Zhongjin: Continues to focus on the improvement of economic cycle as the main trend of CKH HOLDINGS.

CICC released a research report stating that the focus of the current growth structural market in the future will be on tracking the economic conditions, such as the capital expenditure expectations of leading stocks in the US stock market, the global semiconductor sales cycle, when will the second derivative of profit growth in the core track change, and when will the industry penetration rate level slow down. The market is more interested in the issue of mutual funds "holding together", the current active mutual funds are not concentrated inflows of incremental funds in certain areas, the significant rise in some areas such as the AI-related sector may be related to the overall market inflows, and the holdings of mutual funds in the communication and semiconductor sectors are relatively high, not completely due to concentrated inflows of funds, but related to the significant rise of the sectors compared to others. CICC believes that there will still be advantages in growth in 2026, but the relative performance with other sectors may converge. After experiencing the capacity reduction cycle in the past three years, combined with the promotion of policies such as "anti-insulation", more and more pro-cyclical industries are expected to benefit from the supply and demand rebalancing. It is suggested to focus on the following main themes: 1) Economic growth: the capital expenditure of AI leaders continues to grow at a high rate, it is still advisable to focus on infrastructure sectors, such as optical communication, semiconductors, etc. The high-demand sectors like energy storage batteries and innovative medicines are also worth paying attention to. 2) Cycle improvement: Considering the possible escalation of geopolitical situations and oil price centralization, as well as the position of the industry capacity cycle, it is recommended to focus on the chemical industry, energy metals, oil service engineering, and oil transportation, etc., which are supported by the supply-demand pattern that pushes up prices, as well as the equipment for overseas trends such as power grid equipment, engineering machinery, and commercial vehicles. The main points of CICC are as follows: Can the high prosperity of growth style break free from the constraints of global macroeconomic uncertainty? Since the easing of the US-Iran conflict in April, the global technology growth style has resonated to set new highs. Since March, the US-Iran conflict has become a key factor affecting the pricing of global assets, with a sharp rise in oil prices and supply chain disruptions leading to stagflation concerns. The expectation of a Federal Reserve interest rate cut has been postponed, and global risk assets experienced a significant decline in March. With signals of negotiation gradually released by the US and Iran since April, and a ceasefire announced on April 8, global risk assets quickly recovered. In this context, key indexes representing the global growth style such as the Nasdaq index, the ChiNext index of A shares, and the comprehensive index of South Korea quickly set new highs. Among them, the Philadelphia Semiconductor Index in the US rose by 38.6% in April (as of April 24), and is expected to achieve the largest monthly increase since February 2000. High prosperity is a key factor for the growth style to counteract global macroeconomic uncertainties. Many investors are confused by the fact that the US-Iran conflict situation still has uncertainties, the strait passage is still blocked keeping oil prices high, and the risk of stagflation is still higher than before the conflict. However, major growth indexes in the US and A shares have risen to new highs despite the seemingly unfavorable global macroeconomic environment. It has been pointed out in a previous research report that the determinants of the growth market lie in the industrial trends of high prosperity and profit realization, which often outweigh other factors such as macroeconomics, valuations, and funds. If the trend of prosperity is clear, the growth momentum at the molecular end is expected to counteract the rising interest rates and risk premiums on the denominator end. The rise of this round of growth style is believed to be mainly driven by the significant progress in AI since March, although the Middle East situation has suppressed this prosperous trading, with the reduction of risks at the tail end of the conflict, the prosperous trading which was suppressed by risk preference is expected to return to dominance. This report also reviews the cases of strong growth in global macro uncertainty environments in history, providing reference for the current market rhythm and allocation strategies. Several cases of independent market trends of growth sectors during weak macro environments at home and abroad were reviewed, presenting the impact of major technological breakthroughs in the capital market in the past 50 years in chronological order. Specifically: Late 1970s: The US entered a stagflation period, the computer revolution drove up the Nasdaq index In the late 1970s, the US entered a stagnation period, and the overall performance of the US stock market was poor. At that time, the US experienced a complex situation of declining growth, high and steady prices, and rising unemployment rate in the 1970s, and experienced two oil crises in 1973 and 1978. Influenced by this, the year-on-year growth rate of the US CPI increased twice in the periods of 1972-1974 and 1976-1980, reaching peaks of 12.2% and 14.6% respectively, and there were multiple occurrences of negative GDP growth, with the unemployment rate rising to 11.8% in November 