Is the technology market rally over? This is the most pressing question for investors at the moment.
Reviewing historical patterns, whether a tech "bubble burst" is imminent depends on three factors: first, whether the industry's growth trend has truly ended; second, whether liquidity conditions have reached a point where tightening is unavoidable; and third, whether traditional growth sectors are staging a comeback.
If these conditions are not met, we cannot conclude that the tech rally is finished.
The current debate surrounding technology stocks mirrors the focus on U.S.-Iran tensions back in May.
Our view remains unchanged: the global economy is currently undergoing a supply-side transformation. The technology sector is not finished, and geopolitical factors remain a persistent influence.
Overview of Global Asset Performance This Week
This week, global assets broadly displayed characteristics of "receding risk appetite, deleveraging in the AI chain, and a preference for safe-haven and defensive plays."
U.S. stocks ended their rebound, with chip stocks falling into bear market territory. Capital rotated towards value, consumer, and financial stocks. Both A-shares and H-shares saw significant corrections, with technology growth, AI hardware-related sectors, and resource stocks under pressure. Defensive sectors like banking, consumer staples, and coal showed relative resilience.
U.S. Treasury yields edged lower, driven by softer-than-expected inflation data. In commodities, crude oil surged due to geopolitical conflicts, while gold faced pressure and copper saw a mild recovery. In forex, the U.S. dollar retreated from highs, commodity currencies recovered, and the Chinese yuan continued to fluctuate based on dollar movements and risk sentiment. Chinese government bonds traded within a narrow range, with weakness in equities supporting long-term rates.
Key focuses for next week include the ECB policy meeting, global PMI data, and inflation and consumption figures from multiple countries. The core macro trading variables remain: whether oil prices will continue to fuel inflation expectations, whether global growth is slowing, and whether major central banks will pivot back to a more hawkish stance.
Chinese Equity Markets: A- and H-Shares Correct in Tandem
This week's review of Chinese A- and H-shares: The spillover effects of AI deleveraging are intensifying.
A-shares: The market experienced a significant pullback this week, led by declines in technology and growth sectors. The sell-off was broad-based across industries, with electronics, defense, and machinery equipment leading the losses. Defensive sectors like banking, food & beverage, and coal bucked the downtrend.
H-shares: The Hong Kong market adjusted this week as offshore liquidity conditions deteriorated rapidly. Capital shifted from "inflation trades" to "growth momentum trades," leading to systematic underweighting of old-economy resource stocks. However, this rotation found support only in the narrow AI hardware sector. Specifically, AI hardware performed relatively well due to fundamental support, while energy and commodity price declines directly weighed on related equities.
Outlook for Chinese equities: Signals for short-term stabilization still need confirmation, but systemic risks appear generally controllable.
A-shares: After breaching the annual moving average, signs of short-term stabilization are still pending confirmation. Sentiment recovery will take time, but systemic risks are largely under control. The fundamental and industrial trends for key sectors have not fundamentally reversed. Industry-wise, TSMC raising its full-year capital expenditure to $60-64 billion, the acceleration of AI infrastructure build-out, and continued upward revisions for optical module demand all validate the robust AI industry trend. Regarding liquidity, the trading volume on the two exchanges remains above 2.6 trillion yuan, indicating this is not a liquidity-drained bear market environment. If this deleveraging does not trigger systemic risks, the market is likely to establish a temporary bottom within the current range. For allocation, focus on sectors with strong mid-year earnings visibility, particularly three growth themes: first, core upstream AI hardware segments like semiconductor equipment and materials, which have high earnings certainty; second, cyclical products like industrial metals and chemical materials, which benefit from both AI demand and capacity constraints, potentially releasing profit elasticity; third, high-end manufacturing with strong overseas competitiveness, supported by resilient export performance.
H-shares: We believe this rotation has short-term fundamental support (falling U.S. bond yields + domestic policy catalysts). However, Friday's broad-based sell-off warns that the spillover effects of AI deleveraging are amplifying. Subsequent attention should focus on two verification windows: first, the July FOMC meeting, to see if the logic of receding Fed rate hikes strengthens further, providing ongoing support for Hong Kong stocks' valuation denominator; second, the wave of lock-up expirations for Hong Kong-listed internet stocks starting in late July and the Q2 earnings season, monitoring whether internet platform profits show an inflection point and whether the monetization logic for AI applications can be validated.
Chinese Bond Market: Trading in a Narrow Range This Week
This week's bond market review: The bond market traded within a narrow range. The central bank conducted large net injections via open market operations, but the primary intent was to ease funding pressures during the tax period. Money market rates rose compared to last week, leading to weaker performance at the short end, while the ultra-long end performed relatively stronger. This week, the 2-year government bond yield rose 0.35 basis points to 1.26%, the 10-year yield was flat at 1.73%, and the 30-year yield fell 1.15 basis points to 2.24%.
Bond market outlook: Recent weakness in the equity market is providing safe-haven support for bonds. However, with policy expectations unclear ahead of the late-month Politburo meeting, a cautious stance is advisable.
U.S. Stocks: Chip Stocks Enter Bear Market Territory
U.S. stocks review: U.S. stocks ended two consecutive weeks of gains this week, with losses heavily concentrated in the crowded artificial intelligence and semiconductor theme.
The S&P 500 fell 1.6% for the week to 7,458 points. The Nasdaq Composite dropped 2.9% to 25,520 points, and the Nasdaq 100 fell 4.1%. The Dow Jones Industrial Average declined 0.9% to 52,146 points, while the Russell 2000 small-cap index fell only 0.5%, significantly less than the tech-heavy indices. The average implied correlation among S&P 500 components fell to multi-decade lows.
