This week saw gains across the three major indices, with the Shanghai Composite Index rising 1.46%, the Shenzhen Component Index climbing 7.13%, the ChiNext Index surging 11.02%, and the STAR 50 Index jumping 14.93%. What lies ahead for the market? Here is a summary of institutional views.
Guangfa Securities: Extreme Valuation Divergence is Not a Prerequisite for a Bear Market
The current dispersion in valuations and price performance between AI vs. non-AI sectors, and tech industries vs. traditional industries, has reached historical highs. Does this inevitably lead to valuation convergence, or even a market downturn? First, objective data shows that the current degree of sectoral valuation divergence, measured by the standard deviation or the range of historical PB percentiles across sectors, is nearing historical extremes. Historically, there have been four instances of severe valuation divergence converging through a broad bear market: late 2010-2011, the second half of 2015, 2018, and the second half of 2021-2023. There have also been two instances of severe divergence converging through a broad bull market: the second half of 2006-2007 and 2014 to the first half of 2015. Crucially, extreme valuation divergence is not a necessary condition for a bear market. (1) During bull markets supported by industrial trends, high valuation dispersion can persist for a long time. For example, after dispersion reached 95% in July 2020, it remained elevated for 20 months. (2) In such bull markets, the average period from the peak of valuation dispersion to the market peak is 19 months: 2006-2007 (May 2006 to September 2007, 17 months), 2013-2015 (July 2013 to May 2015, 22 months), and 2020-2021 (July 2020 to December 2021, 18 months).
CICC: Crowding is Not a Reason to be Bearish; It Can Signal Risk but Also Strengthen Trends
The current market's "awkwardness" lies in the fact that tech is too crowded, yet other sectors are not appealing. A June Bank of America survey showed 80% of global investors believe long positions in semiconductors are crowded. However, crowding alone is not a reason to be bearish. It can pose risks, but it can also signify a strengthening trend, necessitating a distinction between "good crowding" and "bad crowding." Similarly, the applicability of crowding varies among investors; one must distinguish between "odds" and "probability." For instance, high-probability, low-odds assets theoretically warrant using leverage to amplify returns, while the opportunity cost for low-probability, high-odds assets is too great. Therefore, the choice of direction is limited, and the industrial trend persists, but one must be mindful of liquidity disruptions. Absolute returns can be expressed through positioning, while relative returns increasingly involve "focusing the circle." Conversely, low-crowding assets do not necessarily offer higher returns simply because they are not crowded.
Shenwan Hongyuan: Risk Downgrade, Market Continues on Inertial Path
With the easing of US-Iran tensions, the Federal Reserve's hawkish stance is unlikely to be extrapolated disorderly. The risk associated with the first Fed meeting under the new chair has been downgraded, leaving the market's original inertia intact. The marginal pricing of tech-themed funds and the concentration of profit effects in a few tech tracks continue. Barring new developments, the market is likely to continue along its inertial path. Despite the emergence of a trend towards easing in US-Iran tensions, the Fed's June 18th meeting outcome was still perceived as hawkish. However, we believe the risk associated with the new chair's first meeting has been downgraded. The previous combination of "unclear US-Iran conflict boundaries + a hawkish Fed" could have led to disorderly extrapolation of rate hike expectations. Now, with a trend towards easing in the conflict, the market will both take note of "a possible single rate hike within 2026" and be willing to believe the Fed's dot plot guidance for "another rate cut in 2027." The inability to extrapolate Fed rate hike expectations further has not disrupted the market's original inertia, and A-shares continue to follow the market characteristics seen since May. The current phase of the rally is characterized by intensifying divergence, with profit effects concentrating in a few directions. Overall, however, the general profit effect has contracted to a low level, with downward momentum retreating from highs and upward momentum rebounding from lows, leaving room for oversold rebounds. The short-term market has returned to its original inertial path. We reiterate that the AI industrial trend is the main battleground in this major wave, and the double boost from earnings and valuations in the computing power inflation sub-sector remains the primary source of investment opportunities. Medium-term, upward space for the major wave has opened, and a more diversified structure is also a likely direction. Non-bank financials, new consumption, export chain alpha, and strategic resources are also important components of the medium-term major wave uptrend. The short-term market has returned to its original inertial path, and subsequent attention should be paid to capital siphoning effects from major IPOs. Medium-term, we remain optimistic about AI's trend opportunities, which remain the main battleground for the major wave. The double boost in the computing power inflation segment remains a key source of high-elasticity investment opportunities. Focus on optical communications, PCBs, MLCCs, memory, energy storage, gas turbines, and computing-power synergy.
