Core Viewpoint - The A-share market is primarily experiencing fluctuations, with the infrastructure sector showing relative stability, as evidenced by the recent performance of the Infrastructure 50 ETF and the CSI 300 Index [1] Group 1: Market Performance - The Infrastructure 50 ETF has increased by 1.75% over the past 15 trading days, while the CSI 300 Index has risen by 0.95% [1] - The annualized return of the Infrastructure 50 ETF is reported at 33.57%, with a volatility of 74% [1] - The CSI 300 Index has a recent performance of -3.37% [1] Group 2: Valuation Insights - The latest price-to-earnings ratio (PE-TTM) for the Infrastructure 50 ETF is 9.64, which is in the 33.21st percentile over the past decade, indicating that the valuation is lower than 66.79% of the time in the last ten years [1] - This low valuation presents an opportunity for cost-effective positioning in the market [1] Group 3: Sector Outlook - According to Kaiyuan Securities, infrastructure investment and new construction contracts have been weakening since 2025, leading to a divergence in the performance of sub-sectors [1] - With ongoing government debt management and corporate deleveraging, the construction sector is expected to experience a resonance of fundamentals, policies, and valuations [1] - The industry is advised to focus on marginal changes in areas such as overseas construction, urban renewal, digital construction, power engineering, and debt management, while maintaining a positive outlook on state-owned construction enterprises and regional leaders with stable performance and low valuations [1]

Core Viewpoint - The A-share market shows mixed performance with the Shanghai Composite Index down by 0.35%, while the Shenzhen Component Index increased by 0.14% and the ChiNext Index decreased by 0.23% [1] Group 1: Market Performance - The Infrastructure 50 ETF (159635) rose by 0.73%, with a latest price of 1.107 yuan [1] - Leading stocks in the ETF include Sichuan Road and Bridge up by 3.95%, Shantui Construction Machinery up by 3.83%, Hangzhou Forklift up by 2.83%, XCMG Machinery up by 2.75%, and COFCO Engineering up by 2.71% [1] Group 2: Valuation Insights - The latest price-to-earnings ratio (PE-TTM) for the Infrastructure 50 ETF is 9.55, which is at the 31.98% percentile over the past 10 years, indicating a relatively low valuation compared to other sectors in the A-share market [1] Group 3: Industry Outlook - According to Kaiyuan Securities, infrastructure investment and new construction contracts have been weakening since 2025, leading to a divergence in the performance of sub-sectors [1] - With ongoing government debt management and corporate deleveraging, the construction sector is expected to experience a resonance of fundamentals, policies, and valuations [1] - The industry is advised to focus on marginal changes in areas such as overseas construction, urban renewal, digital construction, power engineering, and debt management, while maintaining a positive outlook on state-owned construction enterprises and regional leaders with low valuations and stable performance [1]

Core Viewpoint - The A-share market shows a collective increase in major indices, indicating positive market sentiment and potential investment opportunities in infrastructure-related sectors [1] Market Performance - As of December 5, 2025, the Shanghai Composite Index rose by 0.67%, the Shenzhen Component Index increased by 0.98%, and the ChiNext Index gained 1.25% [1] - The Infrastructure 50 ETF (159635) saw a rise of 1.26%, with the latest price at 1.122 yuan and an intraday turnover rate of 7.5% [1] Stock Performance - Among the constituent stocks, Shanghai Port Construction led with a 10% increase, followed by Zhenhua Heavy Industries at 5.72%, Huitong Technology at 4.81%, Aidi Precision at 3.38%, and XCMG at 3.26% [1] - Conversely, Sichuan Road and Bridge experienced a decline of 2.53%, with Hongrun Construction down by 1.05%, Anhui Construction down by 0.41%, Zhongli Co. down by 0.37%, and Pudong Construction down by 0.12% [1] Fund Flow - The Infrastructure 50 ETF has recorded five consecutive trading days of positive performance, with expectations for a sixth consecutive gain [1] - Over the past three trading days, there has been a continuous inflow of funds into the ETF [1] Valuation Insights - The latest price-to-earnings ratio (PE-TTM) for the Infrastructure 50 ETF is 9.64, which is below 10 and represents a valuation that is lower than 66.79% of the time over the past decade [1] - This low valuation suggests potential investment opportunities in undervalued assets within the infrastructure sector [1]

