Market conditions have generally shown signs of recovery recently. In the preceding period, leading sectors like chips and semiconductors experienced a sharp pullback, significantly dampening investor confidence. Subsequently, the market quickly rebounded, driven by a continuous stream of favorable policies, positive signals released from a CSRC investor forum, and the joint expression of confidence in China's equity market by five major insurance companies. Additionally, several chief economists, including myself, have expressed positive views on this slow and steady bull market, contributing to the rebound.

I have emphasized to you all on multiple occasions that this market trend is a slow and steady bull run, characterized by structural differentiation. One should not lose confidence or assume a bear market has arrived simply because of short-term declines. Similarly, a correction in tech stocks does not signal the end of the technology sector's uptrend. In my view, this round of adjustment is merely a correction for the excessively rapid gains earlier. Back in mid-to-late May, I cautioned that many investors were heavily allocating to tech sectors represented by chips and semiconductors, leading to excessively high concentration in their trades and potentially facing significant adjustment risks. Therefore, I advised everyone to rationally reduce positions and diversify allocations to prepare for a potential major correction. At that time, I highlighted several indicators. First, the trading volume of the top 5% of stocks accounted for 50% of the total, hitting a historical record. The second indicator was the margin financing balance surpassing the 3 trillion yuan mark, exceeding the previous historical record of 2.27 trillion yuan set a decade ago. Third, the South Korean stock market saw a frenzy of retail investing, with even leveraged tools like 2x ETFs becoming prevalent, causing the market to enter a pattern of extreme volatility, frequently triggering circuit breakers in both directions. These were the three key characteristics signaling the approaching end of a technology rally. Hence, I strongly advised everyone at the time to decisively deleverage, reduce positions, and diversify to navigate this adjustment. The subsequent market movements validated my judgment. Many investors who followed these three steps preserved their gains from the first half of the year and avoided most of the drawdown. This illustrates the importance of overcoming greed and maintaining rationality when the market rises too rapidly. Following a significant decline last week, the market continued to fall sharply this Monday. I judged that this was another moment requiring investors to overcome fear: a break below key technical levels is an important signal for a market bottom. Coupled with the positive signals from the CSRC investor forum and increased buying of several ETFs by state-backed funds, I stated that it was time to conquer fear. Subsequently, on Tuesday, technology stocks rebounded strongly after probing lows. While this sharp rebound does not fully confirm that the adjustment is complete or that a reversal in tech stocks has begun, it has at least effectively boosted investor confidence. The market is expected to confirm a bottom through repeated fluctuations and consolidation, continuing the slow and steady bull trend.

Analyzing A-share Market Characteristics

Analyzing the overall operational characteristics of the A-share market, I previously summarized that following this significant decline, the pattern of technology stocks being the sole standout performer in the first half of the year has likely ended. The second half is expected to enter a phase of rotation among multiple sectors. Early last year, I recommended focusing on six major investment themes to capture opportunities in the technology bull market. These six themes do not rise simultaneously but rather take turns leading the market. Chip and semiconductor stocks have already rallied for over a year; in the second half, other themes are expected to rotate into favor. Beyond the technology sector, other areas like new energy, consumer goods, non-ferrous metals, and even dividend stocks such as banks and utilities are likely to see rotational opportunities and attract capital. In essence, the market dynamics in the second half will be more diversified rather than concentrated in a single direction. It is crucial to recognize this shift in market style to position for the second half's trends.

Economic Data and Outlook

The National Bureau of Statistics released economic data for the first half of the year. The overall characteristic was steady growth, though the growth rate in the second quarter decelerated compared to the first quarter. Summarizing the features of first-half economic growth, exports showed strong growth while domestic demand remained relatively weak. Notably, consumption growth slowed considerably, and investment growth was significantly impacted by a sharp decline in real estate investment, dragging down overall economic performance. From an industry perspective, advanced manufacturing and technology innovation sectors like artificial intelligence experienced rapid growth and prosperity, whereas many traditional sectors saw growth slow down. The characteristics of economic transformation and industrial upgrading are becoming increasingly evident. In the second half, a top priority is to boost consumption and stimulate domestic demand through enhanced policy measures to stabilize the economic foundation. China's export competitiveness remains very strong. Despite global instability, China's export products have maintained robust growth, particularly the "new three" exports—new energy vehicles, photovoltaic products, and lithium batteries—which have shown considerable strength. Furthermore, the value-added of export products is continuously improving. Previously, China's exports were primarily low-to-mid-end manufactured goods, including clothing, toys, and other OEM products. Now, the main exports are higher value-added products like mechanical and electrical equipment, mobile phones, and new energy vehicles, reflecting the strong competitiveness of China's industries. In the second half, it is essential to maintain this advantage in exports to contribute more significantly to economic growth.

