Quantitative Models and Factors Summary Quantitative Models and Construction Methods - **Model Name**: Rotation Model **Model Construction Idea**: The model aims to allocate between micro-cap stocks and the "Mao Index" based on relative performance and timing indicators[19][27] **Model Construction Process**: 1. **Rotation Indicators**: - Use the relative net value of micro-cap stocks to the Mao Index. If the value is above the 243-day moving average, the preference is for micro-cap stocks; otherwise, the Mao Index is preferred. - Incorporate the 20-day closing price slope of both indices. When the slopes diverge and one is positive, allocate to the index with a positive slope[19][27] 2. **Timing Indicators**: - Use the 10-year government bond yield (threshold: 0.3) and micro-cap stock volatility crowding degree (threshold: 0.55). If either indicator reaches its threshold, a liquidation signal is triggered[19][27] **Model Evaluation**: The model currently signals a balanced allocation between micro-cap stocks and the Mao Index, with no systemic risk detected in the medium term[19][20][27] Quantitative Factors and Construction Methods - **Factor Name**: Value Factor **Factor Construction Idea**: Focuses on stocks with low valuation metrics, such as price-to-book and price-to-earnings ratios, to identify undervalued opportunities[55][67][70] **Factor Construction Process**: - Key metrics include: - **BP_LR**: Book value per share divided by market price - **EP_FTTM**: Forward 12-month earnings divided by market price - **SP_TTM**: Trailing 12-month sales divided by market price[67][70] **Factor Evaluation**: The value factor performed strongly in the past week, driven by market preference for cyclical and high-dividend assets amid geopolitical and inflationary concerns[55][56] - **Factor Name**: Volatility Factor **Factor Construction Idea**: Measures stock price stability and identifies opportunities in low-volatility stocks[55][67][70] **Factor Construction Process**: - Key metrics include: - **IV_CAPM**: Residual volatility from the CAPM model - **IV_FF**: Residual volatility from the Fama-French three-factor model - **Volatility_60D**: Standard deviation of 60-day returns[67][70] **Factor Evaluation**: The volatility factor showed excellent performance, reflecting market demand for stability during periods of heightened uncertainty[55][56] - **Factor Name**: Technical Factor **Factor Construction Idea**: Utilizes historical price and volume patterns to predict future stock movements[55][67][70] **Factor Construction Process**: - Key metrics include: - **Turnover_Mean_20D**: 20-day average turnover rate - **Price_Chg20D**: 20-day price change - **Skewness_240D**: Skewness of 240-day returns[67][70] **Factor Evaluation**: The technical factor also performed well, benefiting from short-term trading opportunities in a volatile market[55][56] - **Factor Name**: Growth Factor **Factor Construction Idea**: Identifies companies with strong earnings and revenue growth potential[55][67][70] **Factor Construction Process**: - Key metrics include: - **NetIncome_SQ_Chg1Y**: Year-over-year growth in quarterly net income - **OperatingIncome_SQ_Chg1Y**: Year-over-year growth in quarterly operating income - **Revenues_SQ_Chg1Y**: Year-over-year growth in quarterly revenues[67][70] **Factor Evaluation**: The growth factor underperformed due to market rotation into value and defensive sectors[55][56] - **Factor Name**: Convertible Bond Factors **Factor Construction Idea**: Combines equity and bond characteristics to identify attractive convertible bond opportunities[64][67] **Factor Construction Process**: - Key metrics include: - **Parity Premium**: Difference between the convertible bond price and its parity value - **Underlying Stock Metrics**: Factors such as growth, valuation, and quality of the underlying stock[64][67] **Factor Evaluation**: Convertible bond factors, particularly valuation and underlying stock value, achieved high IC averages last week[64][65] Backtesting Results of Models and Factors - **Rotation Model**: - Relative net value of micro-cap stocks to Mao Index: 2.49 (above the 243-day moving average of 1.97)[19][27] - 20-day closing price slope: Micro-cap stocks at 0.2%, Mao Index at -0.29%[19][27] - Volatility crowding degree: 3.37% (below the risk threshold of 55%)[19][22] - 10-year government bond yield: -2.27% (below the risk threshold of 0.3%)[19][22] - **Quantitative Factors**: - **Value Factor**: IC mean of 20.98%[55][56] - **Volatility Factor**: IC mean of 22.08%[55][56] - **Technical Factor**: IC mean of 10.07%[55][56] - **Growth Factor**: IC mean of -6.32%[55][56] - **Convertible Bond Factors**: High IC averages for valuation and underlying stock value[64][65]