Quantitative Models and Construction Methods - **Model Name**: Style Rotation Model **Model Construction Idea**: The model is built from basic style factors such as valuation, market capitalization, volatility, and momentum. It incorporates a style timing and scoring system, leveraging micro-level features and machine learning techniques to optimize style selection and rotation[4][9]. **Model Construction Process**: 1. Start with 80 fundamental micro factors as raw features, categorized based on the proprietary multi-factor system of Dongwu Securities[9]. 2. Construct 640 micro-level features from these factors[4][9]. 3. Replace the absolute proportion division of style factors with commonly used indices as style stock pools, creating new style returns as labels[4][9]. 4. Use a rolling training process with a Random Forest model to avoid overfitting, select optimal features, and generate style recommendations[4][9]. 5. Combine style timing results and scoring outcomes to build a monthly frequency style rotation framework[4][9]. **Model Evaluation**: The model effectively integrates micro-level features and machine learning to enhance style rotation performance, mitigating overfitting risks[4][9]. Model Backtesting Results - **Style Rotation Model**: - Annualized Return: 16.52% - Annualized Volatility: 20.46% - IR: 0.81 - Monthly Win Rate: 57.01% - Maximum Drawdown: 25.68% - Excess Annualized Return (Hedged against Benchmark): 11.04% - Excess Annualized Volatility (Hedged against Benchmark): 11.08% - Excess IR (Hedged against Benchmark): 1.00 - Excess Monthly Win Rate (Hedged against Benchmark): 55.14% - Maximum Drawdown (Hedged against Benchmark): 9.00%[4][10][11]

Core Insights - The report emphasizes a defensive strategy in the current market environment, suggesting that investors should consider gradual positioning in sectors benefiting from marginal improvements in economic conditions in 2025 [2][3] - A significant rebalancing has occurred in global stock markets, with funds shifting from previously high-performing technology sectors to relatively undervalued sectors such as resources, consumption, and manufacturing [2][3] - The report highlights the positive outlook for mid-cap blue-chip companies in the machinery sector, driven by both policy support and fundamental improvements [5] Market Strategy - The current market is characterized by a "stable internal and external" dynamic, with technology assets experiencing a pullback due to concerns over an "AI bubble" [2][3] - Investors are advised to focus on mid-cap blue-chip companies in sectors like non-bank financials, steel, basic chemicals, and machinery, which have shown improved capital returns in Q3 [2][3] - Suggested ETFs for investment include the Consumer ETF (159928) and Infrastructure 50 ETF (516970/159635) [2][3] Industry Strategy - The machinery industry is expected to benefit from a dual drive of policy and fundamental support, with a focus on nurturing quality enterprises and specialized industrial clusters [5] - The forklift industry saw a 14.2% year-on-year increase in sales from January to October 2025, with exports rising by 15.5%, indicating a recovery in both domestic and international demand [5] - The "14th Five-Year Plan" emphasizes technological self-reliance, providing opportunities for companies with advantages in hydraulic components and five-axis machine tools to capture both traditional equipment upgrades and emerging market opportunities [5] Theme Strategy - The report discusses the launch of Nano2, which introduces a reasoning-driven visual generation capability, marking a shift from diffusion-based generation to a more intelligent image generation paradigm [6] - Companies with a comprehensive AI pathway, integrating hardware, research, models, and application scenarios, are expected to benefit significantly from advancements in AI applications [6] - Relevant ETFs for this theme include the Media ETF (512980/159805) and the China Concept Internet ETF (513220/159605) [6]

Market Strategy - The market is expected to remain in a volatile state, with a focus on defensive strategies and opportunities for low-cost positioning [2][8] - The Shanghai Composite Index is holding above 3900 points, while the Shenzhen Component and ChiNext are at the lower end of the fluctuation range since September [8] - The technology sector, particularly the STAR 50 index, has fallen below its fluctuation range, indicating a weak market sentiment [8] Industry Strategy - The food and beverage sector is anticipated to undergo a valuation recovery followed by performance-driven growth, with a focus on gradual positioning [3][8] - The sector has seen a significant improvement in capital returns, particularly in non-bank financials, steel, basic chemicals, machinery, and some consumer goods [8] - The consumer staples sector is showing signs of performance improvement, with expectations for a performance bottom in 2026 [8] Thematic Strategy - The non-ferrous metals sector is gaining a "growth" attribute due to financial characteristics and AI demand, enhancing its appeal [4][8] - Precious metals are becoming increasingly attractive as global central banks diversify reserves amid rising U.S. fiscal deficits and weakening dollar credit [8] - Industrial metals are benefiting from improved supply-demand dynamics and increased demand from AI and new energy sectors [8] - New demand drivers in small metals, particularly lithium, are expected to lead to a cyclical reversal [8]

Market Strategy - The current market is expected to experience limited index growth, with a judgment of "fluctuating up and down, sideways consolidation, slightly strengthening" [7] - Mid-cap blue chips are anticipated to rise again after four years, presenting investment opportunities in manufacturing, consumption, and cyclical sectors [7] - Related ETFs include 中证 500ETF (159922) and 中证 1000ETF (512100) [7] Chemical Industry - Global chemical supply is expected to contract due to high costs and aging equipment, leading to a structural adjustment in the supply chain [7] - European chemical sales account for approximately 13% of the global market, but high energy costs and punitive carbon taxes are causing continued capacity exit [7] - Domestic production progress has slowed, and with the implementation of "anti-involution" policies, the chemical sector is likely to enter a new prosperity cycle [7] - Related stock: 万华化学 (600309, Buy) [7] - Related ETF: 化工 ETF (159870/516020) [7] Financial Technology - Hong Kong's "FinTech 2030" strategy marks a shift from application-focused development to a more systemic, forward-looking, and ecological approach [7] - This strategy emphasizes the collaborative development of data, AI, resilience, and tokenization, providing valuable insights for the high-quality development of mainland financial technology [7] - Related ETFs include 金融科技 ETF (159851/515720/159103) and 香港证券 ETF (513090) [7]

