Market Overview - On March 31, the A-share market experienced a slight correction after an initial rise, with the Shanghai Composite Index facing resistance around 3948 points[2] - The Shanghai Composite Index closed at 3891.86 points, down 0.80%, while the Shenzhen Component Index fell 1.81% to 13478.06 points[7] - Total trading volume for both markets reached 20,061 billion yuan, above the median of the past three years[3] Sector Performance - Strong performers included automotive services, precious metals, aerospace equipment, and banking sectors[3] - Weaker sectors were coal, wind power equipment, electronic chemicals, and batteries[3] - The average P/E ratios for the Shanghai Composite and ChiNext were 16.21 times and 46.09 times, respectively, above the median levels of the past three years[3] Future Outlook - The market is expected to maintain a volatile trend, influenced by overseas factors such as potential escalation in Middle East conflicts and U.S. inflation rates[3] - Domestic macroeconomic policies are becoming clearer, providing a solid support base for the market[3] - Investors are advised to focus on sectors like consumer electronics, precious metals, banking, and aerospace equipment for short-term opportunities[3] Risk Factors - Risks include unexpected overseas recession impacting domestic recovery, slower-than-expected domestic policy implementation, and macroeconomic disturbances[4]

Core Views - The A-share market is showing resilience with a clear structural differentiation, indicating that the index may experience fluctuations in the short term while consolidating support [2][10] - The external influences on the A-share market are diminishing, with the market's own recovery momentum taking precedence [3][12] - The market is characterized by a "hot and cold" sector performance, with strong movements in innovative pharmaceuticals and agriculture, while previously popular sectors like green electricity are retreating [12][10] Market Overview - On Monday, the three major indices opened lower but rebounded, with the Shanghai Composite Index showing strength [5][10] - The trading volume remained around 2 trillion yuan, indicating a potential slowdown in the influx of new capital [12][10] - The overall sentiment in the market is moderate, with a general trend of more stocks rising than falling [6] Sector Analysis - Agricultural stocks, particularly in grain and farming, have seen an increase due to stabilizing domestic grain prices and rising overseas prices influenced by geopolitical tensions [7][10] - Aerospace and military stocks are performing well, driven by geopolitical conflicts and the emphasis on "self-control" in key technologies, which enhances the competitive landscape for domestic military enterprises [8][10] - The industrial and precious metals sectors are recovering, supported by ongoing economic growth policies and improving supply-demand dynamics [9][10] Investment Opportunities - Focus on companies that have been unjustly punished but can validate their growth logic through Q1 performance, as these firms are better positioned to withstand market volatility [3][12] - The long-term outlook for the A-share market remains positive, supported by China's diversified energy structure and stable growth policies [13][3]

Investment Rating - The report maintains a "Buy" rating for the aerospace and military industry, with specific recommendations for several companies [8]. Core Insights - The report highlights the acceleration of military "kill chains" through artificial intelligence, particularly in the context of the recent US-Israel-Iran conflict, which is described as the "first AI war" [11][12]. - The modernization of China's defense and military capabilities is expected to transition from quantity to quality during the "14th Five-Year Plan" period, with significant structural opportunities emerging in new domains and advanced weaponry [18][19]. Company Recommendations - The report suggests focusing on the following companies: - AVIC Shenyang Aircraft Corporation (中航沈飞) [8] - Guorui Technology (国睿科技) [8] - AVIC Optoelectronics (中航光电) [8] - Ruichuang Micro-Nano (睿创微纳) [8] - Aerospace Intelligent Manufacturing (航天智造) [8] - Beihua Co., Ltd. (北化股份) [8] - Guotai Group (国泰集团) [8] - Aerospace Nanhu (航天南湖) [8] - Guoke Military Industry (国科军工) [8] Industry Trends - The report notes that the demand for military equipment is expected to grow in a stable manner, with new opportunities arising in unmanned systems, advanced weapons, and low-cost equipment during the "14th Five-Year Plan" [18][21]. - The military trade market is anticipated to grow, with China's market share expected to increase significantly, driven by rising global military expenditures [22]. - The application of military technology in civilian sectors is projected to create vast market opportunities, particularly in commercial aerospace, low-altitude economy, deep-sea technology, and nuclear energy [23].

Group 1 - The space sector has become a new battleground for major powers, with the US accelerating its space strategy, including NASA's plans to return to the Moon and SpaceX's Starship entering reusable flight testing [1] - China's commercial space industry is rapidly catching up, with expectations to master reusable rocket technology and accelerate the construction of satellite internet and other industries within the next five years [1]