Market Overview - The A-share market indices all closed lower today, with the Shanghai Composite Index down by 0.82% at 4095.45 points, the Shenzhen Component down by 0.65% at 14280.78 points, the Sci-Tech 50 down by 0.72% at 1373.64 points, and the ChiNext Index down by 0.22% at 3310.28 points [1][10] - Overall, there were 1502 stocks that rose and 3823 stocks that fell, with a total market turnover of 24003 billion yuan, a decrease of 416 billion yuan compared to the previous trading day [1][10] Industry Performance - Among the Shenwan first-level industries, the top gainers were Food & Beverage (up 0.87%), Building Decoration (up 0.60%), and Banking (up 0.38%), while the largest declines were seen in Comprehensive (down 4.19%), Nonferrous Metals (down 2.70%), and Computer (down 2.70%) [1][10] Concept Sector Performance - The concept sectors with the highest gains today included Lithium Battery Anode, Major Infrastructure State-Owned Enterprises, Tibet Revitalization, Phosphate Chemical Industry, Salt Lake Lithium Extraction, Western Major Infrastructure, Power Batteries, Lithium Battery Electrolyte, Wind Power Generation, Air Source Heat Pumps, Lithium Batteries, Copper Clad Laminates, Selected Beverage Manufacturing, Baijiu, and Urban Village Renovation [2]

Market Overview - The A-share market indices all closed lower today, with the Shanghai Composite Index down by 0.67% to 4096.60 points, the Shenzhen Component down by 0.74% to 14067.50 points, the Sci-Tech 50 down by 1.69% to 1390.48 points, and the ChiNext Index down by 0.64% to 3208.58 points [1][10] - Overall, there were 1422 stocks that rose and 3960 stocks that fell, with a total market turnover of 26,475 billion yuan, an increase of 4474 billion yuan compared to the previous trading day [1][10] Industry Performance - In terms of industry performance, the top gainers included coal, comprehensive, computer, and power equipment sectors, with increases of 2.92%, 2.77%, 1.61%, and 1.12% respectively [1][10] - Conversely, the sectors that experienced the largest declines were communication, transportation, beauty care, and national defense, with decreases of 2.38%, 2.34%, 2.17%, and 2.01% respectively [1][10] Concept Sector Performance - The concept sectors that saw the highest gains today included photovoltaic inverters, high share transfers, IDC (computing power leasing), cloud computing, servers, DeepSeek, operating systems, virtual power plants, selected coal mining, AI computing power, East Data West Computing, network security, central enterprise coal, data security, and Huawei HMS [2]

Report Industry Investment Rating - Not provided in the report Core Viewpoints - In February 2026, the A-share market continued to oscillate upward with differentiated index performance. The CSI 500 and CSI 1000 indices were strong, while the SSE 50 index was weak. The price increase theme became an important main line in the A-share market, and the stock index is expected to maintain an oscillating upward trend in March [3][4][9]. - The price increase theme is driven by improved product supply - demand relations and abundant social funds. The abundant social funds are an important driving force for the overall price increase, and "price increase" may be an important main line in the stock market this year [28][30][34]. - The two sessions in 2026 are expected to have a positive impact on the A-share market. Historically, the stock index performance around the two sessions has been relatively positive, and the CSI 500 and CSI 1000 indices have performed better [35]. Summary by Directory 1. First Part: Preface Summary 1.1 Market Review - In February, the A-share market continued to oscillate upward with differentiated index performance. The SSE 50 index was affected by the large - financial sector and performed poorly around the Spring Festival, while the CSI 500 and CSI 1000 indices were strong due to the active performance of small - and medium - cap stocks. The futures - spot basis of stock index futures widened significantly compared with the previous month, and the trading volume and open interest decreased significantly around the Spring Festival [3]. 