CITIC SEC suggests the recent pullback in the A-share market is primarily a rebalancing of positions following gains, rather than a reversal of economic fundamentals or industrial trends. Once valuation pressures in high-flying sectors are released, market pricing is expected to gradually return to fundamental logic. From a liquidity perspective, equity ETFs continue to see net inflows, with institutional funds increasingly focusing on quality assets with clear industrial trends and high earnings certainty. Regarding industrial trends, global AI capital expenditure remains in an expansion phase, with the sector's momentum largely unchanged. Attention is rising in non-AI sectors such as finance, innovative pharmaceuticals, new energy, non-ferrous metals, and chemicals, indicating a shift from single-theme driven markets towards more diversified pricing. Looking ahead, as mid-year earnings reports are gradually realized, market trading structures optimize, and incremental funds continue to enter, the medium to long-term trend of the A-share market remains resilient, with a likely return to a pricing logic centered on fundamentals and industrial growth.
Recent Volatility in Global Markets
Heightened expectations for Federal Reserve interest rate hikes and global equity deleveraging have significantly increased volatility in overseas markets recently. Among major global indices last week, the S&P 500 fell 1.6%, the Nikkei 225 declined 6.4%, and the Korea Composite Index dropped 8.8%. Previously high-profile sectors like semiconductors and memory broadly corrected. The Philadelphia Semiconductor Index fell 10.0% last week, with South Korea's SK Hynix down 15.5%, and SanDisk and Micron Technology declining 29.3% and 13.3%, respectively.
Current Adjustment Reflects Position Rebalancing
This round of adjustment is closer to a rebalancing of positions after a rally rather than a sustained contraction in overall market liquidity. From the perspective of funds and trading structures, some previously popular sectors are gradually facing profit-taking pressure after valuation increases and concentrated fund inflows. However, the market is not lacking in support. Net inflows into equity ETFs expanded further this week, reaching a cumulative 203.3 billion yuan, significantly higher than the previous week's 90.55 billion yuan. On the afternoon of July 17th, trading volumes for CSI 300 ETFs, ChiNext ETFs, and STAR 50 ETFs continued to amplify. Furthermore, China Reform Holdings and China Chengtong recently announced simultaneous increases in their holdings of Chinese equity assets, with China Reform having utilized over 50 billion yuan in relending and supporting funds, and China Chengtong accumulating nearly 10 billion yuan in purchases. As the previously overly concentrated trading structures and valuation pressures are gradually released, market pricing is expected to realign with fundamentals.
Core Industrial Trends Remain Intact
The core logic of industrial trends has not fundamentally changed. The global AI industry remains in a phase of continuous investment, with overseas cloud providers maintaining expanding capital expenditures. The upcoming earnings reports and capital expenditure guidance from major North American cloud providers at month-end will be a crucial window to observe the sustainability of AI demand. If related guidance remains robust, it could further alleviate market concerns about AI investment returns and demand inflection points. Meanwhile, China's AI-related industrial chain is still developing, with sectors like communications and electronics showing continued profitability improvement and maintaining high industrial activity. The recent World Artificial Intelligence Conference showcased the latest advancements in domestic large models, smart devices, and humanoid robots, further highlighting the ongoing trend of innovation and development in the AI industry.
Market Fundamentals Becoming More Diversified
Market attention was previously concentrated on the technology sector, with insufficient focus on the earnings improvement and valuation repair in non-AI sectors like finance, innovative pharmaceuticals, new energy, non-ferrous metals, and chemicals. However, as funds disperse from a single theme to multiple directions, some lower-positioned sectors are regaining market attention, providing some counterbalance to the index pressure from the tech sector's adjustment. Yet, the sustainability of rallies in these related sectors still requires further verification based on the realization of mid-year earnings, changes in industry sentiment, and subsequent incremental fund flows.
Short-Term Focus on Consolidation, Long-Term Resilience Endures
In the short term, the focus is on the digestion of high-level positions and the repair of market sentiment. Fundamentally, the trend of listed companies' earnings recovery is gradually emerging, with a higher proportion of positive mid-year earnings pre-announcements compared to the same period last year, indicating a broadening of profitable investment themes. From a liquidity perspective, the trend of widespread public participation in the capital market continues, potentially providing long-term incremental support. After this round of adjustment, market valuations and trading structures have further optimized, suggesting future market performance may rely more heavily on corporate earnings. Overall, this adjustment resembles a rebalancing following a "K-shaped divergence," where quality assets with solid earnings and reasonable valuations are likely to recover first. The A-share market is expected to return to a pricing logic centered on fundamentals and industrial growth.
Key Risk Factors
Risk factors include an escalation of friction between China and the US in technology, trade, and finance; North American CSP guidance falling short of expectations; domestic policy strength or implementation effectiveness being weaker than expected; unexpected tightening of macro liquidity domestically and internationally; and an intensification of geopolitical conflicts.