Everbright Securities: Easing US-Iran Tensions May Help the Market Regain Momentum
Supported by fundamentals and industrial trends, coupled with an overall easing in the US-Iran situation, the market is expected to fluctuate upwards. The overall market direction is still likely to be upward. On one hand, fundamentals remain the most solid underlying support, with prices being the main variable. The trend suggests that the Q2 PPI average will be significantly higher than in Q1, which should further drive up listed companies' profits in Q2. On the other hand, the AI industrial trend is still burgeoning, and with no significant fundamental disturbances, stock prices still have room to rise. Additionally, the recent significant easing in US-Iran tensions, if it does not see a clear reversal, could lead to a sustained recovery in risk appetite across global capital markets. In terms of allocation, focus on three high-growth themes represented by hard tech. Medium to long-term, high-growth directions remain the core of allocation, but we believe this is not limited to the tech sector. Beyond tech, fundamentals in the export chain and resource sectors are expected to continue improving, warranting close attention. For hard tech, focus on electronics, communications, and defense industries. For the export chain, focus on electrical equipment, machinery, and light industrial manufacturing. For upstream resources, focus on non-ferrous metals, coal, petrochemicals, and basic chemicals. In terms of hot spots, sectors like optical communications performed relatively well this week. We believe geopolitical risk concerns have not completely subsided, and trends like energy transition and increased AI investment continue, keeping the narrative for related sectors intact. Investors can continue to focus on investment opportunities in sectors like optical communications and electrical equipment.
Zheshang Securities: Rebalancing Not Achieved, Style More Extreme; Favor Inaction and Holding Positions to Observe
With the ChiNext and STAR 50 indices hitting new highs amid internal and external positive factors, while deep-value styles corrected sharply, the "rebalancing" of trading styles attempted over the past few weeks has failed. The market has returned to the tech-dominated pattern seen before late May. Looking ahead, both indices are back above their 20-day moving averages and in an uptrend again, but both show a "developing" daily MACD bearish divergence. There is still upward momentum, but attention is needed on whether this divergence can be resolved. In contrast, non-innovation indices are weaker, still in the 'B' segment of the previous decline's 'A-BC' structure. Given the current extreme style, if they cannot be "pulled" higher by the innovation indices and market styles fail to "rebalance," a subsequent pullback to previous lows to form a "golden right foot" pattern cannot be ruled out. Regarding allocation, based on the judgment that "market rebalancing has not been achieved, innovation indices are at new highs but with divergence," we suggest: Existing medium-term positions can be held. When the Shanghai Composite Index pulls back to test previous lows, forming a "golden right foot," allocation can be appropriately increased. Sector-wise, the innovation indices remain the market's focal point and should still be held as the main line, but attention should be paid to whether their divergence is resolved. Additionally, some oversold rebounding non-ferrous metal varieties can be watched.
