A well-known economist has shared a concise assessment of the current market, summarized in eight words: "The space has arrived, but the time has not."

In terms of price movement, the main decline in July has already been completed, with the adjustment reaching a bottom zone. However, from a timing perspective, the aftermath of the "summer chill" continues. It is not advisable to chase highs in August; instead, investors should patiently wait for contrarian opportunities. Hong Kong stocks currently offer good value, and AI applications are expected to be the main theme of the market's second half.

These were the core views shared by well-known economist Zhang Yidong during a recent media interview. The key takeaways from his speech are as follows:

Navigating the market's next phase

While the major shocks from gray rhinos and black swans were largely completed in July, their lingering effects will still suppress the pace of an autumn rally. This is not a time to "party hard right after leaving the emergency room." August is not suitable for chasing highs; it is a time for a strategic bullish outlook combined with tactical searching for new narratives.

The second half of a bull market cannot be played by simply trading old themes with old logic. Capital is smart and will seek out areas of positive surprise. For the second half of the year, whether in A-shares, Hong Kong stocks, or overseas markets, the new narrative is singular: AI applications—the empowerment of various industries by artificial intelligence.

The timing for entering the Hong Kong stock market has arrived. It currently offers good value and is suitable for value investors. During August, while overseas gray rhinos and black swans may still cause disturbances, investors can steadily and patiently take contrarian positions. Do not chase highs, and do not fear missing out; the market won't move that fast.

August is precisely the time to position for the autumn rally. The nature of this autumn rally is not a major B-wave rebound in a bear market, but rather the beginning of the second half of a bull market.

Looking further ahead, the AI market rally in 2028 is highly likely to face a "catastrophe." Even if it doesn't end the bull market, it will certainly trigger a major crisis.

The "summer chill" may have a lingering tail in time, but the bottom is already in on a price basis

The "summer chill" predicted in May, suggesting a correction in June and July, has materialized. The adjustment in July was largely driven by micro-liquidity issues—the reflexivity effect from overcrowded and overleveraged trades. The epicenter of the storm was the South Korean stock market, but its impact has spread to other tech-heavy indices globally. The key to confirming the bottom is that the damage from this reflexivity shock has been sufficient. Crowdedness in both US and Chinese tech sectors has improved significantly from late June. The least crowded markets bottomed first, such as the Hang Seng Index, followed by the Shanghai Composite and the CSI 300, and then the Nasdaq.

Chasing highs is not recommended in August; focus on strategic bullishness and finding new narratives

The main shocks have already been completed in July. It is not advisable to chase highs in August. The focus should be on strategic bullishness while searching for new investment narratives. The previous logic of simply betting on endlessly rising upstream hardware prices is outdated. The market needs to find a new narrative to sustain the tech bull market. The key trigger for the "N-shaped" third wave is the collapse of the old logic and the establishment of a new one. The nature of this rally, if it happens, is a new phase of the bull market, not a mere bear market rebound.

The new narrative for the bull market's second half: AI applications

The new logic must be AI applications. Every tech wave's second half is about applications, not just infrastructure. The real test of a tech wave is the diffusion of applications. With the cost of using AI and agents decreasing and efficiency improving significantly, the door to AI applications is wide open. The new narrative will shift from hardware to applications. The new main theme will be AI+ empowering various industries. The "gray rhino" of rising US long-term bond yields and the "black swan" of Korean de-leveraging may still have lingering effects, which will suppress the initial stages of the autumn rally. However, these disturbances will present better buying opportunities for quality AI assets.

Different AI investment logics in China and the US

The US AI development is capital-driven, focusing on for-profit, closed-source models. The Chinese AI development is people-oriented, serving as a new productive force. Investment logic should not be directly compared. In the US, AI applications, especially in the consumer sector, are likely to monetize earlier. In China, AI applications in the business-to-business (B2B) sector, such as government, finance, and healthcare, are more likely to see commercial breakthroughs first. The investment focus should be on areas where AI is being integrated into actual work processes.

A major AI market crisis likely in 2028

A significant AI market crisis is likely in 2028. This is because a backlash against AI is brewing, particularly in the US, where the benefits of AI are accruing primarily to capital, exacerbating social inequality. The potential for a political and regulatory crackdown on AI by that time poses a major risk. By 2028, "carbon-based life" may seek to impose rules on "silicon-based life."

The time to invest in Hong Kong stocks has arrived

The answer is yes. The timing for investing in Hong Kong stocks has arrived. The three major headwinds that pressured the market in the second quarter—funding diversion to other tech hardware markets, IPO and lock-up expiry pressures, and domestic institutional investors shifting focus to the A-share market—are all reversing. Hong Kong stocks offer good value now, suitable for value investors. During August, while overseas disturbances may persist, investors can steadily and patiently take contrarian positions. However, as an offshore market, Hong Kong stocks will still be influenced by US bond and stock market volatility in the near term. The new logic for the second half is AI applications, which offer more choices in Hong Kong, particularly in the software and internet sector.

Potential broad market rally in autumn

The market rally, if it occurs, will be driven by the new productive force of AI, not by broad-based macro stimulus. The diffusion will not be macro-driven but rather tech-driven, centered on AI applications. The application areas include AI for government, enterprises, medical, and finance, as well as AI for consumption, entertainment, and robotics. There will be a significant differentiation within the market. The most crowded tech hardware sectors will see capital rotate towards AI applications. Quality leaders in upstream hardware may still perform, but the majority of thematic stocks in those sectors may have already peaked. The high points in late June/early July might be the cycle highs for many speculative stocks. The focus should be on sectors and stocks that are not crowded and are being empowered by AI.

For A-shares, focus on new listings; for Hong Kong stocks, focus on AI applications

For the second half of the year, A-share investors may want to pay more attention to new stock listings and secondary offerings, as these could be part of a new phase of "equity finance" where local governments monetize their earlier investments in tech projects. For Hong Kong stocks, the focus should be on AI applications. The industry for AI applications will have excess returns globally, as the profit center shifts from upstream hardware to downstream applications. Hong Kong also has unique value in some deeply undervalued traditional sectors, such as resource stocks, which offer a safety margin and earnings elasticity.

Investment advice: Understand the big picture, align with policy, and focus on value

For investors who have just experienced the high volatility of the "summer chill," the advice is nine words: Understand the big picture, align with policy, and focus on value. Understanding the big picture means recognizing the major trends of great power competition and the AI-driven tech revolution. Aligning with policy, especially in China, means following the strategic direction of the state, such as the "AI+" initiative. Focusing on value is crucial; even with the right macro and policy views, assets that are overvalued are risky. Value is not just about low P/E ratios; it's about identifying long-term growth potential. For ordinary investors who cannot easily identify value, systematic investment in ETFs or trusting professional fund managers is recommended.