CITIC SEC suggests that after a market sentiment cooldown, the technology, cyclical, financial, and consumer sectors each have their own driving logic and pace.
For technology, the domestic chain is watching the listing of ChangXin, while the North American chain is focused on Anthropic's Annual Recurring Revenue (ARR).
For cyclical stocks, the situation is characterized by weak supply and demand and intense upstream-downstream bargaining, with a resolution potentially hinging on a US-Iran ceasefire and the reopening of the Strait of Hormuz.
For the financial sector, the key turning point is the progress of large capital divestments, with selling pressure potentially easing as indices weaken.
For consumption, a CPI-driven rally is likely to lag behind a PPI-driven one, and the PPI trade has currently stalled.
The AI sector has its own operational rhythm and logic. While non-AI sectors might be experiencing capital outflows, their true catalyst is not merely a rotation from high to low valuations but the entry of new buyers following a shift in macro narratives and market environment.
The current major challenge for the market is the growing uncertainty around the short-term reopening of the Strait of Hormuz, which is fueling inflation and tightening expectations.
However, many non-AI stocks have recently performed noticeably weaker domestically compared to their overseas counterparts, suggesting the domestic market has already priced in negative expectations ahead of time.
The first Federal Reserve meeting under the new chair, Vash, could mark an inflection point for pessimism within the current negative narrative.
We believe the reopening of the Strait will represent a moment of "reshuffling the deck" and serve as a critical turning point for the non-AI sector.
Technology: Domestic Chain Watches ChangXin, North American Chain Watches Anthropic's ARR
The domestic AI industrial chain has entered a high-valuation "deep water zone," where its scarcity premium might be broken by the listing of ChangXin Storage, triggering a re-evaluation of value within the sector.
Within the domestic computing power chain, based on forward P/E ratios for 2026, the GPU sector is at 182x, advanced packaging and processes at 115x, and edge detection equipment at 259x. In contrast, ChangXin's P/E is likely to be much lower, and its investment thesis is essentially a spillover from the North American chain (memory price increases).
From this perspective, the listing of ChangXin is highly likely to draw capital away from the domestic chain, representing a shift from the domestic to the North American chain.
The core catalyst for the current North American chain rally is the explosion of Agents and the commercial validation by Anthropic (referred to as A Corp), which has temporarily alleviated concerns about the lack of ROI from AI investments.
A Corp's ARR surged from $90 billion at the end of 2025 to $470 billion by mid-May this year, with month-over-month growth accelerating since March, now maintaining over 50% monthly growth.
More crucially, A Corp's explosive growth at the start of the year sparked the narrative of "Agents devouring the entire software market," leading to a sharp drop in software and SaaS stocks.
Under this narrative, the initial ROI of AI capital expenditure is important, partly because it takes a share of the existing software market.
However, in May, North American software stocks recorded historic monthly gains, as the market seemed to recognize the competitive moats of vertical software companies again, which conflicts with the earlier narrative.
Additionally, the market is seeing more B2B enterprises moving from a simple "Token arms race" to a "ROI actuarial" approach, seriously examining the relationship between Token costs and real revenue growth.
Despite lingering concerns, as long as A Corp's ARR growth does not slow, the foundation supporting the overseas chain rally remains.
On June 2nd, A Corp officially announced it had confidentially filed an S-1 registration statement with the U.S. SEC. We may not see a significant slowdown in A Corp's ARR before its official listing (which aligns with the interests of all stakeholders), and before that, the North American chain may stage another advance following this adjustment.
Cyclicals: Weak Supply and Demand, Upstream-Downstream Standoff, Resolution Relies on Ceasefire and Strait Reopening
The PMI finished goods-raw materials spread in May turned from -1.8 in April to 0.7, indicating a reversal where some downstream finished goods began to accumulate while raw materials started destocking.
This reflects both weak terminal demand and reduced willingness to purchase high-priced raw materials. Signs of upstream-downstream bargaining have increased noticeably: weak downstream demand leads to waiting for the Strait of Hormuz to reopen and oil prices to fall before purchasing and ramping up production; high upstream costs and low operating rates mean producers are unwilling to cut prices even with finished goods inventory build-up, opting instead to further reduce operating rates.
It is foreseeable that under these conditions, production activity will further decline, and May's economic data may still look weak.
