Major Chinese stock indices experienced mixed movements today. The Shanghai Composite Index edged down 0.09% to close at 4,131.53 points, while the Shenzhen Component Index fell 0.20% to finish at 15,530.23 points. The combined trading volume for the two markets was 2.91 trillion yuan, a significant decrease from the previous session. Declining stocks outnumbered gainers overall. Sectors such as memory chips, circuit boards, and high-speed copper interconnects saw renewed strength, while machinery, automotive, and rare earths sectors led the declines. Internationally, a global bond sell-off intensified as markets bet on major central banks tightening monetary policy further, putting pressure on equity markets across the Asia-Pacific region. Looking ahead, after reaching recent highs, the A-share market is undergoing an adjustment. Short-term volatility is expected due to a mix of domestic and external factors. Investors are advised to focus on sectors with strong earnings visibility and high growth momentum.
The Hang Seng A-Share Grid Equipment Index showed strong performance, with the corresponding Grid Equipment ETF (561380) rising 2.21% today. This follows recent policy tailwinds. A State Council executive meeting recently outlined plans to strengthen the construction of new-type power grids and computing power networks. On May 15, State Grid held a collective earnings briefing for its listed subsidiaries, further signaling an acceleration in building the new power system. Driven by supportive policies and robust industrial demand, the power grid equipment sector is entering a new phase of high growth.
The core investment thesis for this sector lies in the anticipated leap in power grid investment during China's 15th Five-Year Plan period. As the energy transition deepens, grid upgrades have become an imperative. Data indicates that State Grid's planned fixed-asset investment for this period is expected to reach 4 trillion yuan, a substantial 40% increase compared to the 14th Five-Year Plan. This investment is accelerating. In Q1 2026, State Grid completed over 129 billion yuan in fixed-asset investment, a year-on-year surge of 37%, directly driving over 250 billion yuan in investment across the upstream and downstream supply chain. Key segments like ultra-high voltage transmission and smart distribution networks are entering a concentrated bidding phase, providing high order visibility for related companies.
Beyond domestic investment, the surge in global AI computing power demand and the overseas expansion of power equipment constitute a second growth driver for the sector. The rapid iteration of large AI models poses unprecedented challenges to stable power supply. According to the latest forecast from Trendforce, the capital expenditure of the world's nine major cloud service providers for 2026 has been significantly revised upward to $830 billion. Morgan Stanley estimates that data centers could face a power supply gap of up to 55GW in the future. The combination of computing power expansion and the need to upgrade aging grids overseas opens a vast market for Chinese companies. For instance, in Q1 2026, China's exports of liquid-immersed transformers reached 12.15 billion yuan, a year-on-year increase of 42.7%. The simultaneous rise in the volume and value of overseas orders further expands the sector's long-term growth potential.
For investors seeking exposure to the new power system, the Grid Equipment ETF (561380) offers an efficient index-based investment tool. This ETF closely tracks the Hang Seng A-Share Grid Equipment Index, with its constituents precisely covering leading companies in high-growth segments like UHV, smart grids, and grid automation. Looking forward, the fundamentals of the power grid equipment industry chain appear solid, supported by multiple tailwinds including increased grid investment, the global energy transition, and the synergy between computing and power. Given the current high-conviction industrial trends, investors may consider the allocation value of this ETF.
The semiconductor sector bucked the broader market trend and rose today. In the memory segment, the global memory chip industry is entering a super-cycle. Recent earnings from leading U.S. memory chip companies consistently beating expectations further validate that the sector is in a new upward cycle. Driven by explosive AI computing demand and storage specification upgrades in end devices, demand for high-bandwidth memory like HBM3E and DDR5 remains robust. Coupled with inventory replenishment in traditional data centers, leading memory manufacturers are operating at full capacity, with supply struggling to meet demand. This tight supply-demand dynamic may persist until 2028. On pricing, Q2 price hikes for memory products have exceeded prior market expectations, and there is potential for further increases in Q3, reinforcing the upward price trend. Sustained firm pricing and significantly improved profitability are boosting the expansion confidence and capital expenditure willingness of memory leaders. Subsequent capacity ramp-ups and investments in advanced processes are expected to accelerate, driving a synchronized upturn in the upstream supply chain, including equipment, materials, and packaging & testing.
Regarding computing power, as Agent penetration continues to increase allocation ratios, CPUs still exhibit strong resilience. With the deepening application of large models in inference scenarios, the collaborative computing between CPUs and GPUs is pushing their ratio towards 1:1, opening a second growth curve for data center CPU businesses and expanding the valuation space for related design companies. For GPUs, global AI capital expenditure continues to rise, reaching approximately $800 billion in 2026 and about $1.13 trillion in 2027, maintaining rapid growth.
On the global macro front, the U.S. 10-year Treasury yield rose to a high of 4.601%, its highest level since May 2025. The U.S. 30-year Treasury yield climbed to a peak of 5.130%, the highest since July 2025. This may exert some pressure on global equity assets. Investor risk appetite is tightening, and sectors with elevated valuations may face adjustment pressure.
Looking ahead, the narratives of memory price hikes and CPU re-rating may continue. However, it's important to note that the sector has seen considerable gains since April, and the current rise in U.S. bond yields poses a headwind for equities, warranting caution against short-term pullback risks. Interested investors may monitor related ETFs such as the STAR Market Chip Design ETF (589260), Semiconductor Equipment ETF (159516), Chip ETF (512760), STAR Market Chip ETF (589100), and Integrated Circuit ETF (159546).
The Communication ETF (515880) rose 1.13% today. The underlying industrial logic is that computing power expansion is creating incremental demand for optical interconnects. The market size for optical modules is expected to double in 2026/2027 and maintain high double-digit growth in 2028/2029, supported by strong earnings momentum. Currently, 800G optical modules are in a mature volume shipment phase, while 1.6T products are entering large-scale delivery starting Q2 2026, driven by demand from platforms like NVIDIA's GB300/Blackwell Ultra.
Regarding capital expenditure, recent earnings calls from North American companies have reinforced confidence in spending. In the medium to long term, this capital expenditure underpins the growth narrative. Combined AI-related capital expenditure forecasts for Microsoft, Google, Meta, and Amazon for 2026 have been revised upward again, with guidance indicating sustained growth into 2027, further solidifying order visibility for upstream suppliers.
Looking forward, the sector's earnings momentum remains strong. Although short-term gains have been significant, the communication sector rally since April has been primarily driven by earnings improvements and upward revisions to future earnings expectations. Market valuations have been approached with relative caution, suggesting a healthier structure. Nonetheless, vigilance is advised regarding potential pressure from a recent downturn in overall equity market risk appetite. The Communication ETF (515880) covers "optical modules + copper interconnects + servers + optical fiber." Interested investors may consider monitoring it and adopting strategies like dollar-cost averaging for potentially better experience.
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