Soochow Securities: Clues to Profitability in Interim Reports, Focus on Three Major Areas
As macro disturbances decrease, A-shares will once again price based on growth momentum. From the external environment, US-Iran conflict is nearing a resolution, with geopolitical risk premiums continuing to fall. Simultaneously, the Fed's end-of-quarter meeting has concluded, significantly reducing monetary policy uncertainty, thus lowering macro disturbances. For A-shares, July will see the intensive disclosure window for interim earnings forecasts, where growth will be the core pricing factor. A-share earnings forecast disclosure rules naturally have a "high-growth" screening property. Main board listed companies in Shanghai and Shenzhen must disclose earnings forecasts by July 15th if they expect any of the following for the first half: net profit to be negative, a turnaround to profitability, or a year-on-year change in net profit exceeding 50% (increase or decrease). The ChiNext, STAR Board, and Beijing Stock Exchange do not mandate interim forecasts, leaving it to company discretion. This rule means companies able to release positive earnings signals during the forecast period often have high growth and may achieve excess returns. The main clues for 2026 interim report growth are concentrated in three areas: the AI hardware industry chain, upstream cyclical commodities, and midstream manufacturing with export advantages. Based on analyst consensus net profit forecasts, since the disclosure of Q1 2026 reports, sectors with upward revisions to 2026 forecasts include electronics, petrochemicals, non-ferrous metals, and basic chemicals. Sectors with high expected growth for 2026 include commercial retail, electrical equipment, and defense. The market believes two factors could impact midstream manufacturing profits: exchange rate fluctuations causing forex losses eroding profits, and imported inflation from rising upstream raw material prices squeezing profit margins. However, the negative impact of both factors is marginally weakening, and the profit resilience of midstream manufacturing may exceed market expectations.
Oriental Securities: Remains Bullish on Manufacturing, Watch for Cyclical Recovery
With expectations of easing geopolitical disturbances, the market may shift from over-concentration on certain directions towards seeking diversified opportunities. Short-term focus can be on manufacturing directions related to AI data centers like electrical equipment, cyclical commodities with expected recovery in demand like oil shipping, and dividend styles like banks where interest margins may be at an inflection point, as they may see recovery opportunities.
Zhongtai Securities: Structural Tech Growth Rally Expected to Continue
The structural rally in tech growth is expected to continue. Sectors like AI computing power and semiconductors have earnings delivery support (with the interim report window approaching), but short-term positioning is extremely concentrated, potentially leading to high volatility and internal divergence. After this week's sharp decline, the fundamentals of dividend-paying sectors have not deteriorated. If tech experiences a temporary pause after the holiday, low-valuation sectors may see sentiment-driven recovery opportunities, but a trend reversal still awaits signals of incremental fund inflows.
Western Securities: A-Shares See Valuation Expansion, Electronics Sector Leads Gains
This week, A-shares overall saw valuation expansion, with the electronics sector leading gains. The Lujiazui Financial Forum's call to "actively embrace the new round of technological revolution and industrial transformation" boosted sentiment in the tech sector, leading "hard tech" industries like electronics to outperform. From a valuation perspective, the current PE (TTM) and PB (LF) of the electronics sector are at historical 99.5% and 100% percentile levels, respectively, indicating historically high valuations. Subsequent price action will rely more on earnings-driven growth. A comprehensive comparison of "odds" (forward PE) and "probability" (2026-2027 consensus net profit compound growth rate) shows that sectors like light industrial manufacturing, non-ferrous metals, basic chemicals, agriculture, forestry, animal husbandry & fishery, electrical equipment, and building materials currently combine low valuations with high expected earnings growth.
Hualong Securities: Investment and Financing Structure Continuously Optimizing, Capital Market Aids Industrial Upgrade
The economy has shifted from high-speed growth to high-quality development, and the investment and financing structure is changing alongside industrial upgrading. Emerging industries like technological innovation, advanced manufacturing, and green/low-carbon are flourishing, driving a steady increase in the proportion of direct financing. Capital is actively embracing the new round of technological revolution and industrial transformation. The accelerated translation of new technologies into productivity gains, business model innovation, and industrial applications, coupled with the long-term impact of innovation outcomes on economic growth and income distribution, will profoundly influence the direction of global capital allocation. The market can sustainably focus on the fields of technology and advanced manufacturing, as well as growth-oriented innovative and entrepreneurial enterprises.
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