Zhongtai: Will the current technology market replicate the 2015 technology bull market?

Zhongtai released a research report stating that, in the short term, driven by market risk appetite before the Two Sessions, it is not ruled out that technology stocks will continue to be strong. But at the current time, it still firmly believes in defensive assets (dividends, bond market) and safe assets (gold, non-ferrous metals, power equipment). On the other hand, attention should be paid to the risk of overvalued valuations in high-tech boards and small and medium-sized market values at the current high levels. Wait for "real shocks" such as Trump's tariffs, or the next deployment of industries such as the Hang Seng technology sector. Will this round of technology stocks replicate the 2015 technology bull market? This week, A-shares and Hong Kong stocks showed a fluctuating pullback trend, with a significant decline on Friday. Among them, small and micro cap stocks that had relatively good performance after the Lunar New Year had overall poor performance, with a significant decline in the week. Looking at the sectors, the market pullback on Friday was mainly due to profit-taking in the technology sector. On Friday, the computer, electronics, communication, and media industries in the AI downstream chain all saw significant declines, with the computer sector falling by more than 5%. In addition, the Hang Seng technology sector also saw a significant decline on Friday, dragging down the Hang Seng Index and the Hang Seng State-Owned Enterprise Index. The Hang Seng technology index fell by 5.32% on Friday, with BYD Company Limited, Ideal Automobile, and Xiaopeng Automobile experiencing significant declines. Since the Spring Festival, the rally in technology stocks has continued to evolve, with the market focusing on whether this round of technology stock rally can replicate the technology bull market of 2014-2015. At the same time, geopolitics and policy developments, such as the U.S. imposing tariffs, have also caused great disturbance to the U.S. and A-share markets. In terms of market sentiment, Zhongtai believes that the current market is more similar to the beginning of 2021 rather than 2014-2015. The overall macro environment this year has seen a significant increase in risk appetite. However, Chinese companies still face significant profit pressures. In terms of geopolitics, Trump's imposition of tariffs is faster than market expectations. Domestically, China's policy framework still focuses on high-quality development, and the intensity of monetary and fiscal policies during the Two Sessions may be lower than market expectations. In addition, the disintegration of the international trade order will make the international geopolitical situation more severe, and the difficulty of transshipment trade may also increase. Therefore, from an index perspective, Zhongtai believes that the market volatility this year may be significantly stronger than market expectations. In the short term, the post-Spring Festival market rise is mainly driven by the valuation increase brought about by breakthroughs in technology. However, after the Two Sessions, when this year's policy tone is set, and with the release of April financial reports and various economic data, the market may enter a period of "reality and realization". If the overall policy is below expectations and corporate profits have not improved, the pressure on index adjustments may be greater than expected by the market. Therefore, for investors currently holding defensive assets (dividends, bonds) and safe assets (gold, non-ferrous metals, power equipment, military industry, nuclear power, etc.), Zhongtai believes there is no need to "short" high-tech stocks, especially turning to A-shares with high valuations, small and medium market values, and technology innovation. In terms of industries, although the current market has high volatility, new energy and the ChiNext market in 2021 are industry themes that will run through the whole year. Zhongtai believes that the trend of NetDragon, computing power, and other Hang Seng technology targets by 2025 may be similar to the new energy market trend in 2021, becoming the main line of localized structural opportunities: 1) In terms of policy logic, the policy changes in this round are only targeted at local NetDragon and technology leading companies under private enterprise symposiums. In terms of actual impact, the valuation increase in this round of technology stocks may be only limited to the above local companies, making it difficult to drive the overall market. 2) Looking at the industry logic, the fundamental logic of AI lies in AGI (general artificial intelligence) - a winner-takes-all model where one model solves all problems, rather than the internet era model of each industry creating its own applications. After the launch of DeepSeek, most large model companies in China have fully entered the market, and the future radiation range of the industry chain may become narrower. 3) From the perspective of valuation and profit, the current P/E ratio of the ChiNext 50 index is 113 times, while profits are declining. As for Hong Kong stocks, the valuation of the Hang Seng technology sector is 23.62 times, with a profit growth rate of 23% in the Q3 of 24. This means that if Hong Kong stocks undergo adjustments due to factors such as Trump's tariffs in the future, long-term capital such as insurance funds can still be allocated. 4) In terms of funds, this round of technology stock rallies may still be mainly driven by "large existing funds", while long-term fund participation is more cautious. Due to the absolute return nature and compliance requirements of long-term funds, it is difficult for them to participate in the rally driven by the valuation increase of technology stocks.