1.2 Market Outlook - The price increase theme has become an important main line in the A-share market. Due to improved product supply - demand relations and abundant social funds, it is expected to continue to have an important impact on the market. Historically, the stock index performance around the two sessions has been relatively positive, and the CSI 500 and CSI 1000 indices have performed better. Therefore, the stock index is expected to maintain an oscillating upward trend in March [4]. 1.3 Strategy Recommendation - Unilateral: Oscillate upward. - Arbitrage: Long IM/IC2609 contracts + Short ETFs. - Options: Bull spread strategy [5]. 2. Second Part: January Market Review 2.1 Stock Market - Index Performance Differentiated - In February, the A-share market continued to oscillate upward. The SSE 50 index closed with a negative monthly line, the CSI 300 index rose steadily, and the CSI 500 and CSI 1000 indices accelerated their rise after the Spring Festival. As of February 26, the monthly increase of the CSI 300 index was 0.44%, the SSE 50 index fell 1.02%, the CSI 500 index rose 2.23%, and the CSI 1000 index rose 2.86%. Non - metallic materials, machinery and equipment, and national defense and military industry sectors led the gains, while insurance, media and Internet, social services, and agricultural products sectors led the decline [9][12]. 2.2 Stock Index Futures - Widened Basis and Shrinking Trading Volume - In February, the basis of stock index futures widened significantly compared with the previous month. The average monthly basis of the IF current - month contract was a 4 - point discount, the IH current - month contract had an average monthly premium of 0.99 points, the IC current - month contract had an average monthly discount of 2.67 points, and the IM current - month contract had an average monthly discount of 2.9 points. The trading volume and open interest of stock index futures decreased overall. The average daily trading volume of IM, IC, IF, and IH decreased by 18.3%, 17.5%, 27.5%, and 19% respectively compared with the previous month; the average daily open interest of IM, IC, and IF decreased by 0.6%, 5.8%, and 4.6% respectively, while the average daily open interest of IH increased by 5.6%. The increase in the basis made the cost of short - position roll - over of stock index futures increase again. The net short - position of each variety fluctuated with the market, and the net short - position of the top five and top ten seats of each variety increased on average compared with the previous month, with IH having a significant increase in positions [15][19][24]. 3. Third Part: Future Outlook and Investment Strategy 3.1 The Price Increase Theme is Driven by Abundant Funds - Recently, the price increase theme has become an important main line in the A-share market, spreading across various industries. The price increase is not only a reflection of the improvement in product prosperity and industry performance but also the result of abundant funds and speculation. Social funds are abundant, with the M1 year - on - year growth rate in January 2026 being 4.9% (previous value 3.8%), the M2 year - on - year growth rate being 9.0% (previous value 8.5%), and the new social financing being 7.2 trillion yuan, a year - on - year increase of 165.4 billion yuan. The narrowing of the M2 - M1 gap may indicate abundant funds again. The appreciation of the RMB against the US dollar is beneficial to the stock market, and if the upward trend of the RMB exchange rate continues, it may bring liquidity to the stock and commodity markets. "Price increase" may be an important main line in the stock market this year [28][30][34]. 3.2 Policy Expectations are High - The Two Sessions in 2026 are expected to have an impact on the A-share market. Historically, the market performance around the Two Sessions has been relatively positive, with more disturbances during the meetings and increased market volatility. The CSI 1000 and CSI 500 indices have a higher probability of rising and larger increases. Benefiting from positive policy expectations, abundant liquidity, the AI technological revolution, and energy demand, the "steady and progressive" trend of the stock index is expected to continue. The sectors benefiting from the policy expectations of the Two Sessions are mainly in scientific and technological innovation and consumption promotion, and the CSI 1000 and CSI 500 indices with higher technological content will benefit more [35][36]. 3.3 Future Strategy - The price increase theme will continue to have an important impact on the market. The stock index is expected to maintain an oscillating upward trend in March, and the CSI 500 and CSI 1000 indices will perform better [37].