Market Strategy - The report suggests a cautious outlook on index movements, emphasizing the potential for mid-cap stocks to uncover real investment opportunities [2][8] - It highlights that while corporate earnings are supported, sustained outperformance is challenging, and market style may shift towards mid-cap blue chips in the consumer, manufacturing, and cyclical sectors [8] Industry Strategy - In the home appliance sector, consumption driven by home scenarios is leading growth, with resilient performance from smart products [3][8] - Data from the "Double 11" shopping festival indicates strong overall performance in the home appliance industry, with significant growth in brands like Midea and Haier, and a notable 12.5% increase in transaction share on Tmall [8] Thematic Strategy - The military industry is highlighted with the commissioning of China's first electromagnetic aircraft carrier, marking a significant advancement in military capabilities and benefiting related enterprises in the new production capacity chain [4][8] - The report identifies specific companies and ETFs related to the defense sector that are expected to benefit from this advancement [8]

Market Performance - The market experienced narrow fluctuations on August 8, with all three major indices slightly declining. The Shanghai Composite Index fell by 0.12%, the Shenzhen Component Index decreased by 0.26%, and the ChiNext Index dropped by 0.38% [1] - Despite the overall market decline, several ETFs related to construction materials, photovoltaic, and infrastructure sectors saw gains exceeding 2% [1] ETF Performance - The following ETFs showed notable performance: - E Fund Construction Materials ETF increased by 2.18%, closing at 0.702 [2] - Leading Photovoltaic ETF rose by 2.05%, with a price of 0.497 [2] - Infrastructure ETF also gained 2.05%, closing at 1.146 [2] - Infrastructure 50 ETF increased by 2.04%, closing at 1.103 [2] Industry Outlook - Experts predict that as Chinese engineering machinery companies continue to globalize, their competitiveness in overseas markets is expected to enhance, leading to an increase in market share [2] - The domestic engineering machinery market is anticipated to benefit from the "two new" policy, which is expected to drive ongoing demand for equipment upgrades. Additionally, growth in water conservancy and municipal sectors is likely to support a continued recovery in domestic engineering machinery demand [2]

- Model Name: Diffusion Index Model; Construction Idea: The model is based on the principle of price momentum, capturing industry trends through diffusion indices; Construction Process: The model tracks the weekly and monthly changes in the diffusion indices of various industries, ranking them accordingly. The formula for the diffusion index is not explicitly provided; Evaluation: The model has shown varying performance over the years, with significant drawdowns during market reversals[24][25][28] - Model Name: GRU Factor Model; Construction Idea: The model utilizes GRU (Gated Recurrent Unit) deep learning networks to process minute-level volume and price data, aiming to capture trading information; Construction Process: The model ranks industries based on GRU factors, which are derived from the deep learning network's analysis of trading data. The specific formula for GRU factors is not provided; Evaluation: The model has performed well in short cycles but has shown general performance in longer cycles[31][32][35] - Diffusion Index Model, Average Weekly Return: 0.89%, Excess Return Since July: -3.47%, Excess Return YTD: -0.45%[28] - GRU Factor Model, Average Weekly Return: 4.27%, Excess Return Since July: 1.34%, Excess Return YTD: -4.25%[35] - Factor Name: Diffusion Index; Construction Idea: The factor is based on the momentum of industry prices, capturing upward trends; Construction Process: The factor is calculated by observing the weekly and monthly changes in the diffusion indices of various industries. The specific formula is not provided; Evaluation: The factor has shown varying performance, with significant drawdowns during market reversals[24][25][28] - Factor Name: GRU Factor; Construction Idea: The factor is derived from GRU deep learning networks, capturing trading information from minute-level volume and price data; Construction Process: The factor is calculated by ranking industries based on the GRU network's analysis of trading data. The specific formula is not provided; Evaluation: The factor has performed well in short cycles but has shown general performance in longer cycles[31][32][35] - Diffusion Index Factor, Top Industries: Comprehensive Finance (1.0), Steel (1.0), Non-Bank Finance (0.999), Comprehensive (0.998), Non-Ferrous Metals (0.997), Home Appliances (0.995)[25] - GRU Factor, Top Industries: Banking (3.3), Real Estate (0.58), Oil & Petrochemicals (-1.26), Textile & Apparel (-1.73), Light Manufacturing (-2.49), Electric Power & Utilities (-2.83)[32]