Looking ahead to the future of the A-share market.
Market Analysis
Domestically, core CPI has shown a decline. Specifically, the month-on-month core CPI for June was -0.1%, lower than the historical average for the same period, while the year-on-year figure fell to 1.0%, marking a decline for two consecutive months. Reviewing the period from January to June this year, the month-on-month core CPI has mostly been flat or below the historical average. Looking ahead to the second half of the year, we anticipate that the pattern of weak domestic demand will be difficult to fundamentally reverse, and it is highly likely that the month-on-month core CPI will continue to underperform seasonal trends. Given that domestic core CPI performed relatively strongly in the second half of last year, this suggests that the year-on-year core CPI in the second half of this year may continue to fall below 1% and approach zero again. Historical experience indicates that central bank interest rate cuts often occur during phases when the year-on-year core CPI is flat or declining. We believe that the decline in core CPI since May has, in fact, opened a policy window for potential rate cuts.
Internationally, escalation and negotiation are proceeding in parallel in the short term. Recently, the United States revoked a general license authorizing the sale of Iranian oil, with related winding-down transactions permitted until 00:00 Eastern Time on July 17. In response, international oil prices rose. Iran has not yet responded to this. According to U.S. officials, preliminary indications suggest "Iran fired on three commercial vessels in the Strait of Hormuz in recent days," a behavior deemed "completely unacceptable" that will incur corresponding consequences. U.S. officials also stated that despite the escalation, U.S. negotiators "are still working in good faith to reach a final agreement with Iran."
Investment Strategy
Looking ahead to the future market: 1) AI investment has been included in inflation risk discussions for the first time. In the short term, continued attention should be paid to marginal changes in expectations for the Federal Reserve's monetary policy, with the upcoming U.S. CPI data serving as a key validation point. 2) July 15 is the mandatory disclosure deadline for interim performance forecasts of A-share listed companies. The market's core focus of contention will shift towards the validation of fundamentals. 3) The IPO of a leading storage manufacturer is approaching. Attention should be paid to the subscription date and the listing date. The market may exhibit demand for liquidating funds to subscribe for new shares, while there could also be some liquidity siphon effects.
The economy is entering a new cycle, and we remain optimistic about the market in the mid-term. As July enters the earnings validation period, portfolios may consider maintaining a balanced style: 1) Long-term optimism for the AI sector, with diversified allocation to leaders in optical modules, PCBs, servers, and gas turbines, while reducing exposure to high-valuation second and third-tier stocks, and patiently waiting for entry points. 2) Against the backdrop of a structural economic recovery and the manufacturing mid-to-upstream sectors entering a new cycle first, new energy and engineering machinery are industries that can subsequently benefit from the recovery of the manufacturing supply chain. 3) Additionally, low-valuation factors such as insurance and securities, along with a small allocation to dividend stocks, can be considered to reduce portfolio volatility.
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