Liu Yuan, Chief Equity Investment Officer of Hui Quan Fund and Portfolio Manager of several funds, offers his perspective on the recent market dynamics. With 11 years in finance and 5 years of investment management experience, he focuses on technological innovation, including AI, smart devices, and robotics, employing a strategy that balances growth, quality, and valuation.
Market Dynamics in June and July
The month of June concluded with an exceptionally divergent performance in the A-share market. The STAR 50 and ChiNext indices repeatedly hit new highs, significantly outperforming the Shanghai Composite and the CSI 300. Technology sub-sectors such as semiconductor equipment, materials, advanced packaging, optical modules, and memory chips were the dominant themes throughout the month, exhibiting pronounced capital concentration.
Entering July, the market rhythm shifted abruptly. Influenced by pessimistic rumors surrounding computing power, both the STAR 50 and ChiNext indices experienced significant single-day corrections, followed by a low-volume rebound that helped stabilize sentiment. Since the start of the month, previously strong sectors like memory chips, semiconductor materials and equipment, and optical modules have generally seen pullbacks.
Drivers Behind June's Performance
The strength in the STAR Market and ChiNext board is underpinned by clear industrial logic.
Globally, demand for AI computing power continues to surge explosively. The global server market is in a phase of rapid growth, with AI servers showing particularly outstanding expansion. AI-related capital expenditure has become a core driver for semiconductor capacity expansion.
Domestically, policy catalysts have been implemented intensively. At the Lujiazui Forum on June 17th, the China Securities Regulatory Commission announced the expansion of the STAR Market's "Fifth Set of Standards" to include the AI large model sector, supporting the listing of more hard-tech companies in areas like quantum technology, bio-manufacturing, and embodied AI. On the same day, the Shanghai Stock Exchange issued review guidelines for AI large model companies applying these standards, opening direct financing channels for high-quality, yet unprofitable, AI enterprises. The continued release of such institutional benefits provides long-term structural support for the dual-innovation sectors.
Interpreting July's Increased Volatility
The sharp adjustment at the beginning of July has sparked market concerns. This is viewed more as a phase of digestion triggered by crowded trading and external rumors, rather than a fundamental reversal of the industrial trend. From a fundamental perspective, the underlying direction of the AI hardware industry chain has not changed. The market is primarily experiencing a normal release of volatility within a context of high valuations and high concentration.
Regarding overseas liquidity, U.S. non-farm payroll data for June fell far short of expectations, significantly cooling expectations for further interest rate hikes. While the July 14th CPI data remains a key variable, the overall external liquidity pressure on technology and growth sectors is marginally easing.
Outlook for the Second Half of the Year
Short-term volatility does not alter long-term trends. Driven by the dual forces of AI computing power demand and the acceleration of domestic substitution, segments such as the AI hardware industry chain, semiconductor equipment, materials, and advanced packaging remain areas of relatively high certainty.
Naturally, the balance between valuation and volatility requires ongoing monitoring. The substantial rise in the dual-innovation sectors during the first half occurred alongside negative returns for the majority of individual stocks. This indicates the market is fundamentally experiencing a structural rally, not a broad-based bull market. Within the overarching themes of AI industry trends and domestic substitution, companies possessing core technological barriers and sustainable growth capabilities continue to be high-quality assets worthy of focused attention. We will also continue to track key variables such as the U.S. CPI data on July 14th, the policy tone set by China's Politburo meeting at the end of July, and the interim earnings reports of major companies to dynamically assess changes in the market environment.
The allure of technology investing lies in its constant evolution, which is also its greatest challenge. The extreme gains in June and the sharp correction in early July are both normal manifestations of the same industrial trend at different market stages. We will remain grounded in industrial trends and corporate fundamentals, seeking structural opportunities amidst the volatility.
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