aluminum market [1] - Global aluminum production faces challenges from aging equipment, thin profit margins, and increasing electricity costs, leading to a long-term reduction in overseas aluminum capacity [1] - Since the end of 2025, there has been a notable increase in supply disruption events in overseas aluminum production [1] Group 2: Demand Trends - The global average demand increase for electrolytic aluminum is projected to be around 1.8 million tons per year from 2023 to 2025, with a compound annual growth rate (CAGR) of 2.5% [3] - Structural demand growth is expected from sectors such as transportation, power grids, energy storage, and aluminum replacing copper [3] Group 3: Company Performance and Shareholder Returns - China Hongqiao is positioned as a leading integrated electrolytic aluminum producer, with strong performance and a focus on shareholder returns, expecting a significant decrease in capital expenditures by 2026 [4] - The company has increased its dividend payout ratio from approximately 45% in 2019 to 63% in 2024, with a commitment to maintain stable dividends in 2025 [4] - In 2025, the company repurchased 310 million shares at a cost of 5.6 billion HKD, with anticipated shareholder returns exceeding 20 billion RMB [4]

Core Viewpoint - The recent policy shift in China's A-share merger and acquisition (M&A) market, as outlined in the "Six Guidelines for M&A," marks a transition from an "audit-oriented" approach to an "efficiency-oriented and industry-oriented" framework, enhancing regulatory inclusiveness and supporting market-driven transactions [1][10]. Group 1: Regulatory Changes - The new guidelines reflect a significant change in regulatory attitude, allowing for greater flexibility in areas such as restructuring valuation, performance commitments, and related party transactions [2]. - The revised "Major Asset Restructuring Management Measures" introduced in the first half of 2025 established a phased payment mechanism for restructuring shares and a simplified review process [2]. - The increase in regulatory inclusiveness has led to a remarkable surge in M&A activity, with a 261% year-on-year increase in the number of major asset restructuring applications in 2025 [2]. Group 2: Market Activity and Trends - The A-share M&A market is experiencing a "quantity and quality improvement," with nearly 80% of newly disclosed asset acquisition restructurings being industrial mergers, particularly in sectors like semiconductors and information technology [2]. - The use of diversified payment methods, such as a combination of shares, convertible bonds, and cash, has increased significantly, enhancing transaction flexibility [2]. - The case of Hongchuang Holdings' acquisition of Hongtu Industrial for approximately 635 billion yuan exemplifies the market's response to the new regulatory environment, marking a record scale for similar transactions in recent years [3][4]. Group 3: Case Study - Hongchuang Holdings - Hongchuang Holdings' acquisition of Hongtu Industrial is a prime example of successful market-driven M&A under the new guidelines, with the transaction amounting to about 635 billion yuan [3]. - Following the announcement of the transaction, Hongchuang Holdings' stock price surged over 146%, indicating strong market approval [7]. - The acquisition allows Hongchuang Holdings to transition from a single aluminum processing business to a full industry chain, significantly enhancing its operational scale and market position [8][9]. Group 4: Future Outlook - The successful implementation of the "Six Guidelines" is seen as a pivotal support for M&A activities, signaling a shift towards a more market-oriented approach that prioritizes industrial logic [9][10]. - The A-share M&A market is expected to evolve from a "policy-driven recovery" to an "internally driven prosperity," as more market-based M&A cases emerge [10].

Investment Rating - The report maintains a positive outlook on the non-ferrous metals sector, highlighting opportunities driven by macroeconomic conditions and supply constraints [8][9]. Core Insights - The non-ferrous metals sector has shown significant strength, outperforming the Shanghai Composite Index by 4.74 percentage points, with a weekly increase of 8.56% [11]. - Key price movements include copper prices rising to $12,998.00 per ton, an increase of 4.31% week-on-week, and aluminum prices reaching $3,136.00 per ton, up 3.81% [22][25]. - The report emphasizes the importance of macroeconomic indicators, such as the U.S. non-farm payrolls and unemployment rate, which influence market expectations for Federal Reserve interest rate decisions [16][17]. Summary by Sections Market Review - The non-ferrous metals sector significantly outperformed the Shanghai Composite Index, with notable increases in various sub-sectors, including precious metals and industrial metals [11]. - The report details specific stock performances, with top gainers including Tianli Composite (+35.97%) and Yunnan Zhenye (+22.58%) [11]. Key Focus Areas & Price Changes - U.S. non-farm employment increased by 50,000 in December, with an unemployment rate of 4.4%, slightly below expectations, impacting market sentiment [16]. - Domestic CPI rose by 0.8% year-on-year in December, the highest in nearly two years, while PPI's decline narrowed to 1.9% [17]. - The Kamoa-Kakula copper smelter successfully produced its first batch of anode copper, with expected production of 380,000 to 420,000 tons of copper concentrate in 2026 [19]. - Baogang Co. set the price for rare earth concentrates at 26,834 yuan per ton for Q1 2026, with adjustments based on REO content [20]. Metal Prices & Inventory Changes - Industrial metals showed price increases, with copper and aluminum prices rising significantly, while inventories displayed mixed trends across different exchanges [22][24]. - Precious metals, particularly gold and silver, saw price increases driven by geopolitical factors and expectations of monetary easing by the Federal Reserve [37][38]. - Energy metals, including lithium and cobalt, continued to see price increases, with lithium prices reaching 143,200 yuan per ton, up 18.68% [42]. Strategic Metals & Investment Opportunities - The report highlights the ongoing price increases in tungsten and the potential for investment opportunities in this sector, driven by supply constraints and policy support [46][58]. - The strategic metals sector is expected to benefit from easing export restrictions and improved market conditions, with a focus on cobalt, antimony, and tungsten [58][59].

