On July 14th, the three major indices all closed higher, with the majority of broad-based indices rising, and trading volume in the two markets slightly contracting. Specifically, the Shanghai Composite Index rose 1.36% to 3,967 points; the ChiNext Index surged 3.43%. Hong Kong stock indices experienced volatile trading today, with the Hang Seng Index closing lower in the morning session. As of the A-share market close in the afternoon, it was temporarily up 0.58%. Combined trading volume in the two markets shrank to approximately 2.7 trillion yuan.

WIND data shows that the majority of the 31 primary Shenwan industries closed higher. Among them, Communications, Nonferrous Metals, Building Materials, and Petroleum & Petrochemicals led the gains, rising 5.25%, 5.11%, 4.85%, and 4.34% respectively. National Defense & Military Industry, Media, Computers, and Banking underperformed. Out of over 5,300 stocks in the entire market, 4,206 advanced, indicating a favorable market sentiment for generating returns.

Initial Catalyst for the Rebound

Recent excessive pessimism among investors has been overpriced, leading to a technical rebound in the A-share market today. Over the previous few trading sessions, influenced by factors such as significant external volatility and geopolitical conflicts, the Shanghai Composite Index experienced consecutive declines, successively breaching key psychological levels of 4,000 points and 3,900 points, as well as the long-term moving average, hitting a new low for the period. This led to a sustained build-up of pessimistic sentiment and a concentrated release of panic selling pressure, which accumulated sufficient momentum for a phase of rebound. Today, the Shanghai Composite Index briefly approached the support level near 3,900 points in the morning, and the ChiNext Index also tested the important 3,700-point level. This created a strong demand for technical repair in the market. Around the midday session, the indices experienced a rapid V-shaped recovery, leading to a collective rebound in the afternoon. The three major indices all surged, with the Shanghai Composite Index reclaiming the 3,900-point level and the ChiNext Index soaring in a straight line, gaining over 3%. Sector-wise, computing hardware continued its strong rally, with directions like CPO and PCB staging powerful rebounds. Chip and semiconductor stocks recovered, while value-oriented sectors like coal and oil & gas also continued to strengthen.

Fundamental Drivers

From a fundamental perspective, data released by the General Administration of Customs today showed that June exports denominated in US dollars grew by 27% year-on-year, marking the strongest growth rate since October 2021 and significantly exceeding market expectations of 19% (May's growth was 19.4%). For the January-June period, exports in US dollar terms increased by 17.6% year-on-year, while imports grew at a faster pace of 26.6% year-on-year. In the first half of the year, the export structure continued to shift towards high-end manufacturing. Exports of high-tech products surged 39% year-on-year, the proportion of mechanical and electrical products in total export value rose to 63.5%, and exports of self-owned brands grew by 25.4%. Currently, as regions worldwide accelerate the deployment of large models and data centers, the boom in AI server and computing infrastructure construction continues to drive up orders for upstream components. China's complete electronics industry chain is capturing incremental global orders, directly boosting export volumes for products like chips and semiconductors, CPO, PCB, memory silicon wafers, and MCUs. In short, AI demand still has strong fundamental support. The recent short-term volatility in A-shares is more about digesting trading-related factors, with the market showing a rapid rebound after touching key technical levels.

Upcoming US Data and Market Implications

Tonight, the US June CPI data is set to be released, with expectations that inflation may decline, potentially easing rate hike expectations. On Tuesday evening at 20:30 local time, the US will announce the June CPI inflation data. The market currently holds a relatively consistent expectation that US inflation levels will see a phased decline, which could cool expectations for Federal Reserve rate hikes, providing a marginally looser atmosphere for global capital markets. Based on general market expectations, the US June CPI is projected to show a month-on-month change of -0.1%, with the year-on-year rate falling to 3.8%, a significant drop from the previous 4.2%. Core CPI is expected to grow 0.2% month-on-month, with the year-on-year rate slightly declining to 2.8%, marginally lower than the previous 2.9%, indicating a clear overall cooling trend in inflation. The core driver for this US inflation decline is the drop in energy prices, primarily due to positive developments in the Iranian geopolitical situation in June and the gradual restoration of shipping order in the Strait of Hormuz, effectively alleviating global crude oil supply concerns. Data shows the average Brent crude oil price in June fell to $84.1 per barrel, a significant decrease from $103.4 per barrel in May, while the average US retail gasoline spot price also declined to $3.96 per gallon. Driven by the substantial pullback in energy prices, the energy component of the US CPI for June is expected to show a significant month-on-month decline, with airfare prices also falling, further pulling down overall inflation. Combined with the previously released US non-farm payroll data that fell significantly short of expectations, market concerns about aggressive Fed rate hikes have already eased somewhat. However, overall market sentiment remains cautious rather than overly optimistic. On one hand, the US economy shows strong resilience, supported by continuously rising real interest rates. On the other hand, uncertainty surrounding the Fed's policy stance constrains the rise in market risk appetite. Overall, the release of this monthly CPI data may serve as a short-term important indicator, while the FOMC meeting at the end of July will become an even more crucial window for the market to gauge the Fed's rate hike path for September. Subsequent focus should remain on the actual inflation data and the Fed's latest policy signals.