Technology Sector Focus and Market Volatility

Technology innovation industries will remain a focal point in the second half, as their development momentum remains quite positive. Returning to the A-share market, recent volatility has noticeably increased, with frequent intraday sharp declines followed by strong rebounds, or morning surges followed by afternoon plunges. This round of volatility is driven by multiple factors. Firstly, from a capital flow perspective, funds were heavily concentrated in technology innovation plays in the first half, leading to substantial accumulated profits in sectors like chips/semiconductors, computing power/algorithms, and optical modules. Combined with sharp declines in US, Japanese, South Korean, and Hong Kong stock markets, this directly triggered profit-taking and capital outflows, constituting the primary reason for this decline. Secondly, from an investor sentiment perspective, most investors exhibit herd behavior, chasing rallies and selling during declines. During rallies, they fear missing out and flood into hot sectors; during declines, they panic-sell, fearing further losses. This emotional shift significantly amplifies intraday volatility. It's not just the A-share market experiencing heightened volatility; even the consistently strong US Nasdaq index has recently been fluctuating wildly, with sharp falls one day, sharp rises the next, and falls again the day after.

Insights from Buffett and Investment Philosophy

In May this year, I attended the Berkshire Hathaway annual meeting in the US for the eighth time. At the outset, Warren Buffett remarked that the current US stock market is like having a casino next to a church, with many people flocking to the casino instead of the church, vividly illustrating the prevalent speculative atmosphere in US stocks. Recently, in a rare media interview, the 95-year-old Buffett, with clear logic, reiterated that the US market is characterized by heavy speculation and obvious bubble-chasing. Therefore, Buffett has maintained a cautious approach. Although he added to his position in Google during this period, his overall portfolio allocation has been reduced from a peak of around 80% to below 40%. This reflects Buffett's consistent style: selling stocks during bull markets and acting as a savior to increase positions during the late stages of bear markets. This focus on earnings certainty is precisely what has allowed Buffett to navigate countless crises and bubble bursts unscathed, standing firm and achieving a 60,000-fold return over 61 years, creating an exceptionally rare investment track record. In the short term, Buffett's performance may not seem extraordinary, with an annualized return of 19.9%, which might lead some retail investors to underestimate him. However, over a decade-long horizon, one cannot help but marvel that Buffett is still Buffett. The key difference between these renowned investors and ordinary ones is their ability to navigate full market cycles and achieve compound growth. Many retail investors may multiply their money in a bull market only to lose it all in a bear market, and if leverage is involved, they might even lose their accounts entirely. Therefore, I believe that in the current environment of relatively severe market froth, on one hand, we should firmly maintain a positive long-term view on the AI technology industry direction—there's no issue with that. AI technology remains a major trend that will profoundly impact human work and life over the next 10 to 20 years. However, this is not directly linked to the potential bursting of a tech bubble or a major decline. Just like the dot-com bubble burst in 2001, the internet was just emerging then and experienced massive development over the subsequent 20 years. Yet, that didn't prevent the 2001 bubble burst, where the Nasdaq fell 80%, many individual stocks delisted, and ultimately, the truly good internet giants emerged and grew into behemoths. But if you didn't survive the 2001 bubble burst risk, the subsequent rise would be irrelevant to you. The current AI tech bubble follows a similar logic. That's why, after returning from the Berkshire meeting post-May Day, I have consistently advised everyone to "dance near the exit."

Future Outlook for Tech Investments

Chip and semiconductor companies are the "shovel sellers" of the AI era, while computing power is the "water, electricity, and coal" of the AI era, which is why I rank them as the top two among the six major investment themes. However, due to excessive gains over the past year, significant profit-taking and rapid adjustments have occurred. Although the market is expected to continue its upward trend going forward, differentiation will emerge. This is because the market for technology leaders is entering an earnings validation phase. The market's criteria for judging the value of technology companies will also change. Speculative trading based on themes and concepts will diminish, and the ability to deliver on earnings will become the primary standard for evaluation. Only those leading companies that can secure sufficient orders or currently deliver on earnings are likely to continue rising and even reach new highs. Conversely, those pseudo-tech stocks driven by conceptual speculation may struggle to recover and could even revert to their original state. Therefore, investing in technology stocks also requires a value investment approach, returning to fundamental research. Buffett's mentor, Benjamin Graham, once said that in the short run, the market is a voting machine, but in the long run, it is a weighing machine. Short-term stock price fluctuations are unpredictable, but in the long term, they are tied to one factor: whether the company can deliver on its earnings and by how much earnings grow—ultimately, the stock price will grow by a similar multiple. Following this major adjustment, the criteria for judging the investment value of technology stocks have undergone a profound change. It is essential to diligently research fundamentals to identify and allocate to some leading technology stocks, rather than following the crowd in speculative theme or concept plays.