Chen Guo's Investment Strategy
Summary
In our recent reports "Rebalancing After Consensus Trading" and "Revaluing China's Carbon-Based Leaders," we discussed style rebalancing and the revaluation of carbon-based leaders. The market's current evolution of these themes has only just begun.
Both the Chinese and US stock markets exhibited highly divergent structural characteristics in April-May. A key factor was the US-Iran ceasefire talks, which did not lead to the reopening of the Strait of Hormuz. This constrained the demand logic for global cyclical assets. Conversely, due to Anthropic's better-than-expected Annual Recurring Revenue (ARR) growth and its announcement of potential profitability in Q2, US tech giants have revised their AI CAPEX upwards. This has fueled market optimism for the silicon-based economy, particularly its upstream segments. Currently, recent US-Iran talks may facilitate the Strait's reopening, while a price war between OpenAI and Anthropic and Anthropic's inability to remain profitable for the full year could introduce new uncertainties for downstream silicon-based revenue growth. The logic behind market divergence is expected to converge.
Positive changes are emerging in the micro-funding environment of the A-share market, favoring valuation repair for blue-chip heavyweights. Broad-based ETFs saw their first weekly net inflow in months this week, improving funding expectations for index heavyweights and supporting valuation recovery for traditional industry blue-chips. According to Choice data, as of June 13th, within the CSI 300's Shenwan primary industries, aside from previously hot sectors like electronics and communications, industries with significant weightings also include banking, power equipment, non-bank finance, non-ferrous metals, and food & beverage.
US-Iran talks may catalyze a "reopening trade" for cyclical sectors. This week's talks released positive signals, with the market anticipating normalization of the Strait: 1) Oil shipping would shift from "high prices without volume" to "stable volume and prices," potentially releasing restocking demand amid low inventories; 2) Airlines would benefit from lower jet fuel costs, coupled with restored route efficiency and the peak summer travel season, with carriers having high exposure to Middle Eastern routes showing greater elasticity; 3) Refining crack spreads are expected to widen, with operating rates recovering; 4) Cyclical sectors (non-ferrous metals, building materials, machinery) would benefit from rebounding demand and recovery logic.
Global liquidity expectations continue to tighten, posing more headwinds for high-valuation risk assets. The market expects the Bank of Japan to raise rates by 25 basis points to 1.00% at its meeting next week to address imported inflation pressures and yen depreciation stemming from the Middle East situation. Hawkish rate hikes could push Japanese bond yields higher further, narrowing the US-Japan interest rate differential. Risks related to "carry trade unwinding—global long-end rate resonance rising—increased volatility in risk assets" warrant attention. Following persistent upside surprises in US inflation data, subsequent statements from Kevin Warsh and other FOMC members also merit close monitoring.
Comprehensive assessment: From the perspective of fundamentals and overall valuation levels, we still believe the A-share market does not face systemic risk. However, short-term external liquidity conditions may still hold some uncertainty. We advise paying attention to volatility control, avoiding excessively high risk appetite, and favoring continued structural rebalancing.
Key Focus Industries
Securities, insurance, banking, non-ferrous metals, machinery, chemicals, new consumption, internet, coal, new energy, semiconductor equipment, optical communication, etc.
Risk Warnings
Global economic slowdown, commodity price volatility, geopolitical risks.