Market Overview - The A-share market showed a mixed performance with the Shanghai Composite Index slightly rising by 0.09% to close at 4131.99, while the Shenzhen Component Index fell by 0.35% to 14160.93 [2] - The overall trading volume in the market was below 2 trillion yuan, indicating a lack of strong market momentum [4][6] Sector Performance - The top-performing sectors included Construction Materials (3.29%), Nonferrous Metals (2.39%), and Oil & Petrochemicals (2.18%) [3] - Conversely, the sectors that underperformed were Communication (-2.17%), Media (-1.99%), and Social Services (-1.74%) [3] Future Outlook - The market is expected to enter a phase of consolidation with potential short-term adjustments as investor sentiment becomes cautious ahead of the Spring Festival [6] - Long-term, the regulatory environment is signaling a focus on market normalization and risk prevention, suggesting a shift towards a more balanced market structure [6] - There is an emphasis on dividend assets for long-term positioning, along with opportunities in cyclical industries and undervalued traditional consumer sectors [6] Economic Indicators - Consumer demand is recovering, with the Consumer Price Index (CPI) rising by 0.2% month-on-month and year-on-year [5] - The Producer Price Index (PPI) increased by 0.4% month-on-month but decreased by 1.4% year-on-year, reflecting ongoing pressures in the industrial sector [5] - The People's Bank of China is expected to maintain a moderately loose monetary policy to support liquidity and financing conditions [5]

- The report highlights the performance of various market and industry indices over the past month, with notable increases in indices such as the CSI 500, CSI 1000, and the SSE 50, among others[1][10] - The industry indices for sectors like non-ferrous metals, media, petrochemicals, building materials, and electronics showed significant gains, with the non-ferrous metals sector leading with a 23.02% increase[1][10] - The report discusses the construction and performance of several industry rotation strategies, including the "Outperformance Enhanced Industry Rotation Strategy," the "Prosperity Valuation Industry Rotation Strategy," and the "Research Activity Industry Selection Strategy"[13][14] - The "Outperformance Enhanced Industry Rotation Strategy" integrates fundamental, valuation, and capital factors, including earnings, quality, analyst expectations, and outperformance factors[13] - The "Prosperity Valuation Industry Rotation Strategy" is based on valuation momentum, earnings, and quality factors[14] - The "Research Activity Industry Selection Strategy" uses institutional research data to gauge industry interest, considering research activity and coverage breadth[14] - The report provides detailed performance metrics for various factors, including IC values and long-short returns for factors like earnings, valuation momentum, analyst expectations, and research activity[17][18] - The "Outperformance Enhanced Factor" had an average IC of 8.26% since 2011, with a risk-adjusted IC of 0.297[22][23] - The "Research Activity Factor" had an average IC of 9.09% since 2017, with a risk-adjusted IC of 0.469[22][23] - The "Outperformance Enhanced Industry Rotation Strategy" achieved a monthly return of 3.20% in January, with an annualized return of 12.71% and a Sharpe ratio of 0.505[32][33] - The "Prosperity Valuation Industry Rotation Strategy" achieved a monthly return of 3.76% in January, with an annualized return of 10.07% and a Sharpe ratio of 0.389[32][33] - The "Research Activity Industry Selection Strategy" had a monthly return of 0.20% in January, with an annualized return of 6.26% and a Sharpe ratio of 0.316[37][42] - The report includes detailed rankings and changes in rankings for various industries based on the factors used in the strategies[44][45][47][48]

Core Insights - The article highlights a significant surge in the food and beverage sector, particularly driven by the performance of high-end liquor brands like Moutai, which is expected to benefit from increased demand during the upcoming Spring Festival [4][16] - The real estate sector also experienced a notable increase, with the index tracking the real estate market rising by 5.43%, indicating a positive market sentiment and potential policy support in 2026 [7][18] Market Overview - The market temperature gauge indicates that the Shanghai Composite Index and Shenzhen Component Index are at high valuation percentiles, with 99.92% and 93.91% respectively, suggesting a bullish sentiment in the market [1] - The food and beverage sector saw a price increase of 7.1%, recovering multiple moving averages, reflecting strong market