The current significant market wave in A-shares, driven by AI, under what conditions might it come to an end? Shenwan Hongyuan's strategy team, in their weekly report dated May 23, provided a framework for judgment by reviewing historical patterns: examining the concluding logic of three past market waves—A-shares in 2015, 2021, and the Nasdaq in 1998—the end of a major market wave typically stems from one of three scenarios: the unsustainable positive cycle of incremental capital, the disproval of the industry trend, or a severe deterioration in the macroeconomic environment. Currently, none of these three conditions have been triggered. The team believes:
"The major market wave has not ended; it is gathering strength for the next phase."
How History Has Ended Major Rallies Shenwan Hongyuan categorizes the factors that historically ended major market waves into three types: First, the unsustainable positive cycle of incremental capital. A typical example is A-shares in 2015. Margin financing balances shifted from accelerating growth to steady increases, marginally reducing market support; stricter regulatory scrutiny of leveraged financing and restrictions on stock market leverage accelerated the emergence of a bull-bear turning point. Second, the disproval of the industry trend. A typical example is A-shares in 2021. Mutual funds were still in a positive cycle, but the boundaries of the new energy industry trend became apparent, with clear mid-term supply-demand pressures. A consensus gradually formed that the "second derivative turned negative," leading to the end of the rally. Third, a significant deterioration in the macroeconomic environment. Examples include the Nasdaq in 1998 and A-shares in 2018. However, this scenario has an important characteristic: when the industry trend continues and the potential for a positive cycle of incremental capital is not yet exhausted (as with A-shares in 2018), macroeconomic shocks result in a full mid-wave adjustment rather than a complete end to the rally—once the macroeconomic environment improves, structural market trends may resume. Comparing to the Present: All Three Clues Are Absent On the capital front, the positive cycle is far from fully playing out. Sector ETFs have been a key marginal source of funds this round, and the room for policy tightening is very limited. More importantly, incremental capital based on the shortage of household investment options—such as insurance, fixed-income plus products, and quantitative funds—has not yet fully entered a positive cycle. The report specifically notes that the ratio of A-share circulating market capitalization to household deposit balances remains at historically low to medium levels, indicating significant room for incremental capital to enter the market. On the industry front, the AI trend continues to exceed expectations. AI large models have established viable cash flow models. The cloud business, a major driver of AI capital expenditure in U.S. stocks, reported better-than-expected first-quarter results. At this stage, AI is "strengthening rather than disrupting existing businesses," and operating cash flow can still cover the increase in capital expenditures. The current mid-term valuation position is only approaching the 2021 highs (with some distance remaining, and 2021 itself did not represent a fully played-out major market wave). The report's logic is clear: if the AI industry trend is disproven, the major market wave could end; but with the industry trend continuing, the pattern of a two-phase upward rally may persist. On the macroeconomic front, disturbances exist but not a trend of deterioration. Short-term disturbances stem from risks in the Middle East chain: reduced navigability in the Strait of Hormuz → inflation expectations → Federal Reserve tightening expectations → rising U.S. bond yields → suppressed risk appetite. However, Shenwan Hongyuan judges that intermittent opening of the Strait of Hormuz is highly likely, and it will not remain closed indefinitely; even if interest rate hikes are used to combat inflation, they would likely be sporadic, as sustained hikes would not aid in optimizing economic governance. Adjustments triggered by macroeconomic disturbances are "more likely to be corrections within a fluctuating consolidation phase, rather than adjustments that disrupt the major upward wave."
Short-Term Reality: Divergence Reaching Extremes The report does not avoid short-term structural contradictions. It mentions two current forms of "capital siphoning": strong sector ETFs siphoning scale from weaker sector ETFs; and active mutual funds focused on single niche segments siphoning scale from broader thematic ETFs. Under this pattern, capital supply and demand "can only support the divergence trend reaching extremes, making it difficult to support an effective overall market breakthrough." Data shows that strong stocks in the electronics sector account for 77%, and 62% on the STAR Market, continuing to spread; while banking, coal, and agriculture sectors are contracting comprehensively, highlighting distinct divergence characteristics. Short-term momentum is concentrated in semiconductor equipment and computing power inflation areas (such as PCBs and electronic fabrics), with the seesaw effect of non-ferrous metals and oil persisting amid Middle East risks. From a mid-term perspective, the report suggests monitoring clues from the adjustment of the global industrial structure following U.S.-Iran conflicts—directions that can enhance China's energy security and supply chain security, increase global market share, and effectively pass on costs overseas. Key areas include the inflection point in new energy sector prosperity, the continued prosperity of the new energy vehicle sector, and the verification of chemical sector prosperity with overseas cost pass-through. Overall, Shenwan Hongyuan's judgment is: the cycle of accumulating赚钱效应 is still ongoing and has reached a qualitative change point; short-term microstructural contradictions are still accumulating, and the positive cycle of incremental capital has not yet begun. Once new catalysts for the industry trend emerge, initiating the positive cycle of incremental capital will create better conditions for upward expansion.
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