Investment Rating - The report maintains a "Positive" investment rating for the defense industry [2]. Core Insights - The 2026 national defense budget is projected to grow by 7% year-on-year, reflecting a steady increase in defense spending [11]. - The "14th Five-Year Plan" outlines 109 major engineering projects, which are expected to support economic growth and development [12]. - The domestic gas turbine industry is witnessing a trend towards self-sufficiency, with significant advancements in the development of heavy-duty gas turbines [26]. - The commercial aerospace sector is anticipated to grow significantly, with a projected market size of approximately 10 trillion yuan over the next 20 years [42]. Summary by Sections National Defense Budget - The 2026 national defense budget is set at 19,095.61 billion yuan, marking a 7% increase from the previous year, maintaining a consistent growth rate since 2021 [11]. Major Engineering Projects - The "14th Five-Year Plan" includes 109 major engineering projects aimed at bolstering economic stability and growth, emphasizing the importance of these projects in the implementation of national strategies [12]. Gas Turbine Industry - The domestic gas turbine sector is progressing towards self-sufficiency, with the first domestically designed and manufactured heavy-duty gas turbine achieving a significant milestone in 2023 [28]. - The industry is expected to benefit from increased demand driven by various sectors, including mechanical, petroleum, and electricity [28]. Commercial Aerospace - The domestic commercial aircraft market is projected to reach around 10 trillion yuan over the next 20 years, with an expected demand for over 400 new aircraft annually by 2029 [46]. - The C919 aircraft has achieved a composite material usage rate of 12%, with future models like the C929 expected to exceed 50% [74]. - The report highlights the potential for domestic aircraft manufacturers to break the oligopoly currently held by Airbus and Boeing, as they ramp up production [53].

Core Insights - The report highlights the significant increase in travel demand during the 2026 Spring Festival, indicating a potential shift in consumer behavior towards more robust spending patterns [2][8] - It emphasizes the importance of the upcoming "Two Sessions" in shaping economic policies and targets, particularly regarding GDP growth and inflation rates [7][8] - The analysis suggests a transformation in consumption patterns, with a notable rise in travel among older demographics and a shift towards personalized consumption experiences [3][8] Economic Indicators - The GDP growth target for 2026 is set at approximately 5%, slightly lower than the previous year's target of 5.3%, reflecting a more pragmatic approach to economic management [7] - The Consumer Price Index (CPI) target for 2026 is expected to remain around 2%, aligning with current economic conditions and aiming for moderate inflation [7] - The report anticipates a fiscal deficit rate of around 4% and an increase in local government special bond issuance to support economic growth [7] Consumer Trends - The report identifies three unusual trends in consumer behavior during the Spring Festival: a surge in travel, increased participation from older travelers, and a shift towards more personalized consumption [8] - Travel data shows a 35% increase in flight bookings for travelers aged 60 and above, with significant growth in hotel reservations and ticket purchases for attractions [3][8] - The rise of self-driving trips and the use of new media platforms for travel planning are noted as key factors driving changes in consumer preferences [8] Policy Implications - The report underscores the need for effective fiscal policies to stimulate domestic demand and consumption, with a focus on enhancing service consumption and supporting small businesses [7][8] - It suggests that the government will continue to implement measures to boost consumer confidence and spending, including personal credit repair initiatives and targeted financial support [9] - The analysis indicates that the current economic environment may lead to a greater emphasis on service consumption as disposable income increases and consumer preferences evolve [9]

Core Views - The report highlights the resilience of A-shares amidst escalating geopolitical tensions, particularly the US-Iran conflict, which has led to a significant increase in international oil prices [1][10] - A-shares showed strength compared to the broader Asia-Pacific market, with the Shanghai Composite Index experiencing fluctuations but ultimately closing higher [1][8] - The report indicates a structural market divergence, with sectors benefiting from geopolitical tensions, such as oil and gas, military, gold, and coal, performing well, while many small-cap stocks lagged [1][8] Market Overview - On Monday, the three major indices opened lower but showed volatility throughout the day, with oil and gas stocks leading the gains due to external events [4][6] - The oil service, precious metals, and military sectors saw significant increases, while sectors like cultural media and AI applications faced declines [4][5] - The overall market sentiment was mixed, with a total trading volume of 30,207 billion yuan, and the Shanghai Composite Index closing at 4,182.59 points, up 0.47% [5][6] Sector Analysis - The oil and gas sector experienced substantial gains, driven by the escalation of the Middle East situation, with domestic oil futures hitting their daily limit [6][7] - Precious metals also saw a rise, attributed to factors such as the onset of a Fed rate cut cycle, increased geopolitical tensions, and strong demand from central banks [7] - The report suggests that while the precious metals sector has seen significant price increases, caution is advised against chasing prices too high [7] Future Outlook - The report anticipates that the upcoming Two Sessions will be a critical variable influencing short-term market trends, with expected policy guidance becoming clearer [9] - It emphasizes the importance of monitoring the US-Iran situation, as a de-escalation could lead to a pullback in energy sector enthusiasm [9] - The recommended strategy is to adopt a low-buying approach, focusing on sectors that benefit from price increases and geopolitical catalysts, such as oil and gas, and long-term technology trends like AI and semiconductors [2][9]

