Since the holiday, the sentiment in the A-share market has warmed up and the spring market has unfolded as expected. Thanks to the catalysis of the DeepSeek concept, the stock performance of many leading technology companies has been impressive, driving high investment enthusiasm in the technology sector. As of 25/02/14, the DeepSeek Index has accumulated a 48% increase post-holiday, outperforming the Wind All A Index by 43 percentage points. Now, how hot are themes such as AI and technology leaders? This article will detail the analysis.

Currently, the A-share market is quite vibrant, and its long-term cost-effectiveness remains prominent. First, looking at the overall market heat situation, in terms of valuation and trading Indicators, the A-share market is currently at a historically medium to high level. As of 25/02/14, from a valuation perspective, the Wind All A PE (TTM) / PB (LF) are 18.7 times / 1.6 times, up to 49% and 15% respectively since 2005 from low to high historical percentile levels. In terms of trading indicators, market activity is at a historical high level, with the Wind All A weekly Turnover Ratio (annualized) reaching 483%, ranking at the 82nd percentile since 2005 from low to high. The financing transaction of A-shares accounts for 10% of total transactions, ranking at the 78th historical percentile level since 2013. Additionally, from the perspective of major asset price comparison indicators, the cost-effectiveness of A-shares remains high. As of 25/02/14, the risk premium rate of the All A (1 / All A PE - 10-year Treasury yield) is 3.71%, at the 14th historical percentile level since 2005 from high to low, and the All A bond yield ratio (All A dividend yield / 10-year Treasury yield) is 1.47, at the 1st historical percentile level since 2005 from high to low.

From the perspective of industry and themes, under the catalysis of the AI concept, leading technology companies have driven high trading sentiment in related sectors. Structurally, the recent trading of technology themes such as AI and humanoid robots is hot, with the performance of related leading companies boosting investors' enthusiasm for the technology sector, and sectors like Electronics, Computer, Media, and Machinery are actively trading. Specifically, we use the historical percentiles of industry indices compared to the All A PE (TTM, hereinafter) and PB (LF, hereinafter) as valuation indicators, and the monthly transaction volume ratio / free-float market value ratio, monthly average Turnover Ratio historical percentiles as trading indicators to measure industry heat. Since A-shares have gone through a complete bull and bear cycle since 2019, we start calculating the historical percentiles of each indicator from the beginning of 2019. By industry segment, as of 25/02/14, the comprehensive heat of the TMT and Machinery sectors is at a historically high level, with Computer (industry comprehensive heat since 2019 is 99%, hereinafter), Machinery Equipment (94%), Media (92%), Electronics (84%), Communications (83%) all above 80%. Among them, the recently active Computer industry has valuation and trading heat indicators close to the 100th historical percentile from low to high since 2019.

Looking at the theme concept index, benefitting from the catalysis of the application of the DeepSeek model, the market heat of related theme concepts is quite high. As of 25/02/14, from a valuation perspective, the humanoid robot index PE/PB relative to the Wind All A is at the 60%/74% percentile from low to high since 2019 (hereinafter), while the DeepSeek index is at 99%/99%, both at historically high levels; from the trading indicators perspective, the humanoid robot index (daily Turnover Ratio at the 86th historical percentile from low to high since 2019, daily transaction amount occupying free-float market value ratio at the 86th historical percentile from low to high since 2019, hereinafter) and DeepSeek index (99%, 100%) are also at high levels.

From the perspective of individual stocks, amidst the AI technology investment boom, the market heat of leading technology stocks is even higher. Looking at the US stock market, companies like NVIDIA, Tesla, Apple, and Microsoft continue to attract market attention due to their industry position and influence, providing momentum for the growth of market cap in the US stocks and also generating the concept of the seven giants of US stocks (HK&S HOTELS 7). In this round of AI investment boom, several Chinese technology leaders have performed outstandingly. Referring to the seven giants of US stocks, a selection of several representative leading technology companies has been made in the A-share and Hong Kong stock markets, likewise using historical percentiles of individual stock valuation and trading indicators to comprehensively assess the short-term market sentiment for individual stocks.

