A-shares "HALO" phenomenon: not as you think

Core Viewpoint: The current popular HALO trading is essentially a terminal thinking valuation based on AI technological creative destruction. We believe that the global AI sector is currently in a stage of competition and differentiation, and the paradigm impact of AI technology on the economy and society remains in the “co-evolution” golden era (referencing Carlotta Perez’s Technological Revolutions and Financial Capital). At this stage, adopting a terminal thinking valuation may cause asset values to decouple from fundamentals, replacing cash flow discounting with sentiment and storytelling. The so-called “HALO” trading has already hit a new high in A-shares, but a more pragmatic and rational interpretation behind this is not driven by AI technological creative destruction, but by the impact of rising prices. This is due to the stabilization and rebound of PPI, which constrains the differentiation of tech and pro-cyclical sectors, allowing current price-increasing stocks to gain more excess returns. This indicates that by 2026, a “rebalancing” is necessary; continuing the 2025 “one-sided tilt toward technology” approach is inappropriate, and portfolio management plays a more prominent role. Additionally, since the PPI stabilization and rebound are mainly driven by global price resource commodities influenced by geopolitical factors and a weaker US dollar, lacking sustained support from domestic and international economic cycle resonance, their prices tend to be volatile after reaching high levels. It is difficult for pro-cyclical sectors to gain overwhelming advantage over technology, so the “dance of the old and new” will be the most important structural theme. We repeatedly emphasize that the core of the current dance of old and new is the four pillars: resource commodities (non-ferrous metals), cyclical chemicals, AI applications and power equipment, and overseas machinery. The key to success lies in mid-term grasp of the “four rebalancings.”

Structurally, we repeatedly emphasize that the key to A-shares allocation in 2026 is the “dance of old and new.” Mastering this means focusing on the “Four Pillars” in the short term, with success depending on the mid-term “four rebalancings.”

During the year-end rally, A-shares exhibited an “Eight Immortals crossing the sea” pattern, with sector rotation and broad-based gains occurring rapidly and with high investment difficulty; after late January, we believe this “Eight Immortals” scenario is unsustainable and will shift to the “Four Pillars,” where representative stocks around resource commodities, cyclical chemicals, AI technology, and overseas machinery will have more sustained investment value. The “Four Pillars” refer to resource commodities (non-ferrous metals), cyclical chemicals, AI applications within AI technology and power grid equipment, and overseas engineering machinery and specialized equipment, forming the “dance of old and new” allocation feature.

Meanwhile, looking toward 2026, we consistently emphasize that the “four rebalancings” are underway. The most important rebalancing: in 2026, AI new technologies should be complemented, but also significantly increase allocations to pro-cyclical sectors (manufacturing, cyclical commodities), the “old stuff.”

It is important to recognize that, under narrow technological definitions, TMT (computers, media, electronics, communications) sectors account for nearly 40% of institutional holdings in A-shares; under broader definitions, the “pan-tech” (including AI and related manufacturing) positions have already exceeded 50%. The stabilization and rebound of PPI has constrained the differentiation between tech and pro-cyclicals, allowing current price-increasing stocks to enjoy more excess returns. This underscores the need for “rebalancing” toward 2026; continuing the 2025 “one-sided tilt toward technology” is inappropriate.

Furthermore, some significant marginal changes will influence this rebalancing across the other three areas:

1. Internal rebalancing within technology: the essence of “new” is “AI technology moving downstream.” According to the four-stage pricing model of tech industry investment, the sequence is: 1) Giants (ChatGPT, Nvidia, Microsoft, etc.) → 2) Infrastructure investment (computing power) → 3) Key links in the supply chain (AI chips) → 4) Supply-demand gaps at the application level (storage, power, energy storage, copper are upstream supply-demand gaps; robotics, intelligent driving, AI ecosystem software are downstream supply-demand gaps; components and PCBs are unavoidable). By 2026, the focus will gradually shift to the fourth stage, the supply-demand gap at the application level.

2. Internal rebalancing of overseas expansion: one aspect of “old” is “export and overseas move toward mid-to-upstream.” Traditional industries are increasingly benefiting from overseas operations, with profits stabilizing and growing, extending from mid-to-lower manufacturing to mid-to-upper manufacturing sectors (engineering machinery, wind power, chemicals, building materials, industrial metals).

3. Internal rebalancing of resource commodities: the second essence of “old” is the reversion of resource commodities to their commodity attributes. In 2026, resource commodity pricing should not assume a weak US dollar throughout the year; there is a possibility that the dollar may not be weak. Emphasizing the return of commodity attributes, with a decline in financial attributes, suggests that resource commodities driven by supply and demand fundamentals—such as industrial metals, energy metals, and chemicals—are more worth sustained optimism (financial attributes include precious metals like gold and silver in non-ferrous metals; commodity attributes include industrial/energy metals and chemicals).

Source: Guotou Securities Lin Rongxiong Team

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