Core Viewpoint - The Invesco Great Wall CSI Hong Kong Stock Connect Dividend Low Volatility ETF (159569) has shown stable performance with a slight increase in scale and consistent trading activity since its inception in August 2024 [1][2]. Fund Overview - The fund was established on August 14, 2024, with an annual management fee of 0.50% and a custody fee of 0.08% [1]. - As of January 14, 2025, the fund's total shares stood at 349 million, with a total scale of 471 million yuan, reflecting a 1.10% increase in scale since the end of December 2024 [1]. Trading Activity - The ETF recorded a total trading volume of 553 million yuan over the last 20 trading days, averaging 27.67 million yuan per day [1]. - Year-to-date, the ETF has seen a total trading volume of 298 million yuan over 9 trading days, with an average daily trading volume of 33.17 million yuan [1]. Fund Management - The current fund managers are Gong Lili and Wang Yang, with Gong Lili managing the fund since August 29, 2024, achieving a return of 40.03%, while Wang Yang has managed it since August 13, 2025, with a return of -0.32% [2]. Top Holdings - The ETF's major holdings include: - Orient Overseas International: 9.08% of the portfolio - China COSCO Shipping: 6.30% - Yanzhou Coal Mining: 6.13% - Seaspan Corporation: 5.16% - Yancoal Australia: 4.92% - China Hongqiao: 4.51% - China Shenhua Energy: 3.47% - CNOOC: 3.25% - Anhui Conch Cement: 3.15% - Sinopec: 3.01% [2][3].

Industry Outlook - Morgan Stanley projects that the MSCI China Materials Index will outperform the MSCI China Index by 65 percentage points in 2025, driven by supply dynamics [1] - The firm expects continued outperformance in 2026 due to supply disruptions and further M&A activities [1] - The demand growth for basic metals in China is anticipated to slow and stabilize, with copper and aluminum demand growth rates expected to be 2.5% and 1.5% respectively [2] Company Ratings and Forecasts - China Hongqiao's rating is maintained at "Overweight," with the target price raised from HKD 34 to HKD 40, citing its integrated model as a cost advantage [1][3] - Zijin Mining is highlighted as a top pick for 2026 due to its exposure to copper and gold [3] - Jiangxi Copper's rating is upgraded to "Neutral," despite a recent stock price increase of over 40% [3] - Baosteel's rating is downgraded to "Neutral," while Angang Steel's rating is downgraded to "Underweight" due to expected declines in steel profit margins [3] Supply Chain Dynamics - Supply disruptions are ongoing, with South32 scheduled maintenance at the Mozal aluminum smelter in March 2026 and a strike at Capstone Copper's Mantoverde copper-gold mine expected to reduce copper supply by 77,000 tons [1][2] - Zijin Mining has issued a positive profit forecast, expecting a net profit of RMB 51-52 billion for 2025, representing a year-on-year growth of 59-62% [1] M&A Activities - Industry consolidation is advancing, with notable acquisitions such as Luoyang Molybdenum's purchase of Brazilian gold assets and Jiangxi Copper's acquisition of SolGold [1]

Industry Outlook - Morgan Stanley projects that the MSCI China Materials Index will outperform the MSCI China Index by 65 percentage points in 2025, driven by supply dynamics [1] - The index is expected to continue its outperformance in 2026 due to supply disruptions and increased merger activities [1] - The preference order for the Chinese basic materials industry in 2026 is copper/gold, aluminum, lithium, coal, and steel [3] Company Performance - China Hongqiao's rating is maintained at "Overweight," with the target price raised from HKD 34 to HKD 40, citing its integrated model as a cost advantage [1][4] - Zijin Mining is highlighted as a top pick for 2026 due to its exposure to copper and gold [4] - Jiangxi Copper's rating is upgraded to "Neutral," despite a recent stock price increase of over 40% [4] - Baosteel's rating is downgraded to "Neutral," while Angang Steel's rating is downgraded to "Underweight" due to expected declines in steel profit margins [4] Supply Chain Dynamics - Ongoing supply disruptions include maintenance at South32's Mozal aluminum smelter and a strike at Capstone Copper's Mantoverde copper-gold mine, which is expected to reduce copper supply by 77,000 tons [2] - The lithium market is anticipated to tighten due to strong energy storage demand, with more supply expected to come online in the second half of the year [3]

Industry Outlook - Morgan Stanley forecasts that the MSCI China Materials Index will outperform the MSCI China Index by 65 percentage points in 2025, driven by supply dynamics [1] - The index is expected to continue its outperformance in 2026 due to supply disruptions and increased merger activities [1] - The preference order for the Chinese basic materials industry in 2026 is copper/gold, aluminum, lithium, coal, and steel [3] Company Performance - China Hongqiao's rating is maintained at "Overweight," with the target price raised from HKD 34 to HKD 40, citing its integrated model as a cost advantage [1][4] - Zijin Mining is highlighted as a top pick for 2026 due to its exposure to copper/gold [4] - Jiangxi Copper's rating is upgraded to "Neutral," despite a recent stock price increase of over 40% [4] - Baosteel's rating is downgraded to "Neutral," while Angang Steel's rating is downgraded to "Underweight" due to expected declines in steel profit margins [5] Supply Chain Dynamics - Ongoing supply disruptions include maintenance at South32's Mozal aluminum smelter and a strike at Capstone Copper's Mantoverde copper-gold mine, which is expected to reduce copper supply by 77,000 tons [2] - The demand growth for basic metals in China is projected to stabilize, with copper and aluminum demand growth rates expected at 2.5% and 1.5%, respectively [3]