As of 25/02/14, overall, the market activity of leading AI stocks is also quite high. In the A-share market,$SMIC (00981.HK)$(valuation indicators at the 97th historical percentile level, Turnover Ratio indicators at the 84th historical percentile level, the ratio of transaction amount to free-float market value at the 78th historical percentile level, and comprehensive heat at the 89th historical percentile level, hereinafter),$Iflytek Co.,ltd. (002230.SZ)$（90%、97%、75%、88%）、$ZTE (00763.HK)$(53%, 99%, 90%, 74%) and other stocks have a relatively high market heat; from the Hong Kong stock market perspective, $XIAOMI-W (01810.HK)$ （93%、84%、45%、79%）、 $BABA-W (09988.HK)$ (54%, 100%, 100%, 77%) and other stocks have a relatively high market heat.

The spring market for A-shares in 2025 is currently underway. Historically, the spring market occurs every year in A-shares, and in a bull market, the spring market experiences larger gains. Refer to "Will the Spring Market Still Exist? - 20250111" for details. The main factors driving this market includes three aspects: policy catalyst, liquidity easing, and fundamental improvement. Currently, the driving factors for the spring market are gradually becoming established: policy-wise, the 2024 Central Economic Work Conference clearly proposed to implement a "more proactive macro policy." On February 5, the State Council meeting suggested to "dare to break the norm and introduce perceptible policy measures to timely respond to concerns and strengthen the interaction between policies and the market." On February 13, the central bank's fourth-quarter monetary policy execution report indicated to "strengthen counter-cyclical adjustments and optimize policy strength and rhythm based on domestic and international economic and financial situations as well as financial market operations at appropriate timings." Regarding liquidity, on February 14, the central bank announced the newly added social financing in January was 7.06 trillion yuan, the highest level in history for the same period, a year-on-year increase of 583.3 billion yuan, achieving a "good start" in financial data. Furthermore, the implementation of the "Implementation Plan for Promoting Long-term Capital into the Market" announced in late January is another significant measure to implement the policy tone of "stabilizing the real estate and stock markets." We believe the trend of long-term capital entering the market will be further consolidated. On the fundamental side, as a package of incremental policies continues to take effect, corporate profits have significantly improved. In December, the year-on-year growth rate of industrial enterprises' profits rose for the third consecutive month, rebounding sharply from -7.3% in November to 11.0%. Additionally, consumer data showed steady growth during the Spring Festival. According to the Ministry of Culture and Tourism, the total domestic spending on travel during the Spring Festival holiday reached 677.002 billion yuan, an increase of 7.0% year-on-year. Looking towards 2025, we believe that as the incremental policies are implemented, both micro and macro fundamentals are expected to accelerate recovery, with A-shares' attributable net income growth estimated to reach 5%-10%.

Moreover, from a broader market perspective, combining three major factors—the policy tone shift, bull-bear cycle rules, and market sentiment hitting the bottom—we judge that since September 24, 2024, this round of market movement is a reversal rather than a rebound. With the implementation of counter-cyclical policies driving fundamental improvements, coupled with support from resident and long-term institutional investment, A-shares are expected to welcome a new round of rises. In summary, we believe that this round of market movement since September 24 last year is the first wave of the upward trend driven by policies at the bottom and is a significant turning point in the transition between bull and bear markets. In this context, the gains in the spring market are likely to be more substantial. For more details, refer to "Kunpeng Begins to Ride the Waves – 2025 A-share Outlook - 20241116" and "The Bull is Still Here – Re-examining the Nature of the 924 Market Movement - 20250118."

Under the AI wave, Technology is the main line of the market, and the Chinese version of the "M7" concept is gradually taking shape. As described above, the current policy catalysis, liquidity improvement, and fundamental recovery all provide strong support for the spring market. Correspondingly, sectors with positive catalysts in policies, fundamentals, or industry trends are expected to perform better. Recently, the acceleration of AI application through the Deepseek large model has attracted widespread market attention.

