CMSC: How will the A-share market and technology direction evolve under the impact of overseas liquidity?

CMSC's research report stated that on Friday, the US dollar index and US bond yields rose, leading to a global stock market correction, especially in the AI sector. The trigger was the better-than-expected non-farm payroll data in May, which made the market start to consider the possibility of the Federal Reserve raising interest rates. The high global allocation of funds in equity assets and the extreme clustering in technology have increased the market's fragility. Looking ahead, this is just a liquidity shock and not the bursting of an AI bubble. The impact of interest rate hikes on the AI sector is more on the financing cost side, but it is not the only influencing factor. In the short term, if market sentiment sees temporary disruptions, financing funds may turn into net outflows, which may temporarily delay clustering and increase market volatility in the next one to two weeks. In the medium term, it is not yet the time for a change in market style or main themes. By late June, as the market gradually enters the semi-annual report trading window, technology companies with strong performance certainty and high prosperity are expected to continue to dominate. CMSC's main points are as follows: This week, the A-share market weakened due to the following reasons: (1) In terms of market structure, there was no incremental funds entering the market, but the trading congestion in the AI hardware chain was high, leading to concentrated fund withdrawals; (2) In terms of market timing, approaching the semi-annual assessment of institutional funds, fund products that had drifted in style previously faced rebalancing pressure, leading to concentrated outflows from the technology sector; (3) Macroscopically, the 30-year US bond yield once again broke through 5%, with expectations of rate hikes by the European and Japanese central banks heating up, global equity markets converging towards risk aversion, raising risk-aversion sentiment, and reducing equity positions. In May, the manufacturing PMI declined month-on-month, while memory prices continued to rise. The main areas of improved prosperity this week are: 1) Coal supply constraints leading to price hikes due to improved demand expectations for peak summer; 2) A month-on-month recovery in the May construction PMI, with year-on-year increases in commodity housing transactions this week and an increase in cement price index; 3) Continued prosperity in TMT sector, with memory prices continuing to rise and North American PCB order volume in April showing a three-month rolling increase in year-on-year growth. Subsequent focus should be on areas with relatively high or improving prosperity such as coal, building materials, agrochemical products, semiconductors, and communication equipment. Net financing inflows declined along with ETF net subscriptions, while fund issuances fell. Total net financing inflows for the first four trading days amounted to 8.76 billion yuan; newly established stock-based mutual funds amounted to 10.72 billion shares, down 17.52 billion shares compared to the previous period; ETF net subscriptions resulted in a corresponding net outflow of 16.05 billion yuan. Financing funds saw net purchases in communications, electronics, and coal sectors; more purchases were made in pharmaceutical ETFs while redemptions were higher in information technology ETFs. The scale of net reductions by major shareholders shrank, while planned reductions in scale increased. Multiple companies launched heavy products at COMPUTEX 2026. COMPUTEX 2026, held in Taipei from June 2nd to 5th, focused on the theme of "AI Together" and brought together over 1,500 global vendors across 6,000 booths, showcasing the accelerating trend of global technology moving from cloud-based large models towards edge devices and physical AI. Key highlights of this year's event include: NVIDIA upgrading its AI infrastructure and releasing multiple Agent Toolkit, edge AI, and physical AI products; Intel advancing its Xeon 6+, Diamond Rapids, and Crescent Island AI GPU, extending computing capabilities to handheld devices and edge AI; Qualcomm strengthening the Windows on Arm ecosystem with Snapdragon C and Snapdragon X2 Elite, expanding coverage from entry-level laptops to AI mini PCs. Overall A-share valuation levels declined from the previous week, The PE (TTM) of the Wind A Index was 18.7, down 0.2 from the previous week, putting it at the 81.5th percentile of historical valuation levels. Valuations for most indices declined this week, with coal, machinery equipment, and telecommunications leading the gains in valuations, while construction materials, power equipment, and pharmaceuticals saw the biggest drops in valuations. Risks: Economic data falling short of expectations, incomplete policy understanding, overseas policy tightening beyond expectations.