Outlook for A-Shares

Returning to the A-share market, we maintain our recent view overall. After experiencing high-level volatility and deleveraging globally, the valuation resilience and relative attractiveness of the A-share market have become more prominent. Investor risk aversion sentiment has seen a phase of repair, and the market is expected to further stabilize and recover. Overseas, the breakdown of the US-Iran ceasefire agreement and the resurgence of geopolitical conflicts indicate that geopolitical risks remain volatile, but the probability of a significant escalation in hostilities is still relatively low. The minutes from the June Fed meeting show increased divergence among officials regarding the future policy path, indicating overseas risk appetite still faces disturbances. However, with the confirmation of a year-on-year decline in US CPI on July 14th, expectations for Fed rate hikes may ease somewhat. Domestically, recent intensified volatility and high-level adjustments in A-shares have further revealed the fragility of high-level trading structures. Market observations show that leveraged funds are continuing to deleverage, with the recent significant reduction in the scale of CSI 300 ETF funds showing improvement, while funds like semiconductor equipment ETFs have seen an increase in scale. After digesting the phase of panic selling pressure, the market tends to stabilize and recover. Overall, downside risks for A-shares are relatively controllable. The high-level volatility is digesting trading factors. Against the backdrop of the AI industry trend continuing to provide upward growth momentum, subsequent opportunities may still be found in structural directions where performance can be verified and positive trends can be sustained.

Recommended Investment Focus

Regarding investment focus, maintaining a balanced allocation is advised to navigate market volatility. In the medium term, continue to focus on technology industry trends and verify new areas of strength in energy and supply chain security. During the earnings verification period, firmly avoid high-priced, high-valuation theme stocks lacking earnings support. On the offensive side, technology and growth sectors may still be the medium-term main theme, but short-term focus should be on directions where orders, earnings, and industry trends can all be realized, such as computing power, semiconductor equipment, and materials. Against the backdrop of the technology sector not yet showing obvious signs of froth, high-growth directions still possess some ability to withstand liquidity disturbances. Innovative drugs, benefiting from the continuous realization of global cooperation value and the advancement of domestic payment and pricing reforms, coupled with relatively full adjustments earlier, may serve as a supplementary allocation with independent industrial logic. Simultaneously, with the tightening of mineral policies and rising demand from AI servers, strategic minor metals like molybdenum, tantalum, germanium, tungsten, indium, and tin deserve attention. As energy prices and corporate cost constraints gradually become apparent, directions related to energy security such as computing-power coordination, energy storage, wind power, green power grids, and lithium batteries may become new branches of strength. On the defensive side, short-term funds rotating from high to low valuations may continue flowing into high-dividend sectors and cyclical sectors benefiting from strait navigation and declining risk premiums. It is recommended to pay attention to directions like nonferrous metals, chemicals, and coal. Additionally, non-banking financials is also a direction with strong interim earnings season performance. Supported by factors such as high industry prosperity, valuations at historical lows, and most institutional positions being cleared, this sector may continue to receive sustained and significant attention from funds going forward.

Risk Disclosure

The data used in this material is for reference only. The views and analytical forecasts cited represent the analysis and judgment of investment research personnel under specific current market conditions and based on certain assumptions. This does not imply suitability for all future market conditions and does not constitute investment advice for readers. Investing involves risk, and caution is required. Before making any investment decisions, please carefully read the fund contract, fund prospectus, fund product key facts statement, and other legal documents of the product, as well as this risk disclosure statement. Fully understand the risk-return characteristics and product features of this fund, carefully consider all risk factors associated with the fund, and based on your own investment objectives, investment horizon, investment experience, and asset status, fully consider your own risk tolerance. On the basis of understanding the product situation and sales suitability opinions, make rational judgments and prudent investment decisions.