Sector-wise, chip stocks were hit by a double whammy from TSMC's capital expenditure guidance and China's open-source AI models, falling into bear market territory. Broad market indices gave back gains, but market breadth remained healthy, with equal-weighted indices and value stocks providing a buffer. Capital rotated from overvalued AI and chip stocks towards value and consumer heavyweight stocks. Nike and McDonald's rose 4.2% and 3.2% respectively on Thursday. UnitedHealth reported earnings significantly above expectations and raised its full-year guidance. The banking sector saw strong collective performance in Q2 trading and underwriting businesses, supporting financial stocks. Oracle's credit default swap costs hit a record high, as the market began pricing default risk for aggressive AI capital expenditure. Apple, benefiting from "not carrying huge capital expenditure," briefly surpassed Nvidia during the session to become the top U.S. company by market capitalization.
U.S. stocks outlook: Historically, similar sharp momentum rallies are often followed by months of adjustment. Hedge fund positioning, while having declined noticeably, remains relatively high compared to past years. Volatility itself could prompt further position reductions. Four out of five trading days this week saw single-day moves exceeding 2%. Regarding fundamental catalysts, the magnitude of capital expenditure upgrades this earnings season is expected to be moderate. Signals from hyperscale cloud providers regarding revenue and investment returns remain key.
Global Interest Rates: Soft Inflation Outweighs Oil Spike, Rate Hike Bets Delayed
This week's global rates review: U.S. Treasury yields declined despite oil prices rising over 15% for the week, with the pricing focus on CPI and PPI data. For the week, the 2-year yield fell to 4.18% (-3bp), the 10-year yield dropped to 4.54% (-3bp), and the 30-year yield was essentially flat, falling slightly from 5.07% to 5.06%. Traders largely abandoned bets on a rate hike at the July meeting.
Global rates and forex outlook: The soft June inflation data provided a respite from hawkish risks. The June core PCE price index is estimated to have increased around +0.18% month-on-month, but the year-on-year core PCE remains stable above 3%. Further unwinding of rate hike pricing requires sustained evidence of mild inflation.
Commodities: Geopolitical Risks Return
This week's commodities review: The core market logic for commodities shifted abruptly this week from "U.S.-Iran de-escalation + demand pricing" to "geopolitical shock + supply risk premium return."
Renewed clashes between the U.S. and Iran over the weekend clouded the outlook for navigation through the Strait of Hormuz, sending crude oil soaring over 12% to lead commodity gains. Gold faced pressure amid high interest rate expectations. Copper saw a mild recovery against macro headwinds. Domestic ferrous metals traded within a narrow range amid strong expectations and weak demand.
Global commodities outlook: Gold: It may be difficult for gold to break out of its range in the short term. Focus on marginal changes in Fed officials' rhetoric and the July FOMC decision. Copper: Short-term support for copper prices still lies in tight mine supply, domestic pro-growth policies, and energy transition demand. Key variables to watch are the implementation of tariffs and inventory inflection points. Crude oil: The short-term focus remains on whether the U.S.-Iran conflict escalates further. The core variable to observe is the verified actual disruption to Iranian exports.
Foreign Exchange: Oil Rises Again, but Dollar Retreats
Forex review: The foreign exchange market this week generally displayed a pattern of "dollar retreat, non-dollar currencies diverging and recovering." The U.S. Dollar Index fell from above 101 to around 100.76, down 0.20% for the week and extending its July decline to 0.42%. Among G10 currencies, the British pound, Norwegian krone, Canadian dollar, Australian dollar, and New Zealand dollar rose 0.38%, 1.38%, 0.96%, 0.42%, and 1.35% respectively. The euro gained a modest 0.19%, while the Japanese yen fell 0.43%. Notably this week, while oil prices rose again, the forex market did not replay the March trading chain of "oil up – inflation worries – dollar strengthens – non-dollar currencies fall." Instead, commodity currencies recovered noticeably and the dollar retreated from highs. This suggests the current market interprets oil price moves more as a supply disruption and a positive for commodity currencies, rather than re-pricing U.S. inflation and Fed tightening.
Forex outlook: Looking ahead, the U.S. dollar's short-term trading range may hold between 100.4 and 101.0, maintaining a volatile but slightly strong trend. If the dollar fails to reclaim the 101 level, non-dollar currencies may have room for a temporary recovery, with commodity currencies potentially continuing to benefit from higher oil prices and improved risk sentiment. However, if rising oil prices rekindle inflation concerns and push U.S. bond yields higher, the dollar could regain support. For the Chinese yuan, short-term focus is on the USD/CNH pair around 6.77. If the dollar continues to weaken, the yuan may move towards the 6.75–6.77 range; if the dollar rebounds, it could oscillate back around 6.80.
Key Risks to Monitor
Crowded AI trades and deleveraging risk: If capital expenditure returns and monetization fall short of expectations, profit-taking from crowded positions could further amplify volatility.
Uncertainty surrounding Fed policy path: Changes in communication from the new chair and fluctuating market rate hike expectations pose risks. If inflation persistence exceeds expectations, it could push rates and the dollar higher, suppressing valuations for global risk assets.
Geopolitical flare-up risk: The ceasefire and navigation arrangements in the Strait of Hormuz remain fragile. If conflict reignites, tail risks for oil prices and inflation could rise again.
Uncertainty persists regarding the sustainability of China's property and consumption recovery. Weak seasonal demand and high-frequency data may drag on pro-cyclical sector performance.
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