Shenwan Hongyuan Group: Short-term structural differentiation reaches its peak, market breakthrough still needs to be accumulated.

Shenwan Hongyuan Group released a research report stating that it is difficult for the overall short-term market to break through effectively, and the structurally differentiated market is heading towards extremes. The inflation direction of AI computing power with continued momentum is decreasing, and the focus has shifted to the PCB sub-sector and capacitors. In the medium term, they continue to see opportunities for prosperity verification in new energy, new energy vehicles, and export chains, while continuing to focus on the AI industry chain and strategic resources for allocation. The main points of Shenwan Hongyuan Group are as follows: 1. Reiterating that it is difficult for the short-term market to break through effectively: 1. The strength of incremental capital inflows in the short term is weak, and capital between sectors is mutual and absorbing. 2. Recently, the market as a whole has adjusted, with the momentum of technology leading assets continuing, and the short-term structurally differentiated market has reached an extreme. 3. Rotation within the technology sector is accelerating, intensifying differentiation, and some previously leading sectors with profits are weakening. The short-term overall market is difficult to break through effectively, and the structurally differentiated market is heading towards extremes: 1. The strength of incremental capital inflows in the short term is weak. The margin trading balance this week has increased relative to last week (net margin buying of 42.4 billion yuan this week, compared to 22 billion yuan last week), but has significantly declined compared to the previous high point of 86.8 billion yuan two weeks ago. At the same time, this week's net margin inflows may lean towards chasing momentum in sectors such as semiconductor equipment, while short-term investment results tend to increase losses. Overall net outflows of industry ETFs, structure remains severely differentiated, with net inflows in semiconductors, 5G, consumer electronics, and utilities. Basic chemicals, commercial aerospace, pharmaceuticals and biotechnology, batteries, and grid equipment experienced net outflows. In this supply-demand pattern, market momentum effect is likely to lean towards contraction. Since early April, broad-based ETFs have continued to see net outflows, with a slight turn towards inflows this Friday (4.9 billion yuan), but with limited contribution to short-term capital supply and demand. 2. Since May 14, the market has entered an adjustment phase, with only a few technology-leading assets continuing momentum (from May 14 to 28, only 4 industries rose in the Shenwan first-level industry, namely electronics, communications, building materials, and coal). The short-term relative price-to-value ratios of each industry have also significantly diverged. 3. Rotation within the technology sector is accelerating, with momentum focusing on more specialized areas, and some strong momentum directions in recent weeks have entered into an adjustment phase. A typical example is semiconductor equipment, where industry ETFs saw concentrated inflows in the earlier period, but profits quickly peaked and reversed, with ETFs turning to rapid outflows. If subsequent profits further decline towards breakeven, industry ETF net outflows could accelerate again. 2. Considering the conditions for the market to break through again: 1. Further strengthening of the new economic industry trend. 2. More extensive fundamental verification, with the new economy gathering momentum and other directions taking over. 3. Incremental funds are strengthening the cycle again. Continuously emphasizing that there is no need to fear during a big uptrend, as with the passage of time, the conditions for the market to break through again will become better and better. 1. Further advancement of the new economic industry trend. The conditions for the extreme differentiation market trend in the technology industry to continue are for the cyclic verification to proceed step by step and for the catalytic action of new economic industries and strong performance verification to continue. 2. More extensive improvement in fundamental verification. The conditions for this to happen are not bad. By 2026, the upstream cycle and the supply growth rate of the midstream manufacturing industry will decline. Supply chain security + energy security, and the increase in China's export share are expected to be verified (the high export growth of the coal chemical industry chain in April has been verified, and subsequently attention will be paid to the increase in downstream consumption and finished product export shares). In this scenario, the rotation of sectors in other directions may be more powerful, lifting the market's center. The time to further validate the trend in the advancement of the technology industry will be more relaxed. 3. More widespread inflow of incremental funds. Currently, the profit accumulation effect has reached a threshold (the net value of public funds at the peak of the last issuance has exceeded 1.20), and the market is basically ready for a more widespread increase in incremental funds. However, the market is wary of the structural extreme differentiation market due to the learning effect in 2021, and potential incremental funds have reservations about the extreme differentiation market. The cycle of incremental capital inflows in the short term has not fully unfolded, and the combination of equity investment with fixed income and quantification is more attractive in the fund channel. The current market seems to lack a "different investment story from 2021" this time, which could be a comprehensive breakthrough in the trend of the AI industry, or more directions joining the positive cycle market (in 2021, the big uptrend market stopped at the extreme level of structural bull, while other historical big uptrends had a more widespread momentum market diffusion stage). The bank continues to remind that the longer the power storage phase, the more positive factors will be reflected in the big uptrend market, possibly including: further advancement of the new economic industry trend, the impact of cyclic improvement in the economy and changes in the relative strength of countries. The pattern of not being afraid to wait during a big uptrend remains unchanged, and the power storage can still break through further. In the short term, the inflation direction of AI computing power with continued momentum is decreasing, and the focus has shifted to the sub-sectors of PCBs and capacitors. In the short-term adjustment phase, the high-cut-low market trend is being interpreted, still biased towards oversold rebound trends. In the medium term, they continue to see opportunities for prosperity verification in new energy, new energy vehicles, and export chains, while continuing to focus on the AI industry chain and strategic resources for allocation. In the short term, the direction of the momentum continuation in the technology industry trend is decreasing, with a focus on sub-sectors such as PCBs and capacitors. The extreme structurally differentiated market trend will continue to increasingly rely on new catalysis and verification. Relative price-to-value ratios are being restored, and the high-cut-low market trend is being interpreted. The bank believes that, in the short term, there is still a bias towards oversold rebounds. High active funds participating in high-cut-low trends will accelerate the short-term market, but subsequent fluctuations will increase. At the same time, there is insufficient investor interest in pushing forward real estate and consumption improvements, and the power to repair the big uptrend is still gathering. The bank continues to remind to pay attention to clues on subsequent new prosperous directions based on the adjustment of the global industrial landscape after the US-Iran conflict. Focus on directions that can improve global market share based on Chinese energy security + supply chain security, and are effective in overseas price alignment. Key focus areas include new energy, new energy vehicles, and basic chemicals. In the medium term, the mainline assets in this round of uptrend remain unchanged, with continued focus on opportunities for allocating AI industry chains and strategic resources. Optical communication, energy storage, storage, and gas turbines are still high-impact assets in the medium term. Strategic resources are still assets of the times, and the scope of strategic resources may continue to expand. Non-ferrous metal, petroleum industry chain, shipping, and new energy are all medium-term directions. Risk Warning: Overseas economic recession exceeds expectations, domestic economic recovery falls short of expectations.