The three major stock indices all closed lower on June 8th, with most broad-based indices declining and trading volume shrinking across the two exchanges. Specifically, the Shanghai Composite Index fell 1.70% to 3959 points; the ChiNext Index dropped 3.69%; Hong Kong stock indices also retreated, with the Hang Seng Index down 1.64% at the A-share market close. Total trading volume for the two markets shrank to approximately 2.8 trillion yuan.
According to WIND data, among the 31 Shenwan primary industries, all except banking and coal closed lower, with widespread declines among individual stocks. Banking, coal, petrochemicals, and home appliances were among the top performers, with changes of 0.60%, 0.39%, -0.21%, and -0.53% respectively. Conversely, non-ferrous metals, electronics, defense, and new energy sectors performed poorly. Out of over 5,300 stocks in the entire market, 4,587 declined, indicating a poor profit-making effect.
US non-farm payroll data significantly exceeded expectations, heightening anticipation for Federal Reserve interest rate hikes. The US May non-farm payrolls, released on Friday evening, showed an increase of 172,000 jobs, far surpassing the market expectation of 85,000 and marking the highest growth in the past three months. Concurrently, employment figures for March and April were revised upward by a combined 93,000 jobs, resulting in the strongest three-month job growth pace in over two years. Furthermore, the unemployment rate held steady at 4.3%, while average hourly earnings rose 0.3% month-over-month and 3.4% year-over-year, both meeting expectations. Structurally, job growth was concentrated in leisure and hospitality, state and local government, and healthcare, while financial sector employment declined. The increase in leisure and hospitality, potentially linked to the World Cup, saw an average of 14,000 jobs added over the past 12 months, with 70,000 added this month, including 48,000 in food services and drinking places, reflecting the transient impact of the approaching tournament. Following the data release, rate hike expectations intensified, pushing US Treasury yields and the US Dollar Index higher, while US stocks and gold weakened. By Friday's close, the Dow Jones, Nasdaq, and S&P 500 indices fell 1.35%, 4.18%, and 2.64% respectively. The 10-year US Treasury yield rose 5 basis points to 4.52%, the US Dollar Index gained 0.66% to 100.08, and London gold fell 3.25% to $4,328.92 per ounce. Latest expectations show a significant rise in the probability of a Fed rate hike, with markets beginning to price in one hike in the fourth quarter.
We believe that, considering the World Cup's impact on the US economy, factors like tourism demand may have contributed to stronger-than-expected US CPI in May and non-farm payrolls for June-July. Before September, expectations for rate hikes may not ease significantly. Looking further ahead, given high nominal interest rates in the second half of the year and the absence of additional fiscal spending, maintaining the current level of economic vigor seen in Q2 2026 throughout the year may prove challenging. Therefore, despite strong payrolls, with wage growth continuing to slow and inflation touching 4%, real wage growth is likely to turn negative. Consequently, it is not advisable to linearly extrapolate future conditions from the current economic heat; we anticipate that the risk of a US economic slowdown outweighs the upside risk.
Additionally, the market is paying close attention to the upcoming Federal Reserve policy meeting and the pace of rate hikes by the European Central Bank and the Bank of Japan, with tightening concerns further amplified. In the short term, domestic US employment concerns have eased, shifting the focus back to inflation. The risk of rising inflation might lead some Fed officials to believe that maintaining the status quo would cause short-term real interest rates to fall, thus leaning towards tightening within the year. For the new Fed Chair, even if his trimmed-mean inflation approach implies a dovish bias, he is expected to remain cautious at this juncture. We judge that the June Fed meeting will likely maintain its previous hawkish tone and keep rates unchanged, but expectations of premature tightening may be overly pessimistic. Therefore, the earliest potential point for marginally easing market tightening expectations could be the Fed meeting on June 17th. It is worth noting that compared to the Fed's inaction, the pace of rate hikes by the ECB and BOJ is significantly faster, with the market widely anticipating both central banks to implement a 25 basis point hike at their mid-June meetings. Understanding the motivations behind their hikes, we believe they are primarily driven by the asymmetric impact of Middle East conflicts and high oil prices, leading to a divergence in global liquidity. Under pressure from rising inflation and currency depreciation, some countries are adopting "defensive tightening," where their rate hikes are more likely to be "limited hikes + maintaining high rates for an extended period" rather than a full-fledged continuous tightening cycle. In short, market concerns about a rapid global entry into a hiking cycle may be overly pessimistic.
