Haitong International's Chief Economist, Zhang Yidong, has expressed his latest research views, stating that following the sharp declines last week and on Monday, and a brief respite on Tuesday, he remains highly vigilant regarding the "Summer Cold Wind." He maintains a cautious and bearish outlook for global stock markets in June and July, emphasizing that the impact of the "gray rhino" has not yet passed. He believes there is insufficient time and space for market adjustment. Therefore, he recommends that investment portfolios fully account for short-term risk tolerance and continues to advise against overly aggressive operations or using leverage to attempt to buy the dip.
In fact, since the release of the "Summer Cold Wind" report on May 6th, I have consistently warned of risks in June and July, highlighting the "gray rhino" and three potential "black swans." The view is that the summer market will be volatile with an N-shaped trajectory: a rally in May, declines in June and July, followed by a potential turnaround. Key inflection points to watch in June and July regarding the pace of events are as follows:
• The US CPI data release at 8:30 PM Beijing time on June 10th will determine the pace of interest rate increases. If the May CPI is ≥3.9%, the rise in the 10-year US Treasury yield could significantly exceed expectations, leading to a notable correction and valuation compression in the global tech bull market.
• The FIFA World Cup in the US, Canada, and Mexico is scheduled from June 11 to July 19, 2026.
• The Federal Reserve's FOMC meeting on June 16-17, featuring the interest rate decision and dot plot. A speech by Kevin Warsh is scheduled for June 18th Beijing time.
The pace and intensity of upward disturbances in the 10-year US Treasury yield, the anchor for global asset pricing, will determine the severity of the "Summer Cold Wind."
• A break above 4.5%: Could trigger a phased correction in tech stocks.
• 4.7%–5.0%: Could represent a terminal peak, pushing the market adjustment into a short-term panic phase.
Particularly, a two-hour live broadcast was conducted on the afternoon of June 3rd, sounding the alarm on overseas risks. A complete PDF version of the broadcast summary is available by contacting sales at Guotai Haitong / Haitong International.
Back in early May, we foresaw the risks for June and July. The underlying logic and the market's condition at that time were strikingly similar to early 2011, if not more pronounced.
That year marked my first top ranking in the 12-time New Fortune Best Analyst awards. I authored the report "Dunkirk Retreat," systematically turning bearish at a time when nearly all buy-side and sell-side participants were bullish, believing a "new cycle" had begun.
The scene then was one where those with common sense saw the "gray rhino" starting to charge, while the "this time is different" camp turned a blind eye, immersed in grand narratives.
Now, history is repeating with remarkably similar rhymes. The common thread is issues arising in liquidity conditions.
We anticipate that the 10-year US Treasury yield is highly likely to experience an unexpected surge in June and July. Historical evidence shows that even in super-long bull markets, one must respect the medium-term impact of liquidity shocks.
The first classic stock market crash-style shock was in October 1987. That year, long-term US bond yields rose steadily from 7% at the start of the year. The market, buoyed by the policy dividends of Reaganomics and supply-side economics, widely believed "this time is different," with expectations of massive productivity release and favorable external conditions, making it completely immune to inflation risks and high interest rates. However, "the reckoning comes, it's just a matter of time." When US bond yields broke through the 10% threshold, a global stock market crash erupted as expected. On October 19, 1987, the first global stock market crash of the program trading era occurred, with the Dow Jones plunging 22% and the S&P 500 falling 20% in a single day, leading to an extreme panic sell-off.
The second reference period is 1998, featuring the Asian financial crisis combined with the Russian bond crisis and the collapse of Long-Term Capital Management. Global capital flooded into US Treasuries for safety, causing yields to fall passively while risk assets contracted simultaneously. Markets in Southeast Asia, Japan, and South Korea plummeted, and US internet stocks generally saw corrections of 30% to 50% from August to October that year.
Historical market behavior proves that neither "price" nor "volume" can shield even a super bull market from the impact of significant liquidity shifts.
There is long-term optimism for AI as an epoch-making technological revolution. However, one should not overextend long-term industrial logic in the short term. A human weakness is excessive herd behavior. Even with correct long-term industrial logic, short-term excessive chasing of highs, combined with leveraged trading, will inevitably trigger significant correction risks.
Taking a longer view, the difference from 2011 is that this time marks a brand new cycle—the great era of AI, an AI-driven structural Juglar cycle. I judge that this cycle has just entered its second half, the phase of explosive application development.
From a medium to long-term perspective, this year is not a repeat of 2011. It may more closely resemble 1998, which occurred in the middle of the internet bull market. After the severe decline from August to October that year, the market rallied once again.
When the market rises again this autumn, it won't be a simple rotation from high to low valuations in the traditional sense. Instead, it will involve a diffusion of the AI investment thesis. Beyond the original bottlenecks in AI infrastructure like optics and semiconductors, opportunities will spread to new changes and applications of AI in more sectors. Furthermore, the scarcity and cyclical upswing of hardcore assets in more traditional industries will be rediscovered and revalued in the AI era, such as in energy technology, scarce resources, and leading hardcore companies expanding globally. Therefore, during the adjustment period in June and July, it is advisable to conduct extensive research on the Chinese hardcore assets we have been advocating for this year, to build up strength and prepare for the autumn market opportunities.
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