The current market rally may not have ended yet from a mid-term perspective, according to a research report by Zhongtai Securities. Driven by multiple factors—including the stabilizing role of long-term capital, continued potential for household fund inflows, intensified tech innovation policies, and the upward trend in AI industry development—the A-share market still has room for further upside.
The current phase of the AI sector’s performance roughly corresponds to the period in 2023-2024 when U.S. market funds shifted from hardware to applications. While the hardware infrastructure rally has already played out and equipment/material segments are gaining momentum, the application layer is just beginning. This suggests the AI-driven market trend is far from peaking.
Zhongtai Securities recommends focusing on four key themes for mid-term allocation: 1) Leading Hong Kong-listed tech stocks 2) Vertical applications driven by AI technological breakthroughs 3) Innovative drugs and healthcare AI 4) High-dividend asset allocation, extendable to stable-yield products like fixed-income and quant strategies
Recently, A-share tech stocks have undergone significant corrections, influenced by volatility in U.S. AI stocks and growing overseas discussions about an "AI bubble." From October 29 to November 21, the Nasdaq Index fell by 7.03%, while China’s STAR Composite Index and ChiNext Index dropped more sharply, declining 11.11% and 12.16%, respectively.
Sector-wise, the timing of corrections varied: - Computer and media stocks peaked on September 17 and October 9, respectively, and have since retreated by 9.27% and 11.89%. - Electronics and communications sectors aligned more closely with the Nasdaq’s peak, entering a downtrend after October 29, with declines of 15.14% and 12.66% so far.
The correction in A-share tech was primarily driven by spillover effects from U.S. AI leaders’ pullback, year-end institutional profit-taking, and reduced leveraged trading amid a policy lull. Key factors include: 1) **U.S. AI Influence**: Overvaluation concerns and reduced Fed rate-cut expectations triggered volatility in U.S. AI giants like Nvidia, whose strong earnings failed to sustain market optimism. A-shares, closely tied to global tech valuations, followed the downtrend. 2) **Year-End Defensive Shifts**: Institutions tend to lock in gains and adopt conservative strategies toward year-end, pressuring high-valuation sectors like electronics and communications. 3) **Policy Vacuum**: With fewer imminent policy catalysts, leveraged trading activity has weakened.
Looking ahead, Zhongtai Securities believes the tech rally will resume after short-term adjustments, as a fundamental reversal in the U.S. AI industry is unlikely, leaving room for valuation growth in A-share counterparts. In the U.S., robust earnings growth and large-scale stock buybacks have mitigated institutional selling pressure. While high volatility and selective corrections may occur, a systemic collapse akin to the 2000 dot-com crash remains improbable.
For A-shares, the AI sector’s current phase—transitioning from hardware to applications—indicates the trend is still in its early stages.
**Fund Flows Show Divergence**: - **ETFs**: Net inflows accelerated, particularly on Friday, with CSI 2000, STAR 50, and dividend-focused ETFs leading. CSI 500 and ChiNext ETFs turned net positive, while CSI 300 ETFs reversed early-week outflows. - **Northbound Funds**: Mirroring ETF trends, inflows surged on Friday, marking November’s first significant weekly gain. - **Major Shareholders**: Reduced减持 after four weeks of increases, returning to early-November levels. - **Leveraged Funds**: Margin balances and担保 ratios declined weekly, signaling contraction.
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