China Securities Co., Ltd.: After a short-term rebound, A shares may fluctuate. AI computing power remains the main trend in the medium to long term.

China Securities Co., Ltd. securities research report stated that the market is experiencing a short-term strong rebound, but after the rebound is completed, A-shares may enter a period of volatility. The performance of AI computing power as a long-term core theme in this round of bull market is still promising. Domestic policy dividends such as the Shanghai Lujiazui Finance & Trade Zone Development forum are expected to continue to drive the rise of the innovation and entrepreneurship sector, with the SME board and the sci-tech innovation board expected to remain strong. However, high valuations and trading structures may become the main reasons for the periodic shift of the technology theme later on. Key areas to focus on include: AI computing power, industrial metals, petrochemicals, machinery, and new energy, while positioning for opportunities in banking, non-banking financial institutions, utilities, and coal when they dip. Key viewpoints from China Securities Co., Ltd. securities: Policy signals and market impacts from the Shanghai Lujiazui Finance & Trade Zone Development forum The three major financial regulatory departments at this forum are pushing in the same direction, with a high degree of policy coherence focusing on building a technological powerhouse and new quality productivity. The forum's positive policy signals, combined with the strong recovery of the domestic macroeconomic fundamentals, suggest that the A-share market is currently in a bull market cycle, with a high probability of further upside. The innovation and entrepreneurship sector, especially the sci-tech innovation board, is expected to continue to generate significant excess returns. Frontline hard technology stocks with high research and development capabilities and industrial landing potential are the core focus areas for investment. What did Fed Chair Powell's first appearance bring? Powell's focus was on policy reform, and given his assessment of the effectiveness of macroeconomic data, a premature interest rate hike lacks institutional and theoretical support. Looking ahead, it is expected that the tight monetary policy expectations will continue until the July FOMC meeting, with hawkish sentiment needing time to digest. With the gradual clarification of the five working group reform framework and the weakening of cyclical factors supporting economic resilience in the short term, the excessive pricing of interest rate hike expectations is expected to gradually correct during the process of validating fundamentals and rebuilding policy anchors. Overall, market anxiety about an interest rate hike before September is strong, leading to increased market uncertainty, with gradual correction of interest rate hike concerns likely after September and a low probability of an interest rate hike for the rest of the year. How to view the upward potential of the technology sector and the accelerating deterioration of market structure? In the current environment of booming global AI computing power industry and increasing divergence between the overall AI industry and traditional industries, we continue to be optimistic about the post-performance of AI computing power as the core theme in this round of bull market in the medium to long term. In the short term, domestic policy dividends such as the Shanghai Lujiazui Finance & Trade Zone Development forum are expected to continue to drive the rise of the innovation and entrepreneurship sector, and the Fed's interest rate hike expectations have not hindered the global tech stock rally, expecting the SME board and the sci-tech innovation board to remain strong. However, high valuations and trading structures may become the main reasons for the periodic shift of the technology theme later on. We believe that despite the recent sharp rise, the SME board index still offers the best value among the major broad-based indices, with a valuation advantage of 10%-12.5% and a potential 32.3% gap from the past high of the price-to-book ratio stage. The short-term performance of the sci-tech 50 index is more driven by overseas analogues (Philadelphia Semiconductor Index, South Korean Composite Index), expectations of dual listings, and second quarter performance expectations. Therefore, the sci-tech 50 index is expected to continue to perform strongly in the short term, but caution should be exercised against a significant drop in overseas semiconductor sectors or the impact of the realization of related catalyst events. In terms of industry allocation strategies: 1) In the short term, focus on the AI computing power industry chain and explore high- prosperity sub-directions within the industry chain, with emphasis on: optical communications, MLCC, rare earth permanent magnets, electronics, storage, CPUs, PCB/CCL, etc. 2) In the medium term, seize the industrial opportunities brought about by the decline in international oil prices and the global demand recovery, including the recovery of non-ferrous prices and the downward trend in manufacturing costs, with emphasis on: industrial metals, petrochemicals, machinery, and new energy. 3) Opportunistically position in dividend sectors at low levels, anticipating further market differentiation, if banking, non-bank financial institutions, utilities, and coal sectors continue to decline, their value advantage in configuration will gradually become apparent, allowing for low positionings and gradually increasing positions.