Investment Rating - The report maintains an "Increase" rating for the aerospace and military industry [8] Core Viewpoints - The recent military strikes by the US and Israel against Iran have escalated security tensions, prompting a global increase in military spending. The report highlights that the world is entering a period of significant military conflict, with various regional conflicts ongoing, leading to heightened defense budgets in the US, EU, and Japan [19][20] - The report anticipates that China's military trade will experience rapid growth during the "14th Five-Year Plan" period, with an expected increase in market share [20][27] - The focus on new equipment construction cycles is expected to create structural opportunities in military demand, particularly in new domains, unmanned systems, advanced weapons, and low-cost equipment [23][24] Summary by Sections Industry Investment Rating - The aerospace and military industry is rated as "Increase" [8] Recent Developments - The US and Israel conducted coordinated military strikes against Iran, targeting military facilities and leadership, which is expected to have significant implications for regional security and military spending [11][12][14] Market Opportunities - The report suggests that military demand will see structural opportunities during the "14th Five-Year Plan," particularly in new domains and advanced technologies [23][24] - Companies to watch include: AVIC Shenyang Aircraft Corporation, Guorui Technology, and Aerospace South Lake, among others [3][20] Company Recommendations - Key companies recommended for investment include: - AVIC Shenyang Aircraft Corporation (600760 CH) - Buy - Guorui Technology (600562 CH) - Buy - Ruichuang Micro-Nano (688002 CH) - Buy - Aerospace South Lake (688552 CH) - Buy - Aerospace Rainbow (002389 CH) - Buy - AVIC High-Tech (600862 CH) - Hold [8]

Investment Rating - The report maintains a recommendation for the defense and military industry [4] Core Insights - The geopolitical risks have escalated following the US and Israel's joint attack on Iran, which is expected to strengthen the growth expectations for military spending [6][15] - The Chinese military trade is anticipated to experience structural expansion opportunities due to the high cost-performance ratio and the absence of political conditions attached to Chinese military equipment [16][18] - The report highlights a significant calendar effect observed in the military industry index before and after the National People's Congress meetings [21][24] - The defense budget in China is projected to grow steadily by 7%-7.5% in 2026, driven by geopolitical tensions [21][24] Summary by Sections Section 1: Geopolitical Risks - The US and Israel launched a coordinated attack on Iran on February 28, 2026, leading to a significant military response from Iran [8][15] - The escalation of geopolitical risks is expected to enhance military spending growth expectations, with a focus on main battle equipment and new domains [15] Section 2: National Congress Outlook - The military industry index typically outperforms the Shanghai Composite Index before the National Congress meetings, with a notable increase of 4.4% one month prior and 1.7% one week prior [21][22] - The focus of the upcoming National Congress is expected to be on domestic innovation and emerging sectors within the military industry [24][25] Section 3: Military Trade Opportunities - Chinese military equipment is positioned as a core alternative for Middle Eastern countries, with expectations for military trade to increase from the current 3.82% to 10%-15% [16][18] - The report suggests focusing on key players in military trade, including 中航沈飞 (AVIC Shenyang Aircraft Corporation) and 中航成飞 (AVIC Chengfei), among others [18][47] Section 4: Investment Recommendations - Short-term opportunities are identified in commercial aerospace and military trade, with significant growth expected in the next five years [45] - Long-term prospects remain strong, with defense spending expected to maintain a growth rate of around 7% leading up to the centenary of the military [45]

Investment Rating - The report maintains a recommendation for the defense and military industry [4] Core Insights - The geopolitical risks have escalated due to the US and Israel's joint attack on Iran, which is expected to strengthen military spending growth expectations [6][15] - China's military trade is anticipated to experience structural expansion opportunities, with domestic military equipment becoming a core choice for Middle Eastern countries [16][18] - The report highlights a significant calendar effect on the military industry index before and after the National People's Congress meetings [21][24] - The defense budget in China is projected to grow steadily by 7%-7.5% in 2026, focusing on new combat capabilities and network information system construction [21][24] - The report outlines two main lines of focus for the upcoming meetings: domestic substitution of high-end equipment and the cultivation of future industries and new combat capabilities [24][25] Summary by Sections Geopolitical Risks - The US and Israel launched a coordinated attack on Iran on February 28, 2026, leading to significant retaliatory actions from Iran [6][8] - The escalation of geopolitical risks is expected to enhance military procurement certainty, with a focus on main battle equipment and new combat capabilities [15] Military Trade Opportunities - China's military equipment is characterized by high cost-effectiveness and independence from political conditions, making it an attractive option for Middle Eastern countries [16][18] - The proportion of military trade in domestic major manufacturers is expected to increase from 3.82% to 10%-15%, indicating significant growth potential [18] Calendar Effect and Market Performance - The military industry index showed a notable increase of 4.4% in the month leading up to the National People's Congress, outperforming the Shanghai Composite Index [21][22] - Historical data indicates that the military index typically outperforms the Shanghai Composite before the meetings and underperforms afterward [21][23] Investment Recommendations - Focus on commercial aerospace, military trade, and intelligent equipment opportunities, with a strong demand forecast for the next five years [45] - Key companies to watch include those in the commercial aerospace sector, military trade, and the two-engine industry chain [47]