Last week, the main indices of the A-share market collectively closed higher, diverging from the trend in the Hong Kong market. Looking at the primary Shenwan industries, electronics, communications, and building materials performed relatively well, while coal, banking, and petroleum & petrochemicals showed relatively modest performance.
Macroeconomic Analysis: Fed Holds Rates but Adopts a More Hawkish Stance
Domestically, China's total retail sales of consumer goods in May decreased by 0.6% year-on-year, with a month-on-month growth rate of -0.38%. The cumulative completed investment in fixed assets from January to May fell by 4.1% year-on-year, with the May figure alone down 12.5% year-on-year. Overall, both fixed asset investment and retail sales growth are under pressure, while investment in high-end manufacturing and export-oriented manufacturing is forming an independent growth trajectory. The AI electronics supply chain and equipment manufacturing supported by equipment renewal policies are bright spots in production. Manufacturing investment is primarily supported by high-end and export-oriented sectors. Pressure on domestic demand awaits policy support, but the resilience of external demand and new growth drivers may reduce the overall urgency for policy intervention, thereby extending the policy observation period.
Within finance and capital markets, the importance of structural monetary policy tools is rising to support the development of high-quality hard-tech enterprises. Last week, the 2026 Lujiazui Forum officially opened. The Governor of the People's Bank of China announced a narrowing of the interest rate corridor from 70 basis points to 50 basis points, marking a substantive step in price-based regulation. The use of aggregate tools such as reserve requirement ratio cuts and interest rate reductions will become more restrained, while the significance of structural monetary policy tools continues to increase. The Chairman of the China Securities Regulatory Commission emphasized actively embracing the new round of technological revolution and industrial transformation, continuously deepening reforms of the innovation and entrepreneurship sectors to better serve growth-oriented innovative enterprises. The scope of the fifth set of listing standards will be expanded to include the artificial intelligence field, actively supporting the listing of high-quality large AI model companies.
Overseas, at its June policy meeting, the Federal Reserve decided to maintain the target range for the federal funds rate at 3.50% to 3.75%. In this statement, all hints of rate cuts and forward policy guidance were completely removed, with strengthened language on economic resilience and determination to combat inflation. This suggests the Fed's stance may be shifting towards a more "hawkish" tilt. Concurrently, Federal Reserve Chair Wash clearly signaled future reforms to the Fed's operational framework.
Due to the hawkish bias indicated by the dot plot, market expectations for Fed rate hikes have strengthened, leading to increased short-term liquidity pressures. Considering Wash's previous remarks on AI disinflation, the AI-neutral interest rate decline theory, and trimmed-mean PCE, the medium-to-long-term direction may still point towards Wash's advocacy for eventual rate cuts.
Investment Strategy: Focus on Technology, Manufacturing, and Traditional Recovery Sectors
As uncertain factors gradually materialize, the current market may be entering a window for strategic allocation. Reasons include:
First, a decline in uncertainty: The peak period for the maximum sequential acceleration in US inflation and tightening expectations may have already passed. With the de-escalation of conflict in the Middle East and improvements in shipping, inflation expectations are expected to be revised downward. Meanwhile, the Fed's decisions on rate hikes and cuts have been implemented, largely aligning with expectations. Second, an upward revision of growth expectations: Strong Chinese export data for May not only addressed market skepticism but also suggests potential improvement in the A-share interim reports. This reflects substantial global AI capital expenditure and energy transition demand, as well as supply chain shortages. Third, resonance from incremental market entry: The decline in risk-free returns is creating sustained wealth management demand and stronger support for the Chinese market. Furthermore, the reduction in announced share reductions since June, along with accelerated private fund filings and public fund approvals, is expected to form substantial incremental market entry capacity after the Dragon Boat Festival.
Regarding investment direction, the outlook is positive for the technology and manufacturing main themes, while traditional recovery sectors are also expected to see improvement.
1) Emerging Technology: AI investment from both China and the US, capacity shortages, and accelerated technological iteration continue. Neither inventory-to-sales ratios nor return on invested capital show inflection points, and valuations of core leading companies are not excessive. Focus areas may include integrated circuits, communication equipment, high-end equipment, and minor metals.
2) Competitive Manufacturing: Global AI investment and the energy transition are providing new historical growth opportunities for the globalization of Chinese enterprises. Sectors to watch include power equipment and new energy, as well as construction machinery.
3) Traditional Recovery: Sectors with improving microstructures and prominent valuation advantages, such as securities firms and banks, are viewed favorably.
Comments