Last week saw a collective decline in the major indices of the ChiNext and STAR markets, with most broad-based indices following suit in the adjustment. From a sector perspective within the Shenwan primary industry classification, coal, communications, and machinery equipment performed relatively well, while power equipment, building materials, and diversified holdings showed more modest performance.

Macroeconomic Analysis: U.S. Jobs Data Exceeds Expectations, Fueling Rate Hike Speculation

Overseas, the U.S. non-farm payrolls report for May was released on June 5th, local time. The data revealed that U.S. non-farm payrolls increased by 172,000 in May, significantly surpassing the market expectation of 88,000. This occurred even after the combined upward revisions for March and April added 93,000 jobs, marking the strongest three-month job growth in over two years. Concurrently, the unemployment rate held steady at 4.3%.

The continued outperformance of May's jobs data further signals a stabilization and recovery in the U.S. labor market, leading to heightened expectations for interest rate hikes and a noticeable adjustment in asset prices under this trading narrative. The current U.S. job market shows a positive trend of overall solidity and broadening employment growth. While market expectations for a Federal Reserve rate hike have surged sharply, significant internal divisions within the Fed persist, making a substantive rate hike within the year unlikely, with the central bank more likely to maintain a wait-and-see stance.

Affected by this liquidity shock, U.S. stocks may enter a period of short-term volatility, which could subsequently disturb global equity markets. On one hand, resilient U.S. employment and rising inflation are suppressing expectations for Fed rate cuts. On the other hand, the U.S. CPI for April showed a year-on-year increase of 3.8%, primarily driven by a significant rise in energy CPI to 17.5% year-on-year, exceeding market forecasts. With the Fed's dovish expectations remaining subdued and the 30-year Treasury yield signaling liquidity risks, U.S. stocks may face a volatile period, with market participants awaiting policy signals from Federal Reserve officials.

Investment Strategy: Uptrend Retains Support, Focus on Tech, Manufacturing, and Traditional Sector Recovery

Recently, the Wind All Share A-Share Index has continued to adjust with increased volatility. In the short term, overseas risks have re-emerged, and high concentration in tech trades, coupled with short-term capital competition, often leads to periodic adjustments. We anticipate that the A-share adjustment driven by this tightening will be of limited duration, with greater focus on the timing of stabilization in overseas tech markets.

Taking a longer-term view, after a brief "shower," the market's upward trend still possesses multiple supports. Specifically: 1) Global AI capital expenditure, including that from China and the U.S., has not decelerated and is, in fact, accelerating. 2) China's manufacturing sector is deeply integrated into globalization, with the engineer dividend and economies of scale enabling Chinese products to expand from "cost competition" to "value competition." 3) The marginal drag from traditional industries is diminishing after years of decline. 4) Full-year profit growth expectations for the A-share market in 2026 have been revised upward to 10.6%, with the market exhibiting distinct "transition market" characteristics, where the driving logic has shifted from pure valuation repair to earnings dominance. 5) Capital market reform measures initiated with the "National Nine Articles" continue to gain traction, potentially enhancing the investability of Chinese assets and reducing market volatility.

Therefore, we believe that even with potential geopolitical fluctuations or domestic trading-side disruptions, the impact of a summer "shower" may not be prolonged, and Chinese stocks may still reach new highs subsequently. This week, attention should be paid to China's May import/export, financial, and inflation data, as well as U.S. May inflation figures.

Regarding investment direction, the new economy focuses on high growth, manufacturing looks to global leaders, and traditional sectors also hold potential for recovery. Specific areas to watch include:

(1) Emerging Technology: Continued AI investment from China and the U.S., capacity shortages, and accelerated technological iteration, with no turning point yet in inventory-to-sales ratios or ROIC, and core leading companies' valuations not appearing stretched. The tech rally may still have room to run. Focus areas include communication equipment, high-end equipment, integrated circuits, and minor metals.

(2) Competitive Manufacturing: Chinese companies are rapidly globalizing, with AI investment and energy transition providing new historical growth opportunities for leading companies with competitive advantages, leading to improved ROE and expanded corporate boundaries. Focus areas include power equipment and new energy, construction machinery, and automobiles and components.

(3) Traditional Sector Recovery: Building materials, chemicals, non-ferrous metals, coal, as well as sectors like banking where micro-structures have cleared and valuation advantages are prominent.