performance [4][19] Sector Performance - The media sector led the market with a net inflow of 7.508 billion, followed by food and beverage with 3.734 billion, while the electronic sector faced the largest outflow of 24.368 billion [2][14] - The real estate sector's strong performance is attributed to anticipated supportive policies, with analysts recommending a focus on potential policy developments throughout the year [7][18] ETF Performance - The food and beverage ETF showed a 7.10% increase, while the real estate ETF rose by 5.43%, indicating strong investor interest in these sectors [15] - The consumption leader ETF and banking ETF also reported positive performance, with increases of 3.32% and 1.70% respectively [15] Investment Recommendations - Analysts suggest that investors should consider positioning themselves in the real estate sector, anticipating favorable policy changes that could enhance market conditions [7][18] - The food and beverage sector is also recommended for investment, particularly due to the expected demand surge during the festive season [4][16]

Report Industry Investment Rating - Not provided in the report Core Viewpoints - On January 29, 2026, most industries in the convertible bond market corrected, and the valuation increased month - on - month. The convertible bond market's trading sentiment weakened, and the market style favored large - cap value stocks [2]. Summary by Directory I. Market Main Index Performance - The CSI Convertible Bond Index decreased by 0.70% month - on - month, the Shanghai Composite Index increased by 0.16%, the Shenzhen Component Index decreased by 0.30%, the ChiNext Index decreased by 0.57%, the SSE 50 Index increased by 1.65%, and the CSI 1000 Index decreased by 0.80% [2]. - In terms of market style, large - cap value stocks were relatively dominant. Large - cap growth stocks increased by 0.76%, large - cap value stocks increased by 2.21%, mid - cap growth stocks decreased by 1.02%, mid - cap value stocks increased by 0.50%, small - cap growth stocks decreased by 1.43%, and small - cap value stocks remained unchanged [2]. II. Market Fund Performance - The trading volume of the convertible bond market was 81.418 billion yuan, a month - on - month decrease of 0.06%. The total trading volume of the Wind All - A Index was 325.9418 billion yuan, a month - on - month increase of 8.93%. The net outflow of main funds from the Shanghai and Shenzhen stock markets was 6.0222 billion yuan, and the yield of the 10 - year treasury bond increased by 0.10bp to 1.82% [2]. - The share of Boshi Convertible Bond ETF was 4.311 billion shares, with a net increase of 62.2 million shares; the share of Haifutong Convertible Bond ETF was 891 million shares, with a net decrease of 34.5 million shares [37][40]. III. Convertible Bond Price and Valuation - The weighted average closing price of convertible bonds decreased to 142.82 yuan, a month - on - month decrease of 0.72%. Among them, the closing price of equity - biased convertible bonds was 208.09 yuan, a month - on - month decrease of 1.59%; the closing price of bond - biased convertible bonds was 123.66 yuan, a month - on - month increase of 0.34%; the closing price of balanced convertible bonds was 134.77 yuan, a month - on - month decrease of 0.23% [3]. - The proportion of high - price bonds above 130 yuan decreased by 0.59 pct to 77.87%. The proportion of the 120 - 130 yuan (inclusive) range increased by 0.58 pct to 16.80%. There were no bonds with a closing price below 100 yuan. The median price was 140.54 yuan, a month - on - month decrease of 0.33% [3]. - The conversion premium rate of the 100 - yuan par - value fitting increased to 38.99%, a month - on - month increase of 0.85 pct. The overall weighted par value decreased to 105.83 yuan, a month - on - month decrease of 0.26% [3]. - The premium rate of equity - biased convertible bonds decreased by 0.95 pct to 19.09%; the premium rate of bond - biased convertible bonds increased by 1.19 pct to 91.95%; the premium rate of balanced convertible bonds decreased by 0.77 pct to 29.94% [3]. IV. Industry Performance - In the A - share market, the top three rising industries were food and beverage (+6.57%), media (+3.53%), and real estate (+2.65%); the top three falling industries were electronics (-3.56%), national defense and military industry (-1.79%), and power equipment (-1.78%) [4]. - In the convertible bond market, 21 industries fell. The top three falling industries were steel (-3.94%), electronics (-2.15%), and machinery and equipment (-2.05%); the top three rising industries were non - ferrous metals (+2.06%), communication (+1.27%), and media (+1.15%) [4]. - In terms of closing