Industrial: The more panicked one is, the more important it is to look at the data rationally.

Industrial released a research report stating that the concentrated release of negative feedback and pessimistic sentiment once again triggered a market oversell, but there has not been significant substantive changes in the market fundamentals. The more panic there is, the more rational it is to look at the data. After experiencing concentrated outflows recently, the risks have been released. In addition, recent stable market funds have flowed in again, which helps stabilize market expectations and reduce the risk of negative feedback from funds. After a sharp decline, the probability of a short-term oversold rebound has increased, but whether the long-term trend can continue still depends on the fundamentals. As for the fundamentals, there is currently not enough evidence to prove a slowdown in the AI economy. The core verification will still be in the late July US stock earnings season. The main points of the Industrial are as follows: 1. The more panic there is, the more rational it is to look at the data. The concentrated release of negative feedback and pessimistic sentiment has once again triggered a market oversell. In fact, since the current decline, there has not been significant substantive changes in the market fundamentals. Even this week, TSMC reported record profits and significantly increased capital spending in the second quarter, but it did not save the market's pessimistic sentiment. The core of the market volatility and pessimism is the amplification of negative feedback from liquidity. "Good news has turned into bad news" at this point. However, the more panic there is, the more rational it is to look at the data. First, the sentiment indicators tracked by the bank have fallen to the bottom area, indicating that the adjustment caused purely by liquidity and sentiment may be close to the end. The first thing to note is that the RSI indicator measuring market sentiment has dropped to the oversold zone of 30. Each time it falls to this level (September 24, January 25, April 25, December 25, March 26), it is an important bottom layout opportunity. The second is that the "margin buying ratio" indicator measuring margin sentiment has fallen to the lowest level since July last year. After experiencing recent concentrated outflows, the risks have been released. In addition, recent stable market funds flowing in again will help stabilize market expectations and reduce the risk of negative feedback from funds. Secondly, the extent of adjustment in this AI theme is approaching or even exceeding historical extremes. For the US stock market, the Philadelphia semiconductor index has fallen by more than 20% since June 23, ranking second in the extent of adjustment compared to the adjustment caused by below-expected fundamentals in mid-24, and the adjustment due to the trade war in early 25. For A shares, the TMT index has fallen by 23.72% since July 1, exceeding the adjustment in the historical AI trend since 23, ranking second only to the adjustment in the new energy theme caused by the epidemic at the beginning of 20. Considering that this round of adjustment is not caused by systemic risks or substantial slowdown in fundamentals, the current extent of adjustment is quite sufficient. Finally, a large daily plunge in the market has caused some investors to panic and think the market is coming to an end. However, looking back, such a rapid decline in a bull market is not uncommon, and a single large drop in a day does not signal the end of the market. After a sharp decline, the probability of a short-term oversold rebound increases, but whether the long-term trend can continue still depends on the fundamentals. The bank reviewed the performance of the ChiNext index after a single-day drop of more than 5% in the bull market since 2010: First, the probability of a short-term oversold rebound increases. After a big drop, 1/5/20 trading days later, the index averages 1.2%/3.9%/4.68% increase; Second, "bull market sees more sharp declines", a single-day large drop does not signal the end of the market, the long-term trend of the index still depends on the fundamentals. Unless there is a lack of fundamental support leading to a long-term weakness as in 2015, a rapid decline in the short term provides a buying opportunity for the subsequent market. As for the fundamentals, there is currently not enough evidence to prove a slowdown in the AI economy. In A shares, the performance forecasts for the interim report verify that AI-related demand remains the most important driver of listed company prosperity, and the industries it drives are continuously expanding upstream and downstream. On the overseas front, the bank's tracking of the earnings expectations of 25 key AI companies, as well as the Hyperscalers' future Capex expectations, are still being revised upward against the trend. The core validation will still be in the late July US stock earnings season. After the emotional fluctuations, the market will return to a rational evaluation of the fundamentals. Especially after the communication between major North American companies and the market, the signals regarding the global computing power prosperity and the sustainability of AI hardware manufacturers' performance will become clearer. In addition, the end of July will also see major central banks' interest rate meetings. Waiting for further clarification of key signals such as AI industry demand, global monetary policy paths, and domestic policy directions, choosing a direction and structure based on this will be much clearer. 2. What are the oversold industries worth watching now? After experiencing a panic-driven decline, the technology growth industry has already fallen out of favor. Firstly, the bank has found that the popularity of certain industries has shifted: low-priced consumer industries such as pharmaceuticals, beauty, and breeding have become crowded, while most technology sectors have become less crowded. Secondly, the popularity of the core direction of the AI industry chain has dropped to moderate or even low levels, especially the core North American computing power chain represented by optical modules, optical fibers, optical cables, and PCBs, which has dropped to historically low levels. Furthermore, the bank has selected industries that have experienced a significant oversold level and continuous profit upgrades based on four indicators: the extent of adjustment (price changes since July), the oversold degree (RSI indicator), popularity (short-term trading popularity), and profit revision strength (profit revision situation since July) during the current round of adjustment. The sectors include: TMT (optical modules, optical fibers, storage, panels, IDC), manufacturing (power grid, lithium battery industry chain, photovoltaic materials, etc.), and cyclicals (rare earths, plastics, chemical fibers, etc.). Risk warning The Federal Reserve cuts interest rates less than expected, geopolitical tensions escalate, etc.