Quantitative Models and Construction Methods 1. Model Name: Sentiment Model - **Model Construction Idea**: The sentiment model is designed to measure the strength of market sentiment by analyzing factors such as the proportion of limit-up and limit-down stocks, and the profitability of high-frequency trading strategies[12][16] - **Model Construction Process**: The sentiment model is built using factors related to market sentiment, including: - Proportion of net limit-up stocks - Next-day returns of limit-down stocks - Proportion of limit-up stocks - Proportion of limit-down stocks - Returns of high-frequency trading strategies The model assigns scores to these factors, with a maximum score of 5. The sentiment model score for the current period is 0[12][16] - **Model Evaluation**: The sentiment model indicates a weakening of market sentiment, as reflected by the score of 0[12][16] 2. Model Name: Trend Model - **Model Construction Idea**: The trend model aims to capture the directional movement of the market by analyzing price trends and other technical indicators[12] - **Model Construction Process**: The trend model generates signals based on the analysis of market trends. For the current period, the trend model provides a positive signal, indicating an upward trend in the market[12] - **Model Evaluation**: The trend model continues to emit positive signals, suggesting a favorable market trend[12] 3. Model Name: High-Frequency Capital Flow Model - **Model Construction Idea**: This model uses high-frequency capital flow data to generate buy and sell signals for major broad-based indices[12][16] - **Model Construction Process**: The model evaluates the capital flow trends for indices such as CSI 300, CSI 500, CSI 1000, and CSI 2000. The signals are categorized as aggressive long, aggressive short, conservative long, and conservative short. For the current period, the model emits negative signals for all indices[12][16] - **Model Evaluation**: The high-frequency capital flow model continues to emit negative signals, indicating a bearish outlook for the indices[12][16] --- Model Backtesting Results 1. Sentiment Model - Sentiment model score: 0 (out of 5)[12][16] 2. Trend Model - Trend model signal: Positive[12] 3. High-Frequency Capital Flow Model - CSI 300: Aggressive short (-1), Conservative short (-1)[12][16] - CSI 500: Aggressive short (-1), Conservative short (-1)[12][16] - CSI 1000: Aggressive short (-1), Conservative short (-1)[12][16] - CSI 2000: Aggressive short (-1), Conservative short (-1)[12][16] --- Quantitative Factors and Construction Methods 1. Factor Name: Small-Cap Factor - **Factor Construction Idea**: Measures the performance and crowding of small-cap stocks[17][19] - **Factor Construction Process**: The small-cap factor's crowding is assessed using four metrics: - Valuation spread - Pairwise correlation - Market volatility - Return reversal The composite score for the small-cap factor is -0.06[17][19] - **Factor Evaluation**: The small-cap factor shows a slight decline in crowding, as indicated by the composite score[17][19] 2. Factor Name: Low-Valuation Factor - **Factor Construction Idea**: Evaluates the performance and crowding of low-valuation stocks[17][19] - **Factor Construction Process**: The low-valuation factor's crowding is assessed using the same four metrics as the small-cap factor. The composite score for the low-valuation factor is -0.67[17][19] - **Factor Evaluation**: The low-valuation factor exhibits a higher level of crowding, as reflected by the negative composite score[17][19] 3. Factor Name: High-Profitability Factor - **Factor Construction Idea**: Measures the performance and crowding of high-profitability stocks[17][19] - **Factor Construction Process**: The high-profitability factor's crowding is assessed using the same four metrics. The composite score for the high-profitability factor is 0.13[17][19] - **Factor Evaluation**: The high-profitability factor shows a moderate level of crowding, with a positive composite score[17][19] 4. Factor Name: High-Growth Factor - **Factor Construction Idea**: Evaluates the performance and crowding of high-growth stocks[17][19] - **Factor Construction Process**: The high-growth factor's crowding is assessed using the same four metrics. The composite score for the high-growth factor is 0.21[17][19] - **Factor Evaluation**: The high-growth factor demonstrates a relatively low level of crowding, as indicated by the positive composite score[17][19] --- Factor Backtesting Results 1. Small-Cap Factor - Composite crowding score: -0.06[17][19] 2. Low-Valuation Factor - Composite crowding score: -0.67[17][19] 3. High-Profitability Factor - Composite crowding score: 0.13[17][19] 4. High-Growth Factor - Composite crowding score: 0.21[17][19]

Core Viewpoint - The recent surge in steel prices is primarily driven by market sentiment and cost factors rather than strong demand, indicating a transition to a phase of "price without market" [1][4] Group 1: Market Dynamics - The domestic steel market has shown a complex picture, with futures prices rising but spot prices stabilizing as the market cools down [1] - The November steel industry PMI from the National Bureau of Statistics and the China Federation of Logistics and Purchasing is at 48%, down 1.2 percentage points month-on-month, indicating a contraction [1] - Seasonal demand is expected to decline further in December due to colder weather, leading to a high probability of continued seasonal downturn in steel demand [1] Group 2: Supply and Inventory - Although there were structural shortages in some northern markets, the situation has eased with continuous resource arrivals, and overall social inventory has not decreased [2] - The accumulation of inventory pressure is occurring despite some steel mills planning maintenance due to losses, creating a dual situation of "low production pressure" and "rising market inventory" [2] - The main contradiction in the current fundamentals lies between "high costs" and "weak demand," with high raw material prices limiting the potential for significant price declines [2] Group 3: Short-term Outlook - The market is entering a typical seasonal downturn, lacking strong drivers to break the current stalemate, with previous speculative gains based on macro expectations now largely realized [3] - Steel prices are likely to remain in a fluctuating pattern, supported by high costs but constrained by seasonal demand and accumulating inventory [3] - Market participants are advised to focus on risk management and profit realization rather than trend chasing, with a recommendation for traders to actively sell to reduce inventory levels [3] Group 4: Overall Market Sentiment - The foundation for the recent price increase is not solid, as seasonal effects and fundamental contradictions become more pronounced, leading to a return to a stable oscillation in the market [4] - The market's resolution of contradictions will require time, and a cautious approach with a focus on liquidity and risk avoidance is recommended [4]

