Recently, the A-share market has undergone some adjustments, with previously popular sectors such as semiconductors seeing increased volatility. At this stage, many institutions believe that although growth sectors like AI are facing short-term pressure, the core logic of industry improvement remains intact. After this round of adjustment, capital is expected to return to the main themes of prosperity, and market style may lean toward structural rotation and balanced recovery.
Regarding the recent volatility in the A-share market, analysts at Morgan Asset Management note that it is mainly triggered by risk transmission and liquidity changes in overseas markets. Specifically, adjusted expectations in overseas AI technology sectors and uncertainty over the Federal Reserve’s policy direction are the key external factors driving A-share volatility. In addition, June coincides with the semi-annual assessment window for financial institutions, putting pressure on some previously high-premium growth sectors to undergo structural position adjustments.
"Against the backdrop of shifting global macro liquidity expectations, the risk appetite of long-term funds in the A-share market has temporarily converged. There has been a proactive rotation away from high P/E niche sectors such as AI hardware and semiconductors, toward high-dividend, undervalued pro-cyclical and large-cap financial sectors," Morgan Asset Management said.
Lei Zhiyong, Director of the Equity Investment Department at Morgan Stanley, stated that in the short term, following the rapid rise of the AI sector from April to May, the market naturally has profit-taking demand, and the sector may enter a phase of wide volatility. Historically, while A-shares tend to rotate between high and low styles, after multiple shifts, funds will refocus on themes with higher prosperity and greater certainty. This round of volatility is partly driven by market concerns and uncertainty over the Fed’s policy direction, but after the adjustment, capital is likely to flow back into the AI sector.
Despite the short-term shift in capital flows, institutions generally agree that the long-term logic of the artificial intelligence main trend remains unchanged.
"From a fundamental perspective, current valuations of AI-related companies are reasonable, and some targets still have room to rise based on next year’s performance. Unless the AI sector faces major industry headwinds, the main AI trend will not reverse, and previous gains are highly likely to be absorbed through a 'time for space' trading pattern," Lei Zhiyong said.
Tian Di, fund manager at Fidelity International, stated that supported by a strong pool of engineers, abundant data resources, and increasingly competitive local large language models, China’s AI ecosystem is expanding rapidly. Recent industry developments show that while Chinese companies are narrowing the gap with global cutting-edge models, they are also demonstrating strong competitiveness in cost and efficiency. As China continues to consolidate its leading position in electrification, renewable energy supply chains, and industrial automation, many companies are expected to maintain their core competitiveness in the long term, even amid a more challenging global environment.
From a medium-term perspective, Cathay Fund believes the current market style shift is more likely a rebalancing process rather than a trend reversal, making it advisable to watch for opportunities in the late-June window. Currently, capital expenditure related to the AI industry continues to accelerate. At the industry level, a diversified layout can be maintained, with a focus on AI hardware, new energy, industrial metals, chemical engineering, insurance, and other related sectors.
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