Core Insights - The report emphasizes a favorable outlook for small-cap stocks, suggesting a rotation strategy that favors small-cap over large-cap stocks due to improved odds and market conditions [2][5][9]. Performance Statistics - Cumulative returns for the 中证2000 index are reported at -16.62%, while the 沪深300 index shows a modest gain of 1.99%. The rotation strategy has achieved a cumulative return of 109.24%, outperforming the benchmark by 114.83% [12]. - The annualized return for the rotation strategy since 2016 is 10.09%, significantly higher than the annualized return of 0.26% for the 沪深300 index and -2.34% for the 中证2000 index [12]. - The maximum drawdown for the rotation strategy is 32.46%, compared to 56.49% for 中证2000 and 40.18% for 沪深300, indicating a more stable performance [12]. Strategy Construction - The strategy is built on four key factors: monetary cycle, trading congestion, adjusted monetary activation index, and relative strength of small-cap versus large-cap stocks. A composite scoring system is used to determine market positioning [5][9]. - When monetary conditions are loose, the strategy recommends buying small-cap stocks, while in tighter conditions, it suggests investing in large-cap stocks [9][10]. Market Dynamics - The report highlights a significant divergence between M1 and M2 growth rates, indicating a potential economic recovery. This divergence has led to a reversal in the relative performance of small-cap stocks compared to large-cap stocks [12][13]. - The report notes that once a small-cap or large-cap style is established, it tends to persist for a considerable duration, exhibiting significant momentum effects [15]. Monthly Performance Analysis - The report provides a detailed monthly performance analysis from 2015 to 2025, showing varying performance trends for small-cap and large-cap stocks across different months [16]. - The average monthly win rate for small-cap stocks is reported at 54.55%, indicating a generally favorable environment for small-cap investments [16].

Investment Rating - The industry is rated as "Buy" for several key companies, including Xining Special Steel, Nanjing Steel, Hualing Steel, and Baosteel [8]. Core Viewpoints - The market remains in a state of fluctuation, with the non-ferrous sector outperforming the black metal sector. Financial attributes of metals like gold, silver, and copper are expected to benefit from the current economic conditions [2]. - The macroeconomic policies are showing effectiveness, with the manufacturing PMI rising to 49.5% in May, indicating an overall expansion in economic output [4][12]. - The steel industry is experiencing a divergence in profitability across the black metal supply chain, with some companies undervalued and presenting good strategic investment opportunities [2][4]. Supply Analysis - Daily molten iron production has slightly decreased to 2.417 million tons, with a minor decline in the utilization rate of blast furnaces to 90.6% [3][11]. - The total inventory of steel has decreased by 0.1%, with a narrowing decline rate of 2.2 percentage points [23][25]. Demand Analysis - Apparent consumption of the five major steel products has weakened, with rebar consumption dropping by 7.9% week-on-week [38][49]. - The average weekly transaction volume for construction steel has increased by 2.0% [40]. Raw Material Analysis - Iron ore prices have declined, with the Platts 62% iron ore price index at $96.1 per ton, down 0.7% week-on-week [57]. - The average daily iron ore import volume at 45 ports has increased by 17.9% week-on-week [57]. Price and Profit Analysis - Steel prices are showing a slight improvement, with the current spot price for rebar in Beijing at 3,170 RMB per ton, up 1.9% week-on-week [73]. - The immediate gross profit for long-process rebar is reported at -134 RMB per ton, indicating a slight improvement in margins [72][73].

Group 1 - The report highlights a positive outlook for small-cap stocks, suggesting a rotation back to this style as liquidity conditions improve and market sentiment shifts towards smaller companies [2][10][14] - The performance statistics indicate that since 2016, the rotation strategy has achieved an annualized return of +8.85%, significantly outperforming both the CSI 300 and CSI 2000 indices, with an excess annualized return of +8.46% compared to the benchmark [5][10][13] - The report emphasizes the importance of monitoring monetary conditions, using indicators like M1 and M2 growth rates to inform investment strategies, particularly in distinguishing between small-cap and large-cap stock performance [10][11][12] Group 2 - The analysis of relative strength between small-cap and large-cap stocks shows a persistent momentum effect, suggesting that once a small-cap trend is established, it tends to last for an extended period [16] - The report outlines a strategy for adjusting allocations based on the performance of small-cap stocks relative to large-cap stocks, recommending continued investment in small-caps when their relative strength is increasing [16] - The report also notes that the divergence in M1 and M2 growth rates has led to a reversal in the relative advantages of small-cap stocks, indicating a shift in market dynamics favoring smaller companies [12][14]