Great Wall Fund manager You Guoliang has provided his outlook for the second half of the year, suggesting that overall market volatility is likely to increase. In his view, the two key factors determining market style and rally potential are the Federal Reserve's liquidity cycle and the sustainability of the AI industry's boom.
You Guoliang notes that the A-share market has experienced an extreme style shift this year, with the AI sector continuously absorbing incremental funds due to its strong industrial prosperity. This has disrupted the traditional pattern of sector rotation and mean reversion. However, since July, the market has seen significant volatility, accompanied by a notable pullback in AI stocks. Looking ahead to the second half of the year, he is particularly optimistic about investment opportunities in commercial aerospace, domestic computing power, defense trade, and commercial aircraft and engines.
Regarding the liquidity outlook, You Guoliang analyzes that while the market previously expected the Fed to be hawkish, the reality may be less so, which partly explains recent market fluctuations. He believes the Fed's rate cut cycle is not entirely reversed, and fears of a rate hike due to Middle East geopolitical tensions are overly pessimistic. With the US midterm elections approaching in the second half of the year, policy demands could influence the Fed's monetary policy. He sees a low probability of a rate hike this year and even a possibility of a rate cut, meaning marginal changes in liquidity will be a key catalyst for style rotation.
From a market style perspective, the manager observes that the A-share market has entered a phase of volatile rebalancing in July. After extreme divergence in June, where funds were heavily concentrated in AI, the market has begun a rotation with capital flowing out of high-level AI stocks into sectors like innovative drugs. He expects the index to maintain high-level volatility, but internal sector rotation will complete. Whether the market's main line can shift depends critically on changes in AI industry prosperity.
You Guoliang outlines three potential paths for the market in the second half of the year. First, if the macro environment remains unchanged and AI prosperity continues to exceed expectations, the rotation period will be short, and funds will flow back to the AI main line. Second, if the macro environment is stable but AI prosperity weakens, capital will repeatedly test lower-position sectors in search of new consensus, likely leading to a period of rapid rotation until a new sustainable main line emerges. Third, an optimistic scenario of a broad market rebound would require sustained expectations of Fed rate cuts, improving market liquidity, and stronger risk appetite. He will prioritize tracking macro-level marginal changes.
On the AI sector, the fund manager notes that profits are currently too concentrated in the upstream segment of the industry chain, and no large-scale, profitable AI applications have yet formed a commercial closed loop. While the sector's prosperity remains dominant, it is likely to maintain a wide-range volatile pattern after recent capital loosening, requiring medium-to-long-term observation.
In terms of investment strategy, You Guoliang plans to focus on TMT and high-end manufacturing as core tracks, seeking companies with long-term growth potential. He is particularly bullish on commercial aerospace, which he believes has national strategic support. The successful trial of domestic reusable rockets marks a shift from thematic speculation to industrial realization. He expects subsequent phased satellite constellation bidding to bring solid performance growth to the sector. Regarding the sector's recent weakness, he attributes it to the realization of short-term gains, a lack of heavyweight catalysts, and tightening liquidity suppressing risk appetite, rather than a breakdown of the industrial logic. He views the current low position of the commercial aerospace sector as similar to the early AI sector, prone to sharp volatility, but after this adjustment, the investment logic is likely to shift from thematic to industrial trend investing. While the market may become more differentiated, core companies with strong fundamentals have ample room for long-term growth. He will focus on tracking order placements across the supply chain, noting that consensus on the satellite segment may be higher.
Within the AI industry chain, You Guoliang favors the domestic computing power sector, which combines the beta of the computing industry with the alpha of domestic substitution. He notes that the sector is currently under pressure from crowded positions, large IPO capital diversion, and adjustments in US tech stocks, maintaining a high-level volatile pattern. However, the long-term industrial trend remains unchanged. Capital expenditure and financial data from overseas tech giants in July and August will be key observation points for the computing power sector. Within the segment, advanced packaging is a key tool for breaking through process bottlenecks in domestic chips and a relatively preferred direction.
You Guoliang views defense trade, commercial aircraft, and commercial engines as high-quality left-side tracks. The defense trade sector is currently at a historical low, and he expects industry orders to gradually materialize, offering ample room for valuation repair once the market begins high-low rotation. Domestic commercial aircraft and engines represent a trillion-yuan domestic substitution track. Next year's engine airworthiness certification will be a major catalyst, complemented by events like air shows and the centenary of the People's Liberation Army, highlighting the value of long-term left-side positioning.