Xingzheng Securities: September will be a crucial decisive window for technology, and high-quality tech assets are still expected to be the core driving force for market recovery.

Xingzheng Securities released a research report stating that high-quality hard technology assets are still expected to be the core driving force leading the subsequent market recovery. Internally, it continues to focus on the North American computing chain of optical modules, PCBs, and optical fibers and cables, which are currently still highly cost-effective and leading this round of recovery. In terms of allocation, economic prosperity remains the core clue. First, after the valuation and chip digestion, the prosperity beta has returned since August, and the support of performance for stock prices has been restored. Second, after the global interest rate center rises, the market will also focus more on the certainty of prosperity in its structural choices. Third, next week the A-share market will enter a concentrated reporting period for formal performance disclosures, and overseas technology giants are also about to face the verification of their financial reports. The main points of Xingzheng Securities are as follows: 1. September will be a critical window for technology. Recently, the soaring long-term U.S. Treasury yields have once again become a pricing anchor for global assets, interrupting the recovery led by technology stocks since August. The market has significant concerns about whether equity assets, especially technology stocks, can continue their recovery. The bank believes that the recent fluctuations in global technology stocks are, on one hand, a disturbance caused by the rapid rise of long-term U.S. Treasury yields and, on the other hand, a disturbance brought about by Anthropic's latest ARR not meeting expectations. However, these concerns are expected to gradually ease starting in mid to late September, which will be an important decisive window for the technology sector. First, regarding the recent rapid rise in long-term U.S. Treasury yields, there are both short-term fast variables such as inflation expectations triggered by high oil prices, worries that the Federal Reserve cannot control inflation, and seasonal patterns driving up term premiums, as well as medium- to long-term slow variables such as increased government bond supply, debt issues, and the crowding out effects of AI companies issuing bonds. Looking ahead, the short-term fast variables, including oil prices, inflation expectations, and policy statements, are expected to ease starting in September: 1) The current oil price at $93 per barrel has a higher chance and probability of declining, and inflation expectations are likely to ease: As the U.S. strategic oil reserve is depleted, it prompts the U.S. to quickly resolve the imbalance between crude oil supply and demand. At the same time, as the midterm elections heat up, both Trump and the Republican Party will have stronger motivation and demands to stabilize oil prices temporarily to secure the Senate. 2) The rapidly rising interest rates are expected to force a more accommodative Federal Reserve, leading to further corrections in the market's rate hike expectations: On one hand, the recent data on U.S. employment, inflation, and consumption has been weakening consecutively. As the factors supporting economic resilience from the first half of the year gradually dissipate, signals of weakening internal momentum in the U.S. economy will become more apparent. On the other hand, the recent sharp rise in long-term bond yields itself indicates that the market has spontaneously tightened financial conditions, reducing the necessity for the Fed to raise rates further. 3) The timing of the elections also supports the Fed remaining cautious: Since 1990, the Fed has never shifted to a hawkish policy in the second half of an election year, especially implementing hawkish actions (including rate hikes, QT, and QE tapering) in October and November of an election year. Therefore, in September and October, with a temporary decline in oil prices and the market re-pricing expectations for rate hikes in 2026, U.S. long-term Treasury yields are expected to peak and decline. For technology stocks, this will provide the second supportive logic on the denominator side offered by macro liquidity improvement, following the easing of micro liquidity pressure in July, and will likely create a favorable opportunity for building consensus in the market again. Several observation windows for future policy statements include the upcoming Jackson Hole meeting next week, the latest inflation and employment data published from the end of August to early September, and the FOMC meeting scheduled for mid-September. 2. Regarding market concerns about ARR not meeting expectations, as Anthropic's IPO approaches and more transparent data is disclosed, related worries are expected to ease. Polymarket currently prices Anthropics chance of going public by the end of October at 82% (with a 16% chance of going public before the end of September). According to SEC regulations, the company planning to go public must submit and disclose its prospectus to the market at least 15 days before the roadshow begins, during which it will disclose clearer methods for calculating ARR and financial data, which is expected to alleviate recent concerns about ARR and AI ROIC. Therefore, as September begins, concerns regarding the rise in long-term overseas bonds and ARR not meeting expectations are expected to start alleviating one after another, ushering in an important decisive window for the technology sector. 3. In the medium to long term, economic prosperity and industrial trends remain the core contradictions driving this AI market. In the medium to long term, even if fiscal expansion and the crowding out by AI companies issuing bonds are slow-moving variables that difficultly ease quickly, the prosperity and industrial trends continue to be the core contradictions driving this AI market. The rising central interest rates of U.S. Treasury bonds primarily affect equity assets in terms of valuation on the denominator side. Historical experience shows that when in a market led by significant industrial trends, if the numerator side is strong enough, it can still to some extent hedge against the impact of rising risk-free interest rates, allowing stock prices to rise against the headwinds of denominator pressure. There have been many such historical cases: The tech boom in the 1990s: After the Kosovo War in 1999, the Federal Reserve began its rate hike cycle in the second half of the year, but this did not end the large industrial trend market. In fact, during the period of consecutive rate hikes, it was the phase where the market was most explosive in slope, characterized by extreme investment sentiment, creating a significant "tail" market, driven by the continuing validation of industrial prosperity trends. The new energy market in 2021: In 2021, as the U.S. economy recovered and inflation expectations soared, long-term U.S. Treasury yields rose quickly. However, the new energy sector still strengthened against the tightening liquidity pressure, driven by profitability and industrial trends, becoming the core narrative throughout the year. Particularly for this year, having experienced disturbances from the arrival of Powell and the U.S.-Iran conflict in the first half of the year, the market has adapted to a tightening macro liquidity environment, and the primary contradiction in pricing has shifted to profitability. The bank has analyzed the contributions of profitability and valuations to the price increases of major global technology markets and major A-share technology growth sectors this year. Whether in the tech markets represented by the U.S., China, Japan, and South Korea, or in A-share computing hardware and high-end manufacturing represented by technology growth sectors, valuations are no longer the main contribution, and in most cases even become a drag. Profitability is the main contributor leading the price increases of technology growth assets this year. Thus, even if macro liquidity tightens marginally this year and U.S. Treasury yields may confirm a higher central level, the key to the continuation of this AI market still relies on the validation of prosperity and industrial trends on the numerator side. 4. In terms of allocation, continue to revolve around economic prosperity clues and the diffusion of pricing around core themes. In terms of allocation, prosperity remains the core clue. First, after the previous digestion of valuations and chips, the prosperity beta has returned since August, and the performance support for stock prices has been restored; second, after the global interest rate center rises, the market will focus more on the certainty of prosperity in structural selection; third, next week, the A-share market will enter a concentrated disclosure period for formal performance reports, and overseas technology giants will also soon face financial report verifications. However, after experiencing the previous "rebalancing," the market is gradually discovering and recognizing more clues regarding economic prosperity, and the range of pricing will be broader than before. High-quality hard technology assets are still expected to be the core driving force leading the market recovery. Internally, continue to focus on leading this round of recovery, currently highly cost-effective optical modules, PCBs, and optical fibers and cables in the North American computing chain. Additionally, pay attention to other prosperity clues that have not yet been fully priced: non-ferrous metals, upstream AI equipment, innovative drugs, new energy (battery storage, power grids), and oversold upstream materials in resources (glass fiber, minor metals). Risk Warning: Economic data fluctuations, policy easing below expectations, Federal Reserve rate cuts below expectations, escalation of geopolitical situations, etc.