Shenwan Hongyuan Group Co., Ltd. has released a research report stating that the overall market is unlikely to achieve an effective breakthrough in the short term, as structural divergence trends are reaching extreme levels. The momentum in the AI computing power inflation theme is diminishing, with focus shifting towards more segmented areas such as PCBs and capacitors. For the medium term, the firm remains optimistic about the verification opportunities in the new energy, new energy vehicle, and export chain sectors. Concurrently, it advises maintaining allocations within the AI industrial chain and strategic resource themes.

Shenwan Hongyuan's key views are as follows:

I. Reiteration of Difficulty for Short-Term Market Breakthrough: 1. Short-term incremental capital inflows are relatively weak, with capital being siphoned among different sectors. 2. The overall market has recently entered a corrective phase. While momentum persists in leading technology assets, short-term structural divergence has intensified to an extreme. 3. Within the technology sector, rotation is accelerating and divergence is widening. Floating profits in some previously leading sectors have weakened. The overall market faces difficulty in achieving a significant breakthrough in the short term, while structural divergence trends are becoming extreme: 1. Short-term incremental capital inflows are weak. Although margin financing balances increased this week compared to last week (net purchases of 42.4 billion yuan this week vs. 22 billion yuan last week), they have declined significantly from the peak two weeks ago (86.8 billion yuan). Furthermore, this week's net margin inflows likely chased momentum in sectors like semiconductor equipment, with short-term investment outcomes leaning towards increased floating losses. Industry ETFs experienced overall net outflows, with severe structural divergence: net inflows were seen in semiconductor chips, 5G, consumer electronics, and utilities, while net outflows occurred in basic chemicals, commercial aerospace, biopharma, batteries, and power grid equipment. Under such capital supply-demand dynamics, market momentum effects are inevitably biased towards contraction. Since early April, broad-based ETFs have seen continuous net outflows, turning to a slight net inflow this Friday (4.9 billion yuan), but their contribution to short-term capital supply and demand remains limited. 2. Since May 14th, the overall market has entered an adjustment phase, with only a few leading technology assets maintaining momentum (from May 14th to 28th, only four Shenwan primary industries rose: electronics, communications, building materials, and coal). The short-term relative cost-effectiveness across industries has also diverged significantly. 3. Rotation within the technology sector is accelerating, with momentum increasingly focusing on more niche segments. Some previously strong momentum sectors have begun their own adjustment phases over the past two weeks. A typical example is semiconductor equipment, which previously saw concentrated ETF inflows but experienced a rapid peak and decline in floating profits, leading to a swift reversal to ETF outflows. If floating profits further decline towards the break-even line, net ETF outflows from the sector may accelerate again.

II. Conditions for a Market Re-breakthrough: 1. Further strengthening of new economic industry trends. 2. Broader fundamental verification, with new economic sectors building strength and other directions taking up the baton. 3. Reinforcement of a positive cycle for incremental capital inflows. The report reiterates that there is no need to fear waiting for a major upward trend; over time, conditions for a market re-breakthrough will improve. 1. Further progress in new economic industry trends. The continuation of extreme divergence within technology industry trends requires steady cyclical verification alongside sustained catalysts and strong earnings validation in the new economy. 2. Broader verification of fundamental improvement. The conditions for this are not unfavorable, with supply growth in upstream cyclical and midstream manufacturing sectors expected to decline by 2026. Supply chain security and energy security initiatives could lead to validation of increased China's export share (high growth in coal chemical industry chain exports was verified in April; subsequent focus should be on increased share in downstream consumer and finished product exports). In such a scenario, sector rotation towards other directions could become more forceful, lifting the overall market. This would also allow more time for the verification of further progress in technology industry trends. 3. Broader inflows of incremental capital. Currently, the accumulation of profit-making effects has reached a threshold (net asset values of public funds issued during the last peak have generally exceeded 1.20), meaning the market largely possesses the conditions for broader incremental inflows. However, the learning effect from 2021 is at play, making potential incremental capital cautious towards markets with extreme structural divergence. The positive cycle for short-term incremental capital has not fully unfolded. The combination of equity investments with fixed income and quantitative strategies appears significantly more attractive in fund channels. The current market seems to lack a compelling "this time is different from 2021" investment narrative. This narrative could be a comprehensive, in-depth breakthrough in the AI industry trend, or more sectors joining the positive cycle (the 2021 major uptrend halted at an extreme level of a structural bull market, whereas other historical major uptrends experienced broader phases of momentum diffusion). The firm continues to note that the longer the consolidation phase, the more positive factors could be reflected in a major uptrend, potentially including: further progress in new economic industry trends, cyclical economic improvement, and shifts in relative national strength. The stance that there is no need to fear waiting for a major trend remains unchanged; consolidation can still lead to a breakthrough.

III. Short-term and Medium-term Outlook: In the short term, the momentum in the AI computing power inflation direction is decreasing, with focus shifting to segmented PCB areas, capacitors, etc. During the short-term adjustment phase, rotations from high to low valuations are occurring but are still biased towards technical rebounds from oversold conditions. In the medium term, the firm continues to be optimistic about the verification opportunities for prosperity in new energy, new energy vehicles, and the export chain. Simultaneously, it advises continuing to configure around the AI industrial chain and strategic resources. In the short term, sectors with sustained momentum within the technology industry trend are dwindling, with focus concentrating on areas like segmented PCBs and capacitors. The continuation of extreme structural divergence will increasingly depend on new catalysts and verifications. As relative cost-effectiveness recovers, rotations from high to low valuations are playing out. The firm believes this short-term activity still leans towards technical rebounds from oversold levels. High-frequency trading capital participating in these rotations can lead to fast-moving but subsequently more volatile short-term trends. Meanwhile, investor confidence to extrapolate improvements in real estate and consumption remains insufficient, and the force for a major trend recovery has yet to gather. The report continues to suggest monitoring clues for new growth directions following the adjustment of the global industrial landscape post US-Iran tensions. Focus should be on sectors capable of increasing global market share based on China's energy security and supply chain security, effectively passing on costs overseas. Key sectors to watch include new energy, new energy vehicles, and basic chemicals. For the medium term, the core asset themes of this uptrend remain unchanged. Continue to focus on allocation opportunities within the AI industrial chain and strategic resources. Optical communication, energy storage, memory, and gas turbines remain high-growth, high-momentum assets for the medium term. Strategic resources continue to be era-defining growth assets, and the scope of what constitutes a strategic resource may continue to expand. Non-ferrous metals, the oil industry chain, shipping, and new energy are all medium-term directions.

Risk Warning: Overseas economic downturn exceeding expectations; Domestic economic recovery falling short of expectations.