On August 17, all three major indices closed higher, with most broad-based benchmarks posting gains as trading volume expanded slightly. The Shanghai Composite Index rose 1.41% to 3,982.65 points, once again approaching the 4,000-point threshold, while the ChiNext Index jumped 3.14%. Hong Kong equities also maintained upward momentum, with the Hang Seng Index up 1.55% by the close of A-share trading. Combined turnover on the Shenzhen and Shanghai exchanges edged higher to 2.4 trillion yuan.

According to Wind data, 28 of the 31 Shenwan primary industry sectors finished in positive territory. Electronics, telecommunications, machinery, non-ferrous metals, and new energy led the gains, rising 4.61%, 4.19%, 2.89%, and 2.86% respectively. On the downside, food and beverage, media, coal, and banking sectors fell 1.87%, 0.84%, 0.29%, and 0.20%. Market risk appetite improved notably, fueling a strong rebound in growth sectors, with the ChiNext Index advancing sharply. Optical modules and semiconductors, representing the computing power supply chain, emerged as the market's leading theme. Among more than 5,300 listed stocks, 4,328 advanced, indicating solid market breadth and positive wealth effects.

Domestic demand pressures persisted in July, with policy support remaining steady yet cautious. Economic data released today for July continued to show weakness, characterized by a moderate decline in retail sales, a slight slowdown in industrial production, and continued softness in cumulative fixed-asset investment. This pattern is broadly consistent with the July manufacturing PMI, which reflected weakness in both supply and demand. Specifically, July retail sales growth slowed to 0.6% year-on-year (down from 1.0% previously), remaining subdued even against a low base. Beyond the ongoing drag from autos, services sector recovery was hampered by unusual weather conditions. Categories such as sports and entertainment, gold and jewelry, and tobacco and alcohol saw notable declines, while home appliances and telecommunications equipment—which had benefited from earlier trade-in subsidy programs—saw their drag diminish.

July industrial value-added growth fell to 4.5% year-on-year (down from 5.3% previously). Extreme weather impacted mining and utilities output significantly, though high-tech industries tied to the AI supply chain and electromechanical exports provided a meaningful offset. Cumulative fixed-asset investment declined 6.7% in July, with infrastructure, manufacturing, and property investment all continuing their downward trajectories. In response to economic challenges, the market increasingly expects faster implementation of existing policies alongside active preparation of incremental measures.

With the global central bank symposium approaching, attention is turning to potential Federal Reserve reforms. The Jackson Hole Global Central Bank Symposium will take place from August 20-22, with Kevin Warsh slated to speak. Warsh recently indicated he would hold "follow-up meetings" with five special working groups before the conference and may unveil some "mature" ideas during the event. The symposium is expected to focus on "frameworks rather than policy paths," and while a major policy shift appears unlikely, reforms to the Fed's medium-term approach deserve close attention. Three key areas merit focus: first, whether there is discussion of a "broader indicator system" for inflation measurement, such as trimmed-mean PCE, which could reduce speculation about "single data points triggering policy." Such comments would further clarify that short-term Treasury yields depend on U.S. economic data, though market reactions to monthly figures may become more muted, requiring consecutive data points to confirm the Fed's direction. Second, discussions on how AI capital expenditure affects both supply and prices in two directions—acknowledging the complexity of near-term price pressures while emphasizing long-term supply expansion and productivity gains. This could help reduce pricing for "aggressive tightening driven by AI reflation," benefiting risk appetite for AI sectors with "earnings certainty and productivity improvements." Third, reaffirmation of Fed independence and "communication self-reflection." Clarity on the "pace and implementation" of reforms remains uncertain, which could influence term premiums and long-end yields. Clearer communication could compress inflation and term risk premiums, easing upward pressure on long-end rates; conversely, ambiguity could prolong volatility.

Turning to A-share market prospects, we believe that after digesting current micro-structures, the market may still find opportunities for a rebound. Last week, A-shares entered a consolidation phase following a rapid earlier recovery, with alternating index gains and losses and increasing divergence among individual stocks. Friday's further volume contraction and divergence reflected rising disagreement near key levels. However, the market has not experienced sustained retreat—optical communications continued to attract capital support despite divergence, pharmaceuticals remained intermittently active, and sectors such as non-ferrous metals and technology hardware rotated quickly. On macro liquidity, the central bank shifted from net withdrawals to net injections, and the second-quarter monetary policy implementation report signaled expectations of incremental policy measures. Given July's weak social financing and credit data and limited inflation pressure, the macro liquidity environment is expected to remain broadly accommodative. Overseas, U.S. inflation for July declined as expected, easing pressure on the Fed, though long-end Treasury yields remain elevated. The external liquidity environment is also generally favorable.

Looking ahead, the index is likely to continue oscillating and building momentum around key levels in the short term. As the market enters the dense interim earnings disclosure period in late August, pricing focus is expected to shift from sentiment and valuation repair toward earnings delivery, with sector divergence likely to widen further. For sector allocation, we maintain a balanced approach over the medium term, closely monitoring AI industry trends and interim earnings verification. The improved liquidity environment continues to provide market support. For technology sectors, the recent correction stems primarily from valuation digestion and trading structure deleveraging, while AI industry demand has not yet shown a clear inflection point. However, after the rapid earlier recovery, the rally has transitioned from oversold bounce to earnings-based pricing. Further upside requires sustained delivery of orders, profits, and industry prosperity. Allocation should focus on core AI hardware segments with rising demand, strong order and profit certainty, and supply bottlenecks, as well as domestic self-sufficiency directions. For high-position segments facing easing supply constraints, intensifying competition, and insufficient earnings delivery, caution remains warranted.

For non-technology sectors, as funds rotate from a single theme to multiple prosperous directions, attention can continue on resource and value sectors with industrial catalysts and fundamental support. Sino-U.S. competition may strengthen the policy premium on strategic resources—rare earths and non-ferrous metals with supply constraints deserve attention. Additionally, sectors with relatively stable earnings and defensive attributes such as coal and chemicals, along with non-bank financials showing fundamental improvements and lighter positioning pressure, are worth monitoring.

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