China Securities Co., Ltd. has released a strategy report suggesting the A-share market is undergoing a "volatility rebalancing" phase, characterized by a W-shaped bottoming process.
Market Liquidity Shows Short-Term Stabilization
Margin trading funds rapidly exited the market in July, but short-term liquidity has stabilized with regulatory support, providing a foundation for incremental capital inflow. Between April and June 2026, net margin trading inflows exceeded 400 billion yuan, but over 3,000 billion yuan was withdrawn from July onward. Recent trading sessions have shown initial signs of stabilization. However, the allocation of funds has become increasingly concentrated, leaving limited room for internal repositioning.
Despite this, the market is not lacking in fresh capital. From late June to mid-July, over 160 billion yuan flowed into TMT-themed ETFs over four weeks, highlighting strong retail investor enthusiasm. Foreign investors are also reassessing the value of A-shares, with northbound capital inflows reaching approximately 158 billion yuan in the second quarter. This suggests that incremental funds remain a positive catalyst.
External Uncertainties Require Ongoing Monitoring
Geopolitical tensions in the Middle East have pushed Brent crude oil prices back above $90 per barrel, while the 10-year U.S. Treasury yield has risen from 4.4% to around 4.7% since July. Market expectations now point to two potential rate hikes by the Federal Reserve within the year, with the probability of no action at the July meeting dropping to 66%. A reassessment of the Fed's rate path is underway, putting temporary pressure on global risk appetite.
Long-Term AI Industry Logic Remains Intact
The "performance/cost" narrative introduced by Kimi K3 is not simply about cost compression. In the short term, it creates marginal pressure on overseas closed-source frontier models, but in the medium to long term, it fosters competitive diversification and innovation pathways. By reducing per-task costs, it expands usage scope and workflow coverage, accelerating vertical penetration and scaling applications, thereby boosting the overall demand for AI and computing infrastructure.
Google's free cash flow turning negative, coupled with upward revisions to capital expenditure, confirms that the supply-demand mismatch—characterized by strong demand, constrained supply, and high order visibility—will persist. In the near term, upstream hardware and computing power supply remain beneficiaries, while the market will eventually shift from a "CAPEX expansion" phase to one focused on "commercial realization and cash flow validation."
Technology Remains the Core Long-Term Theme, With Structural Rebalancing Underway
The market is expected to continue its "volatility rebalancing" pattern in the short term, with indices likely to maintain a W-shaped bottoming process. From an allocation perspective, AI remains the core long-term theme, while structural rebalancing is being advanced. Investors should maintain strategic patience, waiting for the resolution of external uncertainties—such as overseas deleveraging progress, earnings reports, and new guidance—before increasing risk exposure to the technology theme. Priority should be given to areas with strong earnings and order visibility, such as upstream materials and equipment, and domestic computing power. Simultaneously, structural rebalancing should focus on undervalued sectors with solid fundamentals and significant potential for valuation recovery, steadily optimizing the portfolio layout.
Key sectors to watch include AI (upstream materials, equipment, domestic computing power), midstream manufacturing and export chains (new energy, machinery, shipping), and upstream resources and dividend-yielding defensive stocks.
Risk Factors
Risks include policy implementation falling short of expectations, the potential for escalation in Middle East geopolitical tensions, and greater-than-expected volatility in U.S. stock markets.
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