price, large - cycle industries decreased by 0.66%, manufacturing industries decreased by 1.38%, technology industries decreased by 0.23%, large - consumption industries decreased by 0.17%, and large - finance industries increased by 0.25% [4]. - In terms of conversion premium rate, large - cycle industries decreased by 0.7 pct, manufacturing industries increased by 0.71 pct, technology industries increased by 0.25 pct, large - consumption industries increased by 0.79 pct, and large - finance industries increased by 0.16 pct [4]. - In terms of conversion value, large - cycle industries increased by 0.05%, manufacturing industries decreased by 2.02%, technology industries decreased by 0.53%, large - consumption industries increased by 0.06%, and large - finance industries increased by 1.35% [4]. - In terms of pure bond premium rate, large - cycle industries decreased by 1.0 pct, manufacturing industries decreased by 2.3 pct, technology industries decreased by 0.47 pct, large - consumption industries decreased by 0.23 pct, and large - finance industries increased by 0.28 pct [5]. V. Industry Rotation - Food and beverage, media, and real estate led the rise. The daily increase rates of food and beverage, media, and real estate were 6.57%, 3.53%, and 2.65% respectively in the A - share market [55]. - The report also provided the weekly, monthly, and year - to - date increase rates of various industries, as well as their valuation quantiles such as PE (TTM), 3 - year and 10 - year quantiles of PE and PB (LF) [55].

Group 1 - The equity market experienced a volatile upward trend from January 19 to 23, 2026, with the Wande All A closing at 6893.11, up 1.81% from January 16, and the China Convertible Bond Index rising 2.92 during the same period [1][9] - The market has entered a narrow fluctuation range since January 13, with a net outflow of 265.9 billion yuan from stock ETFs from January 19 to 22, indicating a "slow bull" market sentiment [1][16] - The implied volatility has returned to a low level, suggesting a nurturing environment for a rebound, with the market attempting to break out of the fluctuation state [1][21] Group 2 - The strategy suggests maintaining a "slow bull" mindset, as the market attempts to break out of the narrow fluctuation range and return to an upward trend [2] - Historical analysis of 64 cases of upward breakouts from narrow fluctuation ranges since 2005 shows that such breakouts typically lead to a sustained upward trend [2][42] - The analysis of 48 instances of volume peaks since 2005 indicates that while upward trends continue after volume peaks, the pace of increase slows down, often leading to prolonged periods of fluctuation before resuming upward trends [2][45] Group 3 - In the convertible bond market, the valuation indicators are showing a decline in their timing significance, with the absolute price median and valuation center remaining at historically high levels [3][29] - The valuation center for convertible bonds at various price points remains high, with the 80 yuan parity corresponding to a valuation center of 54.44%, and the 100 yuan parity at 41.12% [3][29] - The market for convertible bonds is seeing renewed inflows, particularly in the context of strong underlying stocks, with a significant reduction in the number of convertible bonds priced below 130 yuan [3][61]

- The liquidity shock indicator for the CSI 300 Index was 5.09 on Friday, indicating that the current market liquidity is 5.09 standard deviations higher than the average level over the past year [4][8] - The PUT-CALL ratio of the SSE 50ETF options trading volume increased to 0.98 on Friday, suggesting a rise in investor caution regarding the short-term trend of the SSE 50ETF [4][8] - The five-day average turnover rates for the SSE Composite Index and Wind All A Index were 1.50% and 2.21%, respectively, indicating a decrease in trading activity [4][8] - The SAR technical indicator showed a reversal within the week, indicating strong market contention between bulls and bears [4][7][14] - The sentiment model score was 2 out of 5, with both the trend model and weighted model signals being positive [4][14] - The high-frequency capital flow model indicated a buy signal for major broad-based indices, including the CSI 300, CSI 500, and CSI 1000 [4][14] - The congestion levels for small-cap, low-valuation, high-profitability, and high-growth factors were 0.28, -0.42, 0.31, and 0.35, respectively [4][18][19][21] - The congestion levels for the non-ferrous metals, comprehensive, communication, electronics, and defense industries were relatively high, with the defense and electronics industries showing significant increases [4][25][27][28]