In 2023, the core themes affecting major asset classes are economic cycle misalignment, AI revolution, and global capital reallocation. In 2024, Jingtai combined the fundamentals, politics and policies, industrial change, investor behavior, and other information from Morgan Stanley and domestic and foreign news to summarize the main themes/themes worth paying attention to.

01 | Two major investment themes: theme reversal and the wide popularization of AI Morgan Stanley stressed that in 2024, there will be two major themes worthy of investors' attention, namely, theme reversal and the wide popularization of AI: the first theme: theme reversal has combed 70 investment foam in the past 100 years, and carefully examined the performance of the stock market in the first three years of the foam and three years after the foam. The bank found that the logic of the market is very easy to predict. January is the month with the most frequent reversal. Themes with a rise or fall of over 20% in the previous year are particularly prone to reversal. From China's technology and biopharmaceutical stocks in 2019, to electric vehicles in 2021, and to SaaS in 2003 and 2022, all are typical examples. The AI and weight loss medicine sectors, which will see a surge in 2023, may have similar storylines. Main Line 2: Widespread Popularization of AI. The AI market in 2023 is mainly led by technology companies launching proprietary AI models. Da Mo believes that with the improvement of open-source models (especially compared to proprietary models), inference costs will decrease, and AI will further penetrate more regions and industries, affecting all end markets, and application layer companies are expected to benefit from it. In addition, Damo also emphasized that with the assistance of AI, the frequency of major scientific breakthroughs is constantly increasing. Such as nuclear fusion, weather forecasting, materials science, and antibiotic innovation. The bank believes that as the cost of reasoning decreases, this situation will continue in 2024.

02 | Recovery of Renewable Energy Demand With COP28 further clarifying the path to transition from fossil fuels to clean energy, Damo predicts that by 2030, solar and wind power generation will double, reaching 30%, and the overall proportion of renewable energy will reach 45%. The team predicts that solar/wind power generation in 2030 will be 200 basis points higher than the International Energy Agency's basic forecast; The improvement of solar panel efficiency in the United States/Europe and the increase in onshore wind energy installation will bring room for improvement. Overall, as equipment costs decrease, China, India, the United States, and Europe will become key drivers of renewable energy consumption and capacity growth. However, the prosperity of the renewable energy industry remains poor. After the significant global clearance of renewable energy in 2023, the valuation of carbon neutrality related themes has been underestimated relative to the median growth expectations. Although long-term renewable energy projects face a challenging interest rate background and investor concerns about growth/profitability, a sufficiently low valuation will attract more investor attention in 2024. The ESG team believes that companies with high entry barriers and low valuations will be the first to emerge from the poor performance in 2023 in the new year.

03 | CCS (Carbon Capture and Storage) technology is further popularized. Da Mo pointed out that although the deployment of renewable energy has reached record levels, many high carbon emitting countries around the world are not on the track to achieve their established goals. Therefore, the potential market space for CCS (Carbon Capture and Storage) technology that can quickly achieve decarbonization is enormous. CCS technology can use carbon capture technology to separate the carbon dioxide produced by industry and related energy industries, and then transport and store it in isolated places such as the seabed or underground through carbon storage methods. This technology can help high polluting industries such as cement, steel, and chemicals to quickly reduce carbon emissions. According to Damo's calculations, based on an average carbon price of $75 per ton, the potential market size of CCS technology can reach $30 billion by 2030 and $225 billion by 2050. The carbon capture capacity is expected to increase to approximately 400 million tons per year by 2030, and it is expected that investor interest in CCS will increase with the first capture of some projects starting in 2024 and the award of some large-scale projects.

04 | The rise of edge AI and the explosion of application end so-called edge AI refers to the use of edge computing computing

Computing runs artificial intelligence. Edge computing is a computing model that is decentralized, does not rely on cloud computing, and can directly process data and services locally. Its characteristics are real-time access to high bandwidth, low latency, and network information that can be used for various applications. Devices available for edge computing include smart phones, cars, smart home devices, cameras, etc. Compared with cloud computing, edge computing does not need to transmit a large amount of data, does not occupy network loans, has no delay, and consumes much less energy. Da Mo pointed out that as artificial intelligence applications begin to penetrate into daily hardware, we believe that edge artificial intelligence will receive attention as an important part of the AI story. Gartner predicts that by 2025, 50% of enterprise data will be created at the edge, spanning billions of electronic devices. Processing data at the edge brings a series of benefits, such as reducing latency, cost, and protecting privacy. However, edge AI is not a substitute for cloud computing, but a supplement. With the increasing attention and upcoming product releases from enterprises, we believe that 2024 will provide a catalyst for the development of this theme. Since 2023, the overall fundamentals of the defense and aerospace industry have weakened and performed poorly due to fluctuations in orders. However, the military industry has strong planning, and the construction of modern weapons and equipment in China will still be orderly promoted. Short term order fluctuations will not affect the industry's long-term prosperity. Looking ahead to 2024, it is expected that military orders will gradually recover and bring about sector recovery, while various sub sectors of the industry will continue to differentiate, and the high prosperity direction remains the most core investment recommendation. We believe that the sub new stocks that have oversold since 2023 may have better resilience, and at the same time, "new domains and new qualities" are expected to receive more attention. Recommend fields such as missiles, satellite internet, intelligent equipment, and two aircraft. 06 | Policy and Supply and Demand: The 3% deficit rate constraint on fiscal monetary coordination and non silver asset shortage in 2023 has been broken through, indicating that the era of "big finance" may emerge. Balanced finance is shifting towards functional finance, and the relationship between finance and currency is also changing; If monetary and fiscal cooperation is appropriate, it will significantly reduce the impact of supply on the bond market and also help improve the transmission efficiency of monetary policy. The central government's leverage and local risk prevention are the two main lines of fiscal policy in 2024. During the process of converting bank bonds into bonds, the pressure on funds and capital has increased, and non banks are facing a shortage of assets. It is expected that the supply and demand relationship of interest rate bonds will be weaker than in 2023, but the spread of short-term urban investment bonds and credit bonds may still be low; Seizing more allocation opportunities in supply shocks, such as capital bonds and financial bonds, makes overall exploration more difficult; Pay attention to new product opportunities such as TLAC and insurance subordinated bonds; The opportunity cost of the stock market may further decrease. Jingtai Risk Warning: Economic Shifting, Policy Strength, and Financial Redemption Risks; The impact of the US election on the economy, policies, and markets; The pace of interest rate hikes by the Federal Reserve and the uncertainty of the Bank of Japan's YCC adjustment; Geophysical risk.