Returning to the perspective on the A-share market, tightening expectations have triggered a short-term correction, but the core essence remains a demand for style rebalancing driven by crowded trades. Before the US non-farm payroll data release on Friday, Japan and South Korea had already shown significant adjustment signs, US Treasury yields had previously breached 4.5%, and rate hike expectations were not suddenly emerging. This indicates that the nature of this market correction is still dominated by trading factors, with changes in macro expectations merely amplifying the volatility. After entering June, as A-share listed companies enter an earnings vacuum period, market sensitivity to macro factors has increased. Coupled with capital flow factors such as large IPOs and sector fund rebalancing, Chinese and US markets have experienced resonant volatility. Referring to the characteristics of the 1999 dot-com bubble and the AI sector correction since 2022, we believe that a technology-led correction driven by trading factors may be digested rapidly within 1-2 weeks. Subsequent medium-term trends will still largely depend on industry trends, and the market is likely to stabilize and recover after finding support.
Looking ahead, policy signals from the June FOMC meeting and the potential siphoning effect from the IPO of a leading US commercial aerospace company may still disturb short-term market sentiment. Additionally, rate hikes by the ECB and BOJ have to some extent triggered global "tightening" concerns. However, looking forward, as investor concerns over overseas "defensive tightening" gradually subside, the A-share market, after experiencing this round of volatility and adjustment, may see a relatively quick arrival of a style rebalancing window. During this transition, the previous extreme polarization pattern may converge. Against the backdrop of a stock game pattern that is difficult to change in the short term, sector rotation is likely to remain high-frequency.
Regarding sector allocation, it is advisable to adopt a balanced approach to navigate market volatility, while continuing to focus on technology industry trends in the medium term and verifying new promising directions in energy and supply chain security. The current market has entered a phase of high-level consolidation. In terms of allocation strategy, we suggest shifting from a one-sided offensive stance to selective structural picks, focusing on capturing structural opportunities during the market consolidation phase and avoiding high-valuation, high-position thematic directions lacking earnings support. On the offensive side, technology growth may still be the medium-term main theme, but short-term focus should be on areas with order backlogs, earnings realization, and industry trend support, such as computing power, semiconductor equipment, and materials. In the context where the technology sector has not yet shown significant signs of froth, high-growth directions still possess some ability to withstand liquidity disturbances. Simultaneously, as energy prices and corporate cost constraints gradually become apparent, energy security-related areas such as computing-power coordination, energy storage, wind power, green power grids, and lithium batteries may emerge as new promising sub-sectors. Innovative drugs could serve as a supplementary allocation with independent industrial logic. On the defensive side, funds rotating from high to low valuations may continue to flow into high-dividend sectors; it is advisable to monitor power, coal, and banking. Meanwhile, non-ferrous metal varieties may present trading opportunities related to expectations of cross-strait navigation, while midstream leaders in chemicals and construction machinery could potentially hedge against domestic demand weakness through overseas market share expansion, reflecting supply chain security advantages.
Risk Disclosure:
The data used in this material is for reference only. The cited views, analyses, and forecasts represent only the analysis and judgment of investment research personnel under specific current market conditions and based on certain assumptions, and do not imply suitability for all future market conditions, nor do they constitute investment advice for readers. Investing involves risks, and caution is required. Before making any investment decisions, please carefully read the fund contract, fund prospectus, fund product key facts statement, and other legal documents of the product, as well as this risk disclosure statement, to fully understand the risk-return characteristics and product features of this fund. Carefully consider all risk factors associated with this fund and, based on your own investment objectives, investment horizon, investment experience, and asset status, fully assess your risk tolerance. On the basis of understanding the product situation and suitability opinions, make rational judgments and prudent investment decisions.
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