To The Moon

On August 24, China's A-share market saw its three major indices open lower and continue to decline through the session. By the close, the ChiNext Index had fallen 3.21%, the Shenzhen Component Index dropped 2.13%, and the Shanghai Composite Index slipped 0.59%. Total market turnover across all A-shares reached 2.02 trillion yuan. At the sector level, telecommunications, biopharmaceuticals, and electronics were among the hardest hit.

We attribute today's market performance to the following key factors: First, lingering uncertainty over potential FCC regulatory action is weighing on the AI hardware sector. According to US media reports, the Information Technology Industry Council (ITIC) recently submitted comments to the US Federal Communications Commission (FCC) opposing the inclusion of foreign-made optical modules on a restriction list. However, the market interprets the industry body's public opposition as confirmation that the FCC has already substantively discussed import restrictions on optical modules. Given the significant uncertainty surrounding future policy direction, this has further intensified risk-aversion sentiment among investors.

Second, a massive fundraising effort by a major tech player has sparked market concerns. On August 23, a leading domestic internet company announced its first share placement since its 2019 IPO, planning to issue new shares to non-US persons outside the United States. The offering aims to raise up to HK$80 billion, with net proceeds to be used entirely for investments in full-stack AI capabilities and infrastructure. Amid such heavy capital expenditure, some investors have begun to question the potential returns on these projects, amplifying short-term market worries.

Despite the market turbulence, the gold and non-ferrous metals sectors have shown relative strength. The gold sector is benefiting from multiple converging factors: short-term pressure on the AI supply chain, a weakening US dollar, and growing concerns over offshore dollar creditworthiness. The US Treasury has announced an expansion of its long-term Treasury buyback program, aiming to maintain liquidity in the long-end of the bond market. However, the scale of this buyback is limited and does not address structural issues such as widening fiscal deficits, rising Treasury supply, and higher term premiums. These fiscal interventions are gradually shifting the market's primary trading narrative toward dollar credit concerns, creating a favorable trading environment for gold.

Meanwhile, the coal sector has resumed its upward trajectory, supported by supply-demand dynamics. On the supply side, due to safety inspection policies, the pace of production resumption at Shanxi coal mines has been slower than expected. Domestic coal output fell 10% year-on-year in June and July, with no visible improvement in August. This round of safety-inspection disruptions appears to be more persistent. On the demand side, downstream consumption remains robust, with many mines operating in a state where supply cannot keep up with demand. Coal futures have continued to climb, market sentiment is heating up, and coking coal prices have repeatedly hit new highs for the year. This trend is expected to persist in the near term.

While the market may experience volatility due to capital flows and positioning adjustments, sector rotation and rebalancing are ongoing. However, external shocks are likely to be transient in nature, as domestic policy signals and the core industrial logic remain intact. In terms of positioning, we continue to advocate the "style rebalancing" approach we have emphasized since late June, maintaining an overall elevated allocation. Within the AI hardware theme, we prefer leading companies with strong demand certainty, while non-tech exposure should tilt toward lithium batteries, innovative drugs, and the export supply chain.

Risk Disclosure: The views expressed here are for reference only and are subject to change based on market conditions. They do not constitute investment advice or commitments. Funds carry risks; investors should proceed with caution.