Brokerage Morning Meeting Highlights | Market adjustment nearing its end

Last Friday, the three major indices closed mixed, with the Shanghai Composite Index finishing in the green and the ChiNext Index narrowing its decline toward the close. In late trading, some broad-based ETFs saw another surge in volume. Combined turnover of the Shanghai and Shenzhen markets reached 1.56 trillion yuan. On the sector front, defense, low-altitude economy, and carbon fiber sectors were active. On the downside, PCB and CRO concepts weakened. As of the close, the Shanghai Composite Index rose 0.24%, the Shenzhen Component Index fell 0.12%, and the ChiNext Index fell 0.39%. CITIC SEC believes the market adjustment is nearing its end; East Money Information believes that by holding steady, a rebound can be expected; China Securities Co.,Ltd. believes the focus should shift from liquidity to inflation. CITIC SEC: Market adjustment nearing its end This round of sharp adjustment was mainly triggered by institutions' heavily held stocks and gradually spread to sectors with high margin financing ratios. Judging from the pace of net inflows into government bond ETFs, risk-aversion sentiment among funds remains elevated. Based on historical experience, the signal that a market adjustment caused by institutional deleveraging has ended is usually a recovery in the excess returns of institutional favorites relative to non-institutional stocks. The surge in volume of some broad-based ETFs this week is a positive signal. The magnitude and duration of this round of adjustment in core AI stocks have already approached those of core new energy stocks from the end of 2021 to the end of April 2022. The first round of hardware valuation adjustment during the downward revision of the second derivative of the super industry cycle's growth is nearing its end. However, for long-term funds that focus on the "first derivative" of AI growth rather than the "second derivative," the current adjustment is not enough to change the trend. Memory prices, GPU rental prices, and CSP profit margins are the core variables that reflect the direction of the "first derivative," just as lithium carbonate prices served as a signal for the new energy industry chain in 2022. In fact, during a phase when the "second derivative" is being revised down while the "first derivative" is still rising, institutionally weighted stocks tend to weaken, while trading around new technologies repeatedly heats up, just as in the May-August 2022 period. A similar situation is occurring now. From a longer time perspective, overseas high interest rates and AI investment are two sides of the same coin. A downward revision of AI investment expectations may instead lead to a decline in interest rates, and sustained rate declines could ease market anxiety and even bring about a recovery in non-AI areas. Negative expectations should not simply be extrapolated as a trend. East Money Information: Hold steady, rebound can be expected A-share capital flows have shown significant net inflows, which are expected to ease risk appetite, break the negative feedback loop of capital flows, and help the market gradually stabilize. Over the past two years, each time the A-share market stabilized and moved higher after an adjustment, net inflows into A-share ETFs had a certain leading quality. This week, A-share equity ETFs recorded total net inflows of 86.4 billion yuan (at the 96th percentile of the past three years). Overall A-share third-quarter and full-year profit growth, along with ETF funding support, will continue to provide support for A-shares. China Securities Co.,Ltd.: From liquidity to inflation The overseas pricing theme continues to revolve around liquidity, with three intuitive factors: geopolitical uncertainty over oil pricesoil prices have fluctuated repeatedly since September and recently once again reached $100; oil price transmission, meaning inflation concerns have begun to spread. The latest U.S. inflation data released last week reignited market worries about reflation. The issue of fragility in tech financing has recently begun to play out. Although this issue has been discussed all along, last week's CoreWeave credit risk and Anthropic's revenue miss brought the concerns into the open. These three sets of factors have consistently driven market moves. The new factor last week was tech financing fragility, and the market shifted to pricing a slower pace of Federal Reserve rate hikes, so U.S. Treasury yields moved lower while U.S. equities weakened instead. This article is reprinted from "Cailian Press," GMTEight editor: Chen Siyu.