Shenwan Hongyuan Group Co., Ltd. has released a research report stating that in the short term, unrealized gains in holdings for the communications and electronics sectors have begun to decline from high levels, though some gains remain. If the disturbance of a "second derivative turning negative" reoccurs, caution is needed as the momentum of fund flows could be disrupted, potentially triggering a short-term oversold condition in technology stocks. However, the firm believes that a more thorough short-term adjustment will correspond to the next round of rising market conditions, leading to a more diversified market structure. In this major market cycle, the AI industry trend is the main battlefield, with computing power inflation being the primary source of high elasticity in specific sub-sectors. For diversification, securities firms are the preferred choice. Meanwhile, strategic resources benefit in the short term from easing expectations of Federal Reserve tightening; attention should also be paid to the alpha of export/overseas chains and new consumption. The main views of Shenwan Hongyuan are as follows:
First Point: Meta "Selling Computing Power" Cannot Yet Be Considered "Computing Power Surplus"
Meta's plan to lease out its previous generation computing power while continuing investment in advanced computing power is not yet a definitive signal of "computing power surplus." It is more indicative of resource reallocation by the company to capitalize on the upward industry trend. However, for market narratives, this represents a shift from the previous notion that any investment in computing power guaranteed demand to a scenario where computing power demand is now stratified. This constitutes a minor, localized narrative-level "second derivative turning negative." In the short term, controversial fundamental outlooks combined with unstable microstructure make it easier for pessimistic narratives to be priced in. It is noted that the market performance in May-June showed significant divergence; while fundamental divergence exists objectively, divergence in fund flows is even more pronounced. The fund flow situation can be summarized with "three layers of divergence": 1. After the Fed's tightening expectations intensified, capital flowing back to US stocks siphoned funds from other equity markets. 2. Since mid-January 2026, sector ETFs and active funds in the technology track saw inflows, while broad-based ETFs and traditional heavyweight stocks saw outflows. 3. Since Q2 2026, active funds in the technology track have siphoned funds from sector ETFs. Under such significant fund flow divergence, the market's internal stability is weak, making a short-term "second derivative turning negative" in fund flows likely to occur. This week, increased fundamental disagreements in the AI computing power chain and declines in overseas tech stocks triggered adjustments in the A-share market. Going forward, attention should also be paid to the potential fund diversion effect from the IPO of a leading domestic memory company and the high valuations and high turnover in recently listed segments. It is believed that the "tug-of-war period" for the technology sector will continue from June to July. Non-technology sectors adjusted first in May-June; after the short-term tech adjustment, the index correction phase is nearing its end.
Second Point: Tracking Potential Short-Term Oversold Conditions in Tech
A significant decline in fund trading heat for the technology track may occur around the point where unrealized gains on holdings fall from high levels towards the break-even point. In the short term, unrealized gains for communications and electronics holdings have started to decline from highs but still have some remaining gains. If the disturbance of a "second derivative turning negative" reappears, vigilance is required as the inertia of fund flows could be broken, potentially causing a short-term oversold condition in tech. For the short wave, the possibility of a short-term oversold condition in the technology track needs attention. The pattern of fund subscriptions and redemptions for technology sector funds in relation to unrealized holding gains is discussed: during the phase of rising from low unrealized gains, funds accelerate their inflow into technology sector funds; when unrealized gains have just peaked and started to decline, funds may still show characteristics of contrarian inflow; however, if unrealized gains continue to fall close to the break-even line, concentrated redemptions to avoid principal loss may occur. This week, unrealized gains for electronics and communications holdings declined from highs, but there is still a certain safety margin from the break-even line, corresponding to the short-term market still being in a "tug-of-war period." But if the "second derivative turning negative" disturbance intensifies and unrealized gains decline further, one must be alert to the breaking of fund flow inertia triggering a short-term oversold condition in tech.
Third Point: The Computing Power Inflation Theme Since November 2025
Since its start in November 2025, the exploration of sub-sectors within the computing power inflation theme has become increasingly thorough. Correspondingly, the difficulty for mid-term new technological changes to generate new directions for computing power inflation increases, while directions for computing power deflation become more likely to emerge. If short-term fund flow inertia is broken, the pace of the overseas computing power theme may slow, entering a stage of waiting for new catalysts. For the technology track to challenge previous highs again, it may also depend on new catalysts opening a new phase of the market. Reviewing the AI industry trend market since 2025: after the Spring Festival in 2025, DeepSeek's breakthrough led to a relatively complete diffusion of the A-share AI theme, but the market consolidated after the spring rally. Starting May 2025, the core driver of the AI theme switched to high growth in overseas capital expenditure; this part of the theme entered a high-volatility band from September 2025. The theme restarted in November 2025, with the core driver switching from overseas AI capital expenditure beta to computing power inflation alpha clues. Links in the industrial chain with bottlenecks saw both volume and price increases supporting fundamentals, while valuation center elevation created a double boost. As this theme has played out, the exploration of computing power inflation sub-sectors has become increasingly thorough. A potential mid-cycle "second derivative turning negative" could be: increased difficulty and reduced elasticity for new technological route changes to bring forth new computing power inflation links; instead, new computing power deflation links are more likely to appear (opposite to computing power inflation, where technological changes reduce usage of related links, potentially facing a double hit on performance and valuation). This is a "second derivative turning negative" from the perspective of the density and intensity of stock market investment opportunities. If short-term fund flow inertia is broken and the pace of the overseas computing power inflation theme slows, it may enter a stage of waiting for new mid-wave catalysts. For the technology track direction to challenge previous highs again, it may require the accumulation of catalysts from further progress in industry trends. Even if short-term fund flow inertia is maintained, microstructure instability persists, and the positioning of this computing power inflation mid-wave in its later stages remains unchanged, the market is more likely to extend the "tug-of-war period."
Fourth Point: A More Thorough Short-Term Adjustment Leads to a More Diversified Next Rally
A more thorough short-term adjustment corresponds to the next round of rising market conditions, and the structure capable of rising will also increase, making the market more diversified. For the mid-term, the view remains unchanged that the technology track will lead in this major market cycle, with the AI industry trend still being the main battlefield and computing power inflation being the primary source of high elasticity in specific sub-sectors. For diversification, securities firms are the preferred choice (non-bank financials are the only primary industry with "low PB, high ROE"; key institutional holdings have been sufficiently cleared out; profits are pro-cyclical with the market, with venture capital and overseas expansion providing alpha). In the short term, easing expectations of Fed rate hikes reduce upward resistance for strategic resources. Simultaneously, attention should be paid to mid-term opportunities in the alpha of export/overseas chains and new consumption. Conditions for these two directions to contribute excess returns are: for export/overseas chain alpha, waiting for short-term disturbances from US-Iran conflicts to pass + potential new trade friction boundaries to become clear, reinforcing the recognition of the mid-term fundamental upward trend; for new consumption, waiting for the restart of consumer IPOs and the approval of new consumer fund licenses.
Risk warnings: Overseas economic recession exceeding expectations, domestic economic recovery falling short of expectations.
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