Of course, such cost-driven divergence is often a short-cycle phenomenon that gradually converges as crude oil price levels stabilize.
Only when the Strait reopens can supply and demand be replenished simultaneously, making price signals more convincing and, more importantly, clarifying the Federal Reserve's monetary policy guidance to dispel market fears of forced monetary tightening.
Many potential buyers for commodities and stocks may also be waiting for this moment.
Financials: Key is the Progress of Large Capital Divestments, Selling Pressure May Ease as Indices Weaken
The process of large capital divestments that previously weighed on the financial sector is largely nearing its end.
Based on mutual fund annual reports for 2025 and Q1 2026 reports, we estimate that Central Huijin's holdings in major A-share broad-based ETFs decreased from approximately 1.49 trillion yuan at the end of 2025 to about 300 billion yuan by the end of Q1 2026, a reduction of about 1.18 trillion yuan in market value.
According to daily disclosed ETF unit data, we calculated that from April 9th to May 27th, the basket of ETFs still held by Huijin in Q1 2026 saw cumulative net redemptions of 374 billion yuan (this does not necessarily represent Huijin's redemptions).
The net redemption amounts for various ETFs are roughly equivalent to our estimated remaining size of Central Huijin's holdings in Q1 2026.
Recently, we observed that as indices weakened, ETF redemption pressure has decreased significantly. Since May 28th, key Shanghai 50 ETFs and CSI 300 ETFs have seen cumulative net redemptions of only 2.3 billion yuan.
Based on the available data analysis, we believe the capital flow pressure on the financial sector may improve significantly from late June to July, which will benefit the recovery of both absolute and relative returns for the sector.
From a valuation perspective, the attractiveness of the non-bank financial sector under the PB-ROE framework (ROE percentile 76.9%, PB percentile 6.1%) has surpassed levels before the "9/24 rally" and is approaching those of October 2022.
Consumption: PPI Trade Not Yet Complete, CPI Trade Likely to Lag Behind PPI Trade
Currently, the slowdown in consumption growth momentum is a global phenomenon. Overseas, it may be due to the impact of large-scale fiscal subsidy rollbacks during 2020-2021, while domestically, it is mainly affected by the dual impact of this year's subsidy phase-out and a high base effect.
This round of consumption rally will be difficult to drive by "volume" alone; it is more likely to be propelled by differentiation, product categories, or a general rise in prices.
This year, PPI has surged year-on-year while CPI transmission has lagged. Macro-level profit distribution naturally tends to favor upstream raw materials, energy companies, and midstream industrial manufacturing with pricing power.
The PPI recovery trade centered on industrial goods has not yet officially begun (in fact, the rally that started early this year was disrupted by the Middle East war, high oil prices, and tightening expectations), let alone driving the downstream CPI chain upward.
China's business cycle-driven transmission of prosperity typically follows a "B2B -> Government -> Consumer" chain. Strategically, it is entirely feasible to wait for PPI recovery to drive industrial enterprise profit expansion and improve government fiscal conditions before switching to the CPI recovery logic.
For the Market, Assumptions of Short-Term Strait Reopening Are Shaken, Inflation and Tightening Expectations Intensify
Compared to early May (when AXIOS reported that the US and Iran had reached a one-page agreement), market confidence in a swift US-Iran agreement and Strait reopening has clearly wavered at this stage.
Two changes are notable. First, Iran's stance on lifting the blockade, sanctions, and uranium enrichment is far tougher than expected. Second, the tolerance of both the US and Iran for the Strait closure exceeds market imagination.
While Iran's economy is nearly collapsing under the blockade, its high 85% food self-sufficiency rate allows it to maintain internal social stability even in a wartime state.
The US, despite facing inflation pressure, has seen its petrochemical industry benefit significantly, even becoming one of the most important industries driving the US economy this year.
In extreme scenarios, the Trump administration could theoretically use executive orders to ban crude oil and refined product exports to suppress domestic prices. Having secured the interests of agricultural states and traditional heavy industrial southern states, Trump's core support base remains solid.
The probability of Trump securing both houses in the midterm elections was never high; holding the Senate would already be a significant victory. From this perspective, the market seems to have overestimated the constraints the midterms would place on Trump under the current macro conditions.
