Zhongtai: The current technology market trend is far from over. The focus should be on four main themes for mid-term positioning.

Zhongtai released a research report stating that, in the mid-term, this round of market trends may not have ended yet. With the support of mid- to long-term fund anchor roles, potential for residential fund entry into the market, increased policies for technological innovation, and the upward trend of the AI industry, there is still room for growth in the current A-share market trends. The development stage of the AI sector in the current market roughly corresponds to the period of 2023-2024 in the US stock market when funds are diffusing from hardware to applications. The hardware infrastructure sector has been fully developed, the equipment and materials sectors are fermenting, and the application sector is just starting. This may indicate that the AI trend is far from over. The focus is on positioning for the mid-term around four main themes: 1) Hong Kong's technology leaders; 2) vertical applications brought about by the AI technology revolution; 3) innovative drugs and medical AI; 4) high dividend asset allocation, which can extend to fixed income + quantitative and other stable income products. Recently, due to the high volatility in the US AI sector and the increasing discussion of overseas "AI bubble," the technology sector in the A-share market has also experienced a noticeable correction. The Nasdaq index fell by -7.03% from October 29 to November 21, while during the same period, the technology innovation index and the ChiNext index of A shares fell by even more, by -11.11% and -12.16% respectively. Looking at different industries, there are differences in the timing of the correction in the technology sector of A shares: computer and media stocks reached their highs on September 17 and October 9 respectively, and have since fallen by -9.27% and -11.89% from their highs. On the other hand, electronics and communications stocks have started declining after the Nasdaq's high on October 29, with losses of -15.14% and -12.66% respectively. The main reasons for the correction in the A-share technology sector are mainly due to the adjustment in the leading AI companies in the US, the switch by institutions to defensive strategies at the end of the year to lock in investment yields, and the decrease in trading momentum of leveraged funds due to policy vacuum. First, the technology sector is strongly influenced by the correction in the leading AI companies in the US, which has transmitted to A shares. Recently, the high valuation of leading AI companies in the US has sparked discussions on bubbles, and coupled with the decreasing expectations of a December rate cut by the Federal Reserve causing increased volatility, the stock prices of AI leaders in the US have fallen. While Nvidia's performance exceeded expectations, it could not sustain a market boost. The technology sector in A shares is more affected by the leading companies in the US due to industry chain connections and valuation comparisons, leading to a decline in the technology sector as a result of the correction in the US. Secondly, institutions usually enter a defensive stage toward the end of the year to lock in their annual investment returns, which may have a significant impact on the technology sectors with high valuations such as electronics and communications. Thirdly, the probability of frequent policy announcements in the near term is low, leading to a decrease in trading momentum for leveraged funds. Looking ahead, Zhongtai believes that this round of technology market trends is far from over and is likely to continue after a short-term correction. The core reason is that the likelihood of a fundamental turnaround in the AI industry in the US is low, which will continue to offer significant valuation growth opportunities for A-share companies. Looking at the US market, on one hand, the performance of the leading AI companies is still strong. On the other hand, the large scale of buybacks by US listed companies has largely offset the pressure of selling by institutions. Underpinned by high earnings growth and massive buybacks, there may be high volatility and internal clearing at the individual stock level, but it is still far from the systemic collapse of the "technology bubble" seen in 2000. For A-shares, the current stage of development of the AI sector roughly corresponds to the period of funds diffusing from hardware to applications in the US market in 2023-2024, where the hardware infrastructure sector has been fully developed, the equipment and materials sectors are fermenting, and the application sector is just starting. This may indicate that the AI trend is far from over. In terms of capital flows, funds from different channels are still diverging this week, with withdrawals and bottom-fishing coexisting. ETFs and northbound funds have seen net inflows on a weekly basis, with the most significant inflow on Friday. Important shareholders of industrial companies are reducing their positions at a slower pace, while signs of exits from leveraged funds are emerging. Firstly, from the perspective of ETF funds, most sectors have seen net inflows, indicating opportunities for bottom-fishing. The CSI 2000, ChiNext 50, and dividend index ETF funds continued to see significant acceleration in net inflows, with the CSI 500, Growth Enterprise Market ETFs moving from balanced to net inflow, and although the Shanghai and Shenzhen 300 ETF was still experiencing net outflows before Thursday, the significant inflow on Friday covered the outflow of the previous few days, resulting in a positive weekly inflow. Secondly, northbound fund trading volumes have been very similar to those of the Shanghai and Shenzhen 300 ETF this week, with net inflows before Thursday and a complete recovery on Friday, enjoying the first significant growth since November. Thirdly, the reduction in holdings by major shareholders has reversed from a trend of four consecutive weeks, returning to the level at the beginning of November. Lastly, leveraged funds have significantly shrunk, with both margin balances and average collateral ratios decreasing weekly.