Huatai Securities: A-share adjustment phase may be nearing its end, recommend gradually increasing the flexibility of the portfolio.

Huatai Securities research report stated that last week, A-shares fell on reduced volume, with significant high and low switching driven mainly by decreased risk appetite. In terms of overall volume, external macro risks have been preliminarily priced in, with financing funds cooling down, ETF net outflows narrowing, and institutional inflows from both domestic and foreign sources against the trend. In terms of structure, sub-directions with significant pressures such as unrealized profits, crowded trades, and performance verification are gradually being preliminarily priced in. Huatai Securities believes that the adjustment phase may be approaching its end, and with the slightly positive calendar effect of February A-shares, it is suggested to gradually increase the elasticity of the portfolio. In terms of allocation, it is recommended to select sub-directions in sectors with a turnaround or improving trend, with relatively high and valuation-to-price ratios, focusing on the lithium battery industry, communication equipment, semiconductors, some building materials, and chemicals. For low- sectors, attention should be paid to agriculture. In the medium term, it is advised to overweight the upstream and midstream of the power sector, insurance, and the aircraft engine industry chain.