The immediate liquidity risk in the market appears to have been resolved. Looking ahead, the market will need to maintain a certain level of activity and trading volume ahead of the listing of ChangXin Memory Technologies (CXMT). Combined with the significant reduction in leveraged funds, the market is poised for a short-term rebound.
Within the technology sector, priority should be given to domestic semiconductor equipment, memory, and computing power. After the CXMT listing, the market may experience a rally, with the STAR 50 Index likely showing the strongest momentum. Outside of technology, sectors worthy of attention include power equipment (driven by overseas demand), non-ferrous metals (copper, gold, with elasticity expanding after oil prices bottom out), and innovative drugs.
1. This Week's Liquidity Repair and Index Rebound
This week, major broad-based indices in the A-share market showed mixed performance, with large-cap blue chips clearly outperforming. The Shanghai Composite Index closed up 1.33%, the Shenzhen Component Index rose 0.49%, and the ChiNext Index gained 1.52%. Small and mid-cap stocks were weak, with the CSI 1000 Index falling 2.40%. By industry, high-dividend resource sectors such as non-ferrous metals, oil & petrochemicals, coal, and banks led the gains, acting as a safe haven for capital. Conversely, building materials, media, and textile & apparel sectors saw the largest declines. The core driver of this adjustment was the risk release following the overly crowded trading in the AI computing power space earlier. The market is currently in a process of position unwinding and style rebalancing.
2. Where the Market and Tech Sector Might Head After the Liquidity Shock
For the current market, whether the AI capital expenditure cycle has peaked is the core point of debate. After a sharp drop last week and a partial recovery this week, core ETFs saw inflows, and major indices stabilized on higher volume. This process is similar to the liquidity de-leveraging seen in early 2024. Looking forward, the liquidity risk has been temporarily removed, and the market is expected to rebound around the time of the CXMT listing. From an industry trend perspective, the current AI trend has not weakened. The core driver of the recent adjustment was market skepticism about the sustainability of AI capital expenditure. The bearish logic seems contradictory: if major companies increase capital expenditure, it dilutes shareholder equity through debt; if they reduce spending, it signals the peak of the AI cycle. However, this logic misses a key point: debt itself is not the problem; whether the investment generates positive returns is. Currently, the revenue growth of the two global AI leaders remains strong. At the same time, AI agents are rapidly expanding from code programming to non-code white-collar work scenarios like office tasks, finance, law, and consulting, providing support for downstream demand. Therefore, there is a fundamental difference between capital expenditure expansion backed by positive returns and unlimited cash burning. The essence of this decline was a liquidity risk caused by the forced liquidation of leveraged funds, not a reversal of the AI industry's fundamentals.
Second, oil price upside is limited due to political constraints from the Trump administration. The conflict between the US and Iran has escalated, pushing Brent crude higher this week, with market concerns about oil hitting $100 or more. However, the Trump administration has a clear vulnerability in this oil price game: the Strategic Petroleum Reserve has been significantly depleted. Facing political constraints from domestic inflation and midterm elections, the administration is likely to push for a de-escalation within a month, suggesting current oil prices are at a short-term peak. Looking ahead, the market may see a new upward move next week with the CXMT listing. Recent large capital inflows into growth and tech indices like the CSI 1000, STAR 50, and ChiNext, along with intensive statements from insurance institutions, indicate that the liquidity risk has been temporarily resolved. The key verification indicator will be whether the small and mid-cap and tech sectors, which fell the most earlier, receive sustained capital support. The market needs to maintain a certain level of activity and trading volume before the CXMT listing. Combined with the significant reduction in leveraged funds, a short-term rebound is expected. It's important to note that quantitative trading and financial regulation in August could still cause volatility, but the probability of the market breaking below 3740 and hitting new lows is low due to the thorough unwinding of leveraged funds this time.
3. Trends in Active Fund Heavy Holdings for Q2 2026
In the second quarter, the concentration of active fund holdings increased significantly. The market value of A-share holdings rose from RMB 2.07 trillion to RMB 2.81 trillion, a sequential increase of 35.25%, while Hong Kong stock holdings declined. The market value share of the top five heavily held industries surged from about 61% in Q1 to 71%. The electronics sector's share jumped from 18% to 39%, and communication from 11% to 15%. Sectors like power equipment and pharmaceutical & biology saw notable declines, resulting in a dual-dominant fund holding pattern of electronics and communication. Excluding price factors, the three most heavily added industries were building materials, electronics, and machinery & equipment. Communication and computers also saw steady increases in allocation, with funds spreading from AI computing power to downstream areas like smart manufacturing and industrial software. Traditional cyclical and consumer sectors such as media, steel, and retail & trade saw significant reductions. The top 20 heavy holdings underwent a dramatic reshuffle. Eight semiconductor companies, including GigaDevice, Sanan Optoelectronics, and Shengyi Technology, entered the list, while traditional leaders like Zijin Mining, Kweichow Moutai, and Midea Group exited, reflecting funds' embrace of the domestic substitution and new productive forces theme. Hong Kong stock holdings were concentrated on semiconductor names like SMIC and Hua Hong Semiconductor, as well as Innovent Biologics, while Tencent and Alibaba were reduced.
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