Market Strategy - The recent market rebound does not change the overall oscillating pattern, and it is advised to continue with a low-buying strategy [2] - The current tension in Sino-Japanese relations is a major factor restraining risk appetite, suggesting a cautious approach towards technology growth sectors [2][6] - The real estate market has been underperforming since the policy release last September, and any short-term price increases may not be sustainable without stronger policy support [2][6] Sector Strategy - The technology growth sector is sensitive to risk appetite, and a cautious approach is recommended in the current environment [2] - The cyclical consumer manufacturing sector may gain market consensus as it presents moderate risk characteristics [2] - The real estate sector requires significant fiscal policy support, such as mortgage interest subsidies, to boost market confidence [2][6] Defense and Military Industry - Recent U.S. arms sales to Japan may accelerate China's equipment development, given the increasing uncertainty in the Asia-Pacific region [2] - The report highlights potential investment opportunities in defense and military sectors due to the geopolitical climate [2]

Quantitative Models and Construction Methods - **Model Name**: TWO BETA Model **Model Construction Idea**: This model is designed to identify and recommend sectors or themes with strong momentum, focusing on technology-related sectors and specific themes like military and Hong Kong automotive industries[2][3][10]. **Model Construction Process**: The report does not provide detailed steps or formulas for the construction of the TWO BETA model. However, it is used to track and recommend sectors based on their relative performance and momentum trends[2][3][10]. **Model Evaluation**: The model continues to recommend technology sectors, military themes, and Hong Kong automotive themes, indicating its focus on identifying upward trends in these areas[2][3][10]. - **Model Name**: Industry Allocation Model **Model Construction Idea**: This model aims to recommend sectors based on medium-term perspectives, focusing on sectors undergoing a turnaround or showing resilience in current market conditions[2][3][10]. **Model Construction Process**: The report does not provide detailed steps or formulas for the construction of the industry allocation model. It is used to identify sectors like innovative drugs in Hong Kong, new consumption themes, and financial sectors in Hong Kong[2][3][10]. **Model Evaluation**: The model highlights sectors with potential for recovery or sustained growth, such as Hong Kong innovative drugs, new consumption, and financial sectors, which are deemed to have intact trends[2][3][10]. - **Model Name**: Timing System **Model Construction Idea**: This model uses the distance between short-term and long-term moving averages to determine the market's overall environment and timing signals[1][9][13]. **Model Construction Process**: 1. Define the short-term moving average (20-day) and long-term moving average (120-day) for the Wind All A Index. 2. Calculate the distance between the two moving averages: $ \text{Distance} = \frac{\text{Short-term MA} - \text{Long-term MA}}{\text{Long-term MA}} $ - Short-term MA (20-day): 5130 - Long-term MA (120-day): 5075 - Distance: 1.09% 3. Interpret the signal: If the absolute value of the distance is less than 3%, the market is considered to be in a consolidation phase[1][9][13]. **Model Evaluation**: The model indicates that the market remains in a consolidation phase, with the short-term moving average above the long-term moving average, suggesting a lack of strong directional trends[1][9][13]. Backtesting Results of Models - **TWO BETA Model**: No specific backtesting results or quantitative metrics are provided in the report[2][3][10]. - **Industry Allocation Model**: No specific backtesting results or quantitative metrics are provided in the report[2][3][10]. - **Timing System**: - Short-term MA: 5130 - Long-term MA: 5075 - Distance: 1.09% - Absolute distance remains below 3%, confirming the market's consolidation phase[1][9][13]. Quantitative Factors and Construction Methods - **Factor Name**: None explicitly mentioned in the report. Backtesting Results of Factors - **Factors**: No specific factors or their backtesting results are provided in the report.

Group 1 - The market is currently experiencing a rapid rotation of sectors, with a volatile pattern persisting and trading volume not showing significant increase, indicating a focus on existing stocks [1] - Short-term market conditions are expected to remain volatile, with attention on external tariff changes and the pace of domestic policy implementation [1] - A series of major financial policies are anticipated to be announced during the Lujiazui Forum from June 18 to 19, which may support market expectations and highlight structural opportunities [1] Group 2 - The market is likely to exhibit index fluctuations in June, with large-cap and quality indices expected to outperform [2] - The current economic fundamentals are relatively stable, with no significant decline in exports due to external changes, and domestic demand policies are still building momentum [2] - The financing demand from enterprises remains weak, and capital expenditure continues to trend downward, suggesting that strategies based on cash flow and ROE may gain traction [2]