Peace Talks Expectations Rise, Reopening Trade Poised for Restart
Expectations for peace talks are heating up, and the reopening trade is poised for a restart. This week (June 7th - June 13th), the most notable positive geopolitical signal came from US-Iran relations. According to Polymarket data, market bets on the probability of a permanent peace agreement between the US and Iran before August 31st have risen to 64%, with related prediction contract trading volume exceeding $1.23 million, indicating funds are continuously pricing in expectations of de-escalation. Considering the timeline, no significant negative events interrupted this process this week, instead leaving room for subsequent negotiation windows. If diplomatic progress proceeds smoothly, the likelihood of normal traffic resuming in the Strait of Hormuz will rise correspondingly—cross-validating with the implied Strait reopening probability on Polymarket. If talks materialize and the Strait formally reopens, which sectors stand to benefit, as we previously discussed? 1) Oil shipping would shift from "high prices without volume" to "stable volume and prices," potentially releasing restocking demand amid low inventories; 2) Airlines would benefit from lower jet fuel costs, coupled with restored route efficiency and the peak summer travel season, with carriers having high exposure to Middle Eastern routes showing greater elasticity; 3) Refining crack spreads are expected to widen, with operating rates recovering; 4) Cyclical sectors (non-ferrous metals, building materials, machinery) would be boosted by easing inflationary pressures, Iranian reconstruction, and overseas restocking. Overall, the rising probability of successful talks provides a forward-looking signal; their realization would propel relevant industries from "expectation repair" to "fundamental delivery."
Central Bank Super Week: Watch Rate Hike Signals and US-Japan Yield Spread Narrowing Risks
Regarding the Federal Reserve, comparing CME FedWatch Tool data from May 24th and June 13th, market pricing indicates: the probability of rate hikes has slightly decreased, while the long-term terminal rate is slightly higher than previously expected. Specifically, for the September 2026 meeting, the probability of rates at 3.75%–4.00% dropped from 34.4% to 24.9%, showing a slight cooling in the expected pace of hikes; however, by December 2027, the probability for the very low-rate range (3.00%–3.25%) fell to 0.6%, implying a slightly upward-shifted terminal rate center. Slightly higher long-term rates partly indicate increased market confidence in a soft landing—inflation under control without a severe economic downturn. The market expects the Bank of Japan to raise rates by 25 basis points to 1.00% at its meeting next week, while also considering pausing balance sheet reduction, to counter imported inflation and yen depreciation pressures from the Middle East situation. The key lies in the meeting's tone; hawkish rate hikes could prompt further rises in Japanese bond yields, narrowing the US-Japan interest rate differential. Risks related to "carry trade unwinding—global long-end rate resonance rising—increased volatility in risk assets" are heating up and require attention.
Watch for Signal of Broad-Based ETFs Turning to Net Inflows
A key change occurred in ETF fund flows this week. For the week ending June 12th, total broad-based ETF shares in the market saw a net increase of approximately 3.2 billion units compared to the previous week, ending the trend of continuous net redemptions since late March this year. Funds began flowing back into core broad-based products. According to Choice data, as of June 13th, within the Shenwan primary industries, aside from electronics and communications, industries with high weightings in the CSI 300 are banking, power equipment, non-bank finance, non-ferrous metals, and food & beverage.
Which Sectors to Watch for Rebalancing?
Observing from a crowding perspective, the trading volume proportion and relative closing prices compared to the entire A-share market for non-bank finance and real estate are currently at historically low levels. For non-bank finance, as market activity recovers and liquidity repair expectations rise, the valuation repair for sub-sectors like securities and insurance deserves attention. Machinery equipment and non-ferrous metals possess a logic for recovery. Machinery equipment benefits from replacement cycle and manufacturing recovery expectations, with crowding not yet overheated; non-ferrous metals are expected to be boosted by the normalization trade and domestic growth stabilization efforts.
Risk Warnings
1) Global Economic Slowdown Risk: If growth in major global economies, particularly China and the US, falls short of expectations, it could lead to a contraction in global demand, negatively impacting commodities, stock, and bond markets, especially in consumer, technology, and cyclical sectors.
2) Commodity Price Volatility: Prices of commodities, especially energy and precious metals, may experience sharp fluctuations due to supply-demand changes, policy adjustments, or international conflicts, thereby affecting related industries and investment returns.
3) Geopolitical Risks: Geopolitical events worldwide, especially tensions in the Middle East, Europe, and between the US and other major powers, could trigger market volatility, affect the pricing of risk assets, and further exacerbate global economic uncertainty.
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