Recent surges in the US dollar index and Treasury yields have triggered a global equity market correction, with the AI sector leading the decline. The catalyst was the stronger-than-expected US non-farm payrolls data for May, which forced markets to seriously consider the probability of further Federal Reserve rate hikes. Furthermore, the current high global positioning in equity assets and extreme concentration in technology stocks have increased market fragility. Looking ahead, this is likely just a liquidity shock rather than a bursting of the AI bubble. While rate hikes could disrupt the AI sector primarily through higher financing costs, they are not the sole factor. In the short term, if market risk appetite experiences periodic disturbances, margin financing could turn to net outflows, potentially causing a temporary pause in the concentrated tech rally and increasing market volatility over the next one to two weeks. From a medium-term perspective, it is not yet time for a shift in market style or leadership. As the market gradually enters the mid-year earnings reporting window in late June, technology sectors with strong earnings visibility and the highest growth momentum are expected to maintain their outperformance. The main views are outlined below.
The A-share market weakened with volatility this week, primarily due to the following reasons: (1) Structurally, the market lacked incremental capital inflows, while the AI hardware supply chain exhibited high trading concentration, leading to concentrated profit-taking. (2) Regarding timing, with the semi-annual performance review for institutional funds approaching, funds that had previously drifted from their mandates faced rebalancing pressure, resulting in concentrated outflows from the technology sector. (3) On the macro front, the 30-year US Treasury yield once again broke above 5%, and expectations for rate hikes by the European Central Bank and the Bank of Japan intensified. This led to a contraction in global equity market risk appetite, a rise in safe-haven sentiment, and a reduction in equity allocations.
The May manufacturing PMI showed a sequential decline, while memory chip prices continued to rise. Sectors showing improved momentum this week mainly included: 1) Coal, where supply constraints and improved demand expectations ahead of the summer peak led to price increases. 2) Construction, where the May construction PMI recovered sequentially, weekly commercial housing transaction volume turned positive year-on-year, and the cement price index rose. 3) TMT (Technology, Media, Telecom), which maintained strong momentum with continued increases in memory chip prices and an expanded three-month rolling year-on-year growth rate for North American PCB orders in April. Subsequent focus should be on sectors with high or improving momentum, such as coal, building materials, agrochemicals, semiconductors, and communication equipment.
Margin financing saw net inflows, while ETF subscriptions were net positive, but new fund issuance declined. Margin financing recorded a net inflow of 8.76 billion yuan over the first four trading days. Newly established equity-oriented public funds raised 10.72 billion units, a decrease of 17.52 billion units from the previous period. ETFs saw net subscriptions, corresponding to a net outflow of 16.05 billion yuan. Margin financing funds were net buyers of communication, electronics, and coal stocks. ETFs in the healthcare sector saw significant subscriptions, while information technology ETFs experienced substantial redemptions.
Net减持 by major shareholders decreased in scale, while announced减持 plans increased.
Multiple manufacturers launched significant products at COMPUTEX 2024. Held in Taipei from June 2nd to 5th with the core theme "AI Together," the event gathered over 1,500 global exhibitors across more than 6,000 booths, highlighting the accelerating trend of the global tech center of gravity shifting from cloud-based large language models to edge devices and physical AI. Key highlights included: NVIDIA's further upgrades to its AI infrastructure, alongside the release of multiple Agent Toolkits, edge AI, and physical AI products; Intel's advancement of Xeon 6+, Diamond Rapids, and Crescent Island AI GPUs, extending computing power to handheld devices and edge AI; and Qualcomm's reinforcement of the Windows on Arm ecosystem with Snapdragon C and Snapdragon X2 Elite, expanding coverage from entry-level laptops to AI mini PCs.
Overall A-share valuation levels declined this week compared to the previous week. The PE(TTM) of the Wind All-A Index stood at 18.7, down 0.2 from last week, placing it at the 81.5th percentile of historical valuation levels. Valuations for most indices declined this week. Coal, machinery & equipment, and communication saw the largest valuation increases, while building materials, power equipment, and healthcare & pharmaceuticals experienced the most significant valuation declines.
Risk Warning: Economic data may fall short of expectations, policy interpretations may be incomplete, and overseas policies may tighten more than anticipated.
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