Under this narrative, the Strait blockade could very well persist for another 1-2 months or longer, fueling market expectations for inflation, monetary tightening, and demand recession, with a more severe impact on non-US economies.
However, a strong stock market seems to be Trump's current main source of confidence. A sharp drop in US stocks and a breakout in long-term interest rates through key levels could be factors prompting him to accelerate progress on a US-Iran ceasefire and Strait reopening.
Many Non-AI Stocks Have Recently Underperformed Overseas Counterparts Domestically, Pricing in Negative Expectations Early
The global divergence between AI and non-AI stocks has indeed intensified, and inflation and demand recession expectations exist globally.
However, since April, for non-AI stocks, A-shares have generally underperformed relative to their overseas-listed peers. Even for dual-listed A-H shares, Hong Kong-listed shares have performed noticeably better than their A-share counterparts.
This is purely a matter of confidence and capital preference, not liquidity. The domestic market is clearly trading the negative macro narrative more cautiously and ahead of overseas markets.
Since May, for representative leading companies in some non-AI sectors, US-listed companies have averaged about 10 percentage points of outperformance over their A-share counterparts.
For some representative comparable stocks, such as CATL-H vs. CATL-A, First Solar vs. LONGi Green Energy, Eli Lilly vs. Hengrui Medicine, Freeport-McMoRan vs. China Molybdenum, the outperformance in May alone reached 25.4, 75.2, 34.7, and 18.6 percentage points, respectively.
Even for sectors that are clearly affected by monetary tightening expectations in the narrative, US-listed stocks have significantly outperformed their A-share peers.
Taking copper as an example, Freeport's production this year is clearly under pressure with a lagging restart, while Chinese copper producers are gaining market share, and with copper prices near historical highs, A-share miners should theoretically have the advantage. Yet, Freeport rose +20.7% in May, while China Molybdenum gained only +2.1% and Zijin Mining fell -8.9%.
The same story repeated for rare earths (MP Materials +37% vs. China Northern Rare Earth +4%) and gold (Newmont +1.1% vs. Shandong Gold -29%).
Of course, we can always find multiple reasons after the fact to argue why these non-AI A-shares have recently underperformed their overseas peers, but the undeniable fact is that A-shares have clearly priced in all possible negative narratives upfront, while US-listed peers only began to decline from their highs as of Friday.
From this perspective, when the negative narrative reverses, these non-AI A-share stocks may rebound earlier and with potentially greater upside.
Strait of Hormuz Reopening is a Moment to "Reshuffle the Deck" and a Critical Turning Point for Non-AI Sectors
The reopening of the Strait is the next most important variable affecting economic activity, monetary policy expectations, and liquidity expectations. It can change the current singular "AI-only" attention narrative, bringing diversified factors to the market, which can be seen as "reshuffling the deck."
Currently, both the US and Iran seem to have sufficient tolerance for the closure. However, for Trump, as US stocks continue to adjust, tightening expectations intensify, and long-term bond rates break through key levels, the urgency to advance the first-phase agreement and reopen the Strait of Hormuz is increasing.
The AI rally itself also needs a breather, especially as the listing of ChangXin Storage could cause capital rotation that might siphon funds from existing high-valuation tech stocks. This will help the recovery of some non-AI sectors.
In terms of allocation strategy, we maintain our recommendation for an AI + Energy/Chemicals structure. Currently, it is important to recognize the value emerging from the decline in new energy, chemicals, non-ferrous metals, and power equipment, while increasing allocation to undervalued brokerages and insurance.
For specific broad cyclical commodities experiencing price increases, cyclical growth products like the AI data center chain and lithium battery chain still have sustained momentum. We recommend focusing on the tightest supply-demand segments, mainly tin, tantalum, glass substrates, power devices, diesel generator sets, gas turbines, carbon fiber, and cables.
For traditional cyclical commodities, we recommend focusing on those undergoing real systemic capacity elimination or with absolute supply constraints, such as polyester, spandex, phosphorus chemicals, MDI, dyes, glyphosate, rubber, and refrigerants.
Risk Factors
Intensified friction between China and the US in technology, trade, and finance; domestic policy intensity, implementation effects, or economic recovery falling short of expectations; unexpected tightening of macro liquidity domestically and overseas; further escalation of regional conflicts such as Russia-Ukraine and the Middle East; slower-than-expected digestion of China's real estate inventory.
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