With the dual benefits of policy and technology and the upward trend in industry, Technology is expected to outperform in this round of market movement. The Technology sector is currently in a new upward cycle, with a new generation of information technology represented by AI rapidly permeating various fields. On January 20, DeepSeek officially launched the reasoning large model DeepSeek-R1, which has already performed comparably to OpenAI's o1 official version in tasks such as mathematics, coding, and natural language reasoning. The subsequent open-source and low-cost characteristics of DeepSeek may accelerate the rapid development of AI applications both domestically and internationally. Under the dual catalysis of policy and technology, the fundamentals of the Technology sector are expected to rise. Combined with predictions from Haitong Industry Analysts, the net income growth rates for electronics are estimated to be 30% and 35% for 2024 and 2025 respectively, while for Communications it is 20% and 30%, and for Computers, it is -5% and 15%. In the Technology sector, there may be a focus on investment in consumer electronics, autonomous driving, humanoid robots, and other applications of AI technology. On the other hand, in 2025, fiscal policy is expected to actively exert efforts, and Technology sectors such as digital infrastructure, information innovation, and Semiconductors may receive significant support from fiscal policies, benefiting relevant areas. Additionally, high-end manufacturing is also expected to perform in this round of market movement. Currently, China's high-end manufacturing has advantages such as industrial cluster advantages, engineer dividends, and technological accumulation, while both domestic and external demands are supporting it. In terms of external demand, growth from emerging markets and a high reliance on China could provide new volumes for China’s high-end manufacturing exports. Domestically, policies encouraging consumers to replace old products with new ones in 2025 are expected to be expanded, and areas related to durable consumer goods such as home appliances are expected to continue benefiting.

Currently, as China's Technology industry develops and matures, the leading companies in the "M7" concept may be emerging. China is in a period of transformation between old and new driving forces, and leading the development of new quality productivity through technological innovation is key to promoting industrial structure upgrades. The Technology industry will still be a field of key policy support. Additionally, we are in a new wave of technology led by AI and other technologies, with AI rapidly penetrating various levels of the economy and society. China has a solid foundation in talent and technology, and the domestic Technology industry is expected to benefit from this wave of technology. In terms of investment opportunities, recently, under the thematic catalysis of AI, companies like Cambrian,$Hygon Information Technology (688041.SH)$Iflytek Co.,ltd. $TENCENT (00700.HK)$ 、 $BABA-W (09988.HK)$ 、 $XIAOMI-W (01810.HK)$ With leading Technology companies performing exceptionally well, the market has drawn significant attention. Looking ahead, it is believed that similar to the Magnificent Seven of the US stock market, there are opportunities for the emergence of globally competitive Chinese Technology leaders in A-shares and Hong Kong stocks, benefiting from the trends in AI, Semiconductors, and high-end manufacturing. The concept of the Chinese version of 'M7' is gradually taking shape, and the investment certainty of these listed companies is relatively higher.

Under increased policy support, there may still be significant discrepancies in expectations for Real Estate and Consumer Pharmaceuticals which are worth paying attention to. Since the peak in April 2019, Real Estate has experienced its largest decline of 65.5%, with an adjustment period nearing 5 years; the Consumer sector has also seen a nearly 4-year adjustment since February 2021, with the Food & Beverage sector experiencing a maximum decline of 58.8%, and Pharmaceuticals 55.3%. Currently, the valuations in Real Estate, as well as in sectors like Food & Beverage and Pharmaceuticals, and the strength of Fund allocations have reached historical lows. Recently, Consumer and Real Estate have become key focus areas for policy, and under new policy initiatives, the fundamentals of Real Estate and Consumer Pharmaceuticals are expected to show more positive changes, possibly leading to significant discrepancies in expectations.

Consumer Pharmaceuticals: With balance sheet repairs and fiscal policy support, fundamentals in Consumer Pharmaceuticals are expected to improve. The central economic work conference has prioritized boosting consumption and expanding domestic demand, proposing a 'policy to exert and expand' new policies for 2025. According to estimates from Haitong Macro, if the subsidy for 'replacing old with new' in consumer goods is expanded to 300 billion yuan by 2025, it could potentially increase the growth of social retail sales by 0.9-1.2 percentage points. Additionally, promoting income growth and reducing burdens for low and middle-income groups is likely to become a policy focus; with policy support, their income growth is expected to rebound, potentially releasing greater consumption potential.

Real Estate: With policy support, the Real Estate market is expected to "stop declining and stabilize." Since September 24, 2024, numerous real estate policies have been issued, and at the political bureau meeting in September 2024, it was already mentioned to promote the Real Estate market to "stop the decline and stabilize." The central economic work conference in December proposed to "stabilize the property and stock markets." With the implementation of policies combining supply and demand in the Real Estate sector, positive signals have emerged in the current fundamental data: in December 2024, among 70 large and medium-sized cities, first-tier cities saw a month-on-month increase in sales prices for commercial residential properties, while the overall decline in second and third-tier cities narrowed; the year-on-year declines in first, second, and third-tier cities continued to narrow.

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