The A-share market in May exhibited a notably divergent and structurally driven performance, with growth sectors leading the gains. Market activity remained high, but capital preference was heavily concentrated in high-growth thematic sectors.

As we enter June, with rising trading congestion in certain sectors and valuation divergence pressures, will the market's structural divergence intensify further? Let's examine the latest views from equity fund managers at Great Wall Fund.

Market Rebalancing on the Horizon

Yang Jianhua notes the technology sector is experiencing short-term trading congestion, with some individual stocks already pricing in performance expectations for 2028. This has led to significant short-term excess returns, creating substantial adjustment pressure. Meanwhile, resource stocks, which had been adjusting earlier, have shown stock price movements diverging from commodity prices, a pattern that is expected to converge. Additionally, undervalued cyclical stocks have a rebound demand, though their longer-term logic still awaits support from macroeconomic fundamentals. Dividend-paying stocks are likely to become a short-term defensive choice for capital.

Consequently, the market in June is expected to undergo a rebalancing. Technology stocks may see a separation of the wheat from the chaff, with those demonstrating high earnings realization, favorable competitive landscapes, and less valuation froth likely to achieve relative returns. Previously oversold dividend and resource stocks may rebound amid weakened expectations for interest rate hikes.

Continued Focus on AI Investment Opportunities

Liao Hanbo observes a clear "seesaw" effect in the A-share market, with a pronounced opposition between AI hardware and other sectors. In the context of an ongoing AI arms race, AI hardware may remain a key investment theme, albeit with a volatile process. Other sectors are in an oversold state and may see a short-term, phased rebound. However, it is difficult to determine if a bottom has been reached before the investment fervor for AI hardware subsides.

Regarding investment direction, the focus will remain on uncovering opportunities within the AI field. Beyond AI hardware, attention is also on AI application opportunities, particularly new targets with marginal improvements and remaining room for market cap expansion.

Seeking Stocks with Marginal Improvements

Tan Xiaobing points out that after the AI sector's rally, capital gamesmanship is prevalent. While other sectors are at lower levels, an industry inflection point has yet to emerge. As the mid-year earnings pre-announcement period approaches in late June, the market will focus on whether high-flying tech stocks can deliver earnings surprises, while the performance of non-AI sectors at the bottom will face further tests. Overall, the market is likely to remain in a volatile phase, and the strategy remains to seek out sub-sectors and individual stocks showing marginal changes.

Undervalued Growth Sectors May See Valuation Repair

Long Yufei maintains the previous strategic view that the current wave of global technological innovation, represented by artificial intelligence, presents new development opportunities for the healthcare industry. Domestic policies also provide strong support, leading to rapid development in related domestic industries. Continued focus will be on new medical technology directions such as AI healthcare, brain-computer interfaces, surgical robots, innovative drug R&D, and innovative medical devices.

Simultaneously, it is noted that with the recent intensification of polarized market styles, some companies in consumer service sectors with good growth prospects have also experienced significant declines along with their sector beta. Although the market is currently dominated by the high-growth cycle of AI hardware, other growth sectors, after experiencing sharp compression in valuations and positioning, may see valuation repair at some point. Therefore, such opportunities are also being closely monitored.

Pessimism in Innovative Drugs May Be Fully Priced In

Liang Furui observes that the current performance of innovative drug stocks is unsatisfactory. Beyond complex liquidity factors, reduced transparency in the data validation of later-stage clinical trials for core innovative drug varieties and their global rollout pace has increased uncertainty. Additionally, domestic hospital sales compliance checks and international political dynamics could push the narrative for the innovative drug sector into a scenario of foreign capital short-selling.

Thus, the validation cycle and pace at this stage have become protracted in the capital markets. However, simultaneously, some large companies are entering a period of high-speed earnings realization. The current stage may have largely priced in the prevailing pessimism, with numerous innovative drug pipeline data and earnings being delivered, presenting relatively good opportunities.

Focus on Resources and Upstream Materials

Chen Ziyang notes that market style in May was quite extreme, with only 5 out of the CITIC primary industries rising. Economic data also reflected a state of robust AI investment and pressure on traditional sectors. Entering June, the second-quarter earnings of listed companies are gradually becoming clearer, and the degree of earnings realization may be a key market focus. Furthermore, the first FOMC meeting under the new Fed Chair in mid-June could have a significant impact on the valuation of traditional sectors. Currently, areas of personal focus include resource products and upstream materials driven by AI demand.

Focus on AI and Broad Dividend Sectors

Zhang Jian is primarily optimistic about the following directions: 1) The AI industry chain: Although stock prices are already high and volatility has increased, over a longer horizon, rapid earnings growth is expected to help digest valuations. Concurrently, current policy focus is also on AI-related industries. 2) Broad dividend sectors: After the previous correction, the dividend yields of many industry-leading stocks are above 5%, while valuation levels are at relatively low points. Among these, broad dividend stocks with relatively stable or even growing earnings and low correlation to the macroeconomy may present certain opportunities.

Market May Transition to Balanced Gains

Su Junyan expresses cautious optimism for the June market, with indices potentially fluctuating upward. From a style perspective, the current pullback in tech stocks may help curb the extreme polarization phenomenon, potentially allowing the market to revert to a more balanced upward trend similar to the fourth quarter of last year. However, the tech trend does not appear to have ended yet and may manifest more through structural differentiation.

Technology Industry Trend Remains Intact

Yang Yu, looking ahead, notes that the AI industry chain is beginning to differentiate, making marginal changes in each segment important to track closely. The view is that the broader technology industry trend remains intact, while attention can also be maintained on non-AI sectors and individual stocks at lower levels.

Optimistic on Tech Growth and Commercial Aerospace

Lin Hao, with incremental capital entering the market, remains optimistic about and focused on AI-related tech growth directions, as well as commercial aerospace and space computing. Sino-US trade competition is seen as a tug-of-war and a protracted battle, and the market may price in a long-term decoupling direction. Themes of self-sufficiency and resource value revaluation are expected to continue. It is anticipated that the A-share equity market will continue to fluctuate upward this year, with structural market conditions likely to persist.