Fangzheng Strategy: U.S. Treasury yields exert pressure, the narrative around tech stocks changes; weak dollar leads to institutional favoring of resource and pharmaceutical sectors.

Founder published a research report stating that the market experienced a rise followed by a drop this week. After a rapid rebound in the prior period, major indices entered an adjustment phase, with the Wind All-A Index closing down 1.5% for the week and trading activity decreasing. The rise in U.S. Treasury yields, the loosening of overseas tech narratives, and weak domestic economic data weighed on risk appetite, leading capital to switch toward resources and banks. Looking ahead, short-term risks have been somewhat released, but external rates and the quality of the domestic peak season still need to be observed. In terms of allocation, one might consider turning to technology sub-sectors, assets benefiting from a weak dollar, and leading pharmaceutical companies during market dips. Founders main points are as follows: 1. Market Review: This week (from August 17 to August 21, 2026), the market surged initially but then declined. The Wind All-A Index fell 1.5% for the week, with the Shanghai Composite Index down 0.6% and the ChiNext Index down 2.2%. The weekly average trading volume across the market decreased by approximately 85.5 billion yuan to 2.27 trillion yuan, showing renewed declines in trading activity. In terms of sectors, oil, petrochemicals, and nonferrous metals led the gains, increasing by 5.4%, 2.5%, and 2.4%, respectively. Conversely, media, computer, and defense sectors lagged, with respective declines of -5.5%, -5.0%, and -3.8%. In terms of themes, areas like shipping selection, gold jewelry, and vaccines were relatively active. Specifically, on Monday, the market opened high and maintained momentum, driven by bullish sentiment. On the 14th, Nvidia announced that SpectrumX integrated optical switches had entered full-scale production, while SK Hynix announced a $38.4 billion investment in a new wafer fab in South Korea, propelling previously stagnant tech stocks to lead. However, Moutai's earnings report, which fell below expectations, dragged down the liquor sector. On Tuesday, the market rebounded from a dip, with increased divergence due to weak domestic economic data and soft performance in the Japanese and South Korean markets. On August 17, JPMorgan published a report titled "Food Security is National Security," warning that the next global food crisis could occur next year, which led to strength in the agriculture sector amid narratives surrounding El Nio and food crises. Meanwhile, the U.S.-Iran 60-day memorandum of understanding expired without extension, pushing oil prices higher, which boosted the overall energy sector. On Wednesday, the market opened low and declined, with the yield on 30-year U.S. Treasury bonds rising to 5.30%, the highest level since June 2007. Anthropics ARR was below expectations, compounded by OpenAI delaying frontier model training, negatively impacting the tech narrative. On Thursday, the market weakly rebounded, spurred by SK Hynixs large buyback and the U.S. Treasury's repurchase of long-term bonds. Moderna's cancer vaccine made positive progress in its phase III clinical trials, along with the implementation of the "14th Five-Year Plan" for health insurance, positively influencing non-tech sentiment in A-shares. On Friday, the market saw reduced trading volume and volatility, with SK Hynix collaborating with researchers from the University of Virginia and others to publish a roadmap for the next generation CPO, which expands optical interconnect from network switches to memory interfaces. Furthermore, a new round of semiconductor price increases is expected, again strengthening the tech sector. Additionally, the Trump administration announced the "toughest" economic sanctions against Iran, while U.S. Treasury Secretary Yellen hinted at potential expansion in the long-term bond repurchase scale, and the slower-than-expected recovery of rare earth mines contributed to the rally in nonferrous metals. 2. Market Trend Analysis: The market reached a peak in the recent oversold rebound during the first half of last week, with major indices and sectors experiencing a rebound of around 15%, but this was short-lived. After encountering resistance, the market mainly adjusted during the latter half of the week, with core reasons being disturbances from U.S. Treasury yields and cracks appearing in the tech story. In the current phase, it may take time to wait for new layout opportunities, as the market released most of its risks through the significant drop last Wednesday. However, the external environment, including continuously rising oil prices, makes Federal Reserve policy decisions difficult. While there is noticeable pressure from U.S. Treasuries, a silver lining is the depreciation of the dollar, which mitigates some negative impacts. Additionally, as the economy gradually enters the peak season, high energy prices exert some pressure on the fundamentals, necessitating verification of the policies' effectiveness following the July Politburo meeting, while risks regarding a lackluster peak season must be taken seriously. 3. Allocation Strategy Recommendations: Consider buying on dips and continue to focus on opportunities in three areas. First, as we enter the earnings disclosure window for mid-year reports, tech stocks are shifting toward sub-sectors that can increase prices and expand volume, including core targets from overseas with lower congestion levels and better chip structures, as well as domestic semiconductor equipment and materials with stronger cyclical certainty. Attention may also extend to relatively low positions in AI applications and the Hang Seng Tech Index. Second, keep an eye on the investment opportunities in HALO assets under a weak dollar scenario. With issues related to U.S. Treasuries and dollar credit reigniting, and further weakening in rate hike expectations from the Fed, one could look to invest beyond core resource-related nonferrous metals and chemicals, also considering new and existing energy sources, including storage, grid equipment, and coal. Third, focus on leading pharmaceutical companies that have good cyclical outlooks, low congestion, and reduced negative pressures.