1982. In terms of the stock market, this phase was the worst performing period for US stocks since the Great Depression, with the Dow Jones index not rising for seventeen years from 1965 to 1981, and valuations falling by over 60%. At the same time, breakthroughs in microelectronics and the advent of the personal computer era drove up the Nasdaq index, despite the poor overall performance of the US stock market in the 1970s. Although US stocks performed poorly during the entire 1970s, with the initial containment of inflation by the end of 1974, the US stock market rebounded, and the Nasdaq index entered a long bull market. From the end of 1974 to 1981, the Nasdaq saw the largest increase of over 300%, even during the second oil crisis in 1978 the Nasdaq index still rose, while the S&P 500 and Dow Jones indexes had peak increases of only 100% and 70% respectively during the same period. US technology stocks rose under the pressure of stagflation, mainly due to the commercial breakthroughs in microelectronics technology. In 1971, Intel launched the world's first commercial microprocessor, the Intel 4004, ushering in the era of miniaturized computing; in October 1971 and September 1972, Intel and AMD were listed on the Nasdaq one after the other; in 1975, Microsoft was founded; in 1976, Apple was founded, and the following year, Apple II was launched, becoming the first commercially successful personal computer. From then on, computers that were expensive, bulky, and limited to government and corporate use started to move towards individuals and households, and the market quickly expanded. The significant technological breakthrough in this application formed a high certainty industry trend, with worldwide sales of microcomputers showing exponential growth (Chart 2), and semiconductor sales in the Americas also growing by 150% from 1976 to 1981, driving the US stock technology sector to rise independently amid the stagflation macro environment restrictions. 2013: Structural transformation of the domestic economy, the mobile internet wave drives up the ChiNext index In 2013, amidst the tightening of liquidity in China, the overall performance of the stock market was lackluster, but the trend of the mobile internet industry drove the growth sector to outperform the market. In 2013, the domestic economy was in a state of weak recovery, with the previous overcapacity in energy and raw materials, the year-on-year PPI was negative due to the negative growth, and the overall macro liquidity was relatively tight during the year. Externally, in May 2013, the Fed signaled tapering of quantitative easing (QE); internally, the central bank's overall monetary policy remained tight, with the ten-year treasury yield rising from 3.6% at the beginning of the year to a historical high of 4.6% at the end of the year, and the overall index performance was flat, but the ChiNext index defied the trend by rising against a background of 82.7% (Chart 3), with industries such as media, computer, electronics, and communication leading in gains for the year. The strong performance of the ChiNext index was attributed to the rapid development of the mobile internet industry following the popularization of smartphones. By the end of 2012, the penetration rate of smartphones in China exceeded 50%, and communication technology gradually transitioned from 3G to 4G, leading to rapid development of the mobile internet. The high prosperity of the electronic industry chain gradually transferred from the hardware side to the application side. Since 2013, the growth rate of mobile internet access traffic has been on the rise, with the box office growth rate rebounding to over 40% on a high base, the number of mobile internet users in China growing by 19.1% year-on-year in 2013, and mobile gaming users growing by 192.1%, with online shopping users growing by 24.7% year-on-year (Chart 4). Against the backdrop of industrial trends, the profits of industries such as electronics, media, computer, and communication started to improve from the bottom. Combined with the start of a new cycle of mergers and acquisitions, in the context of low profitability in traditional industries, the ChiNext index entered a profitability improvement cycle early on, outperforming in an environment of tightened macro liquidity. 2023-2024: In the Fed's interest rate hike cycle, the trend of the AI industry breaks out, with growth stocks in China and the US showing differentiated performance In the high-interest rate environment in the US, the Nasdaq index showed strong performance. The US entered an interest rate hike cycle at the beginning of 2022, with the Federal funds rate rising from zero to 5.25-5.50% in July 2023, and staying at high levels for a longer period until a rate cut in September 2024. The central pivot of the US ten-year treasury yield also reached 4% in 2023-2024, peaking at 5% in October 2023. Despite this, the US stock market did not perform poorly during this period, especially the Nasdaq index accumulated an increase of about 70% from 2023 to August 2024 (Chart 5). In 2023, the trend of generative AI within the AI industry broke out, driving the growth stocks in the US to overcome macroeconomic impacts; the growth style in China showed strong performance after 2024. In an environment of high global financing costs, the new advancements in AI became a key breakthrough. In November 2022, OpenAI released ChatGPT, marking the start of the commercial era of generative AI (Chart 6). With the industry roadmap becoming clearer and the demand for computational power increasing rapidly, data center construction accelerated, and major global tech giants increased their capital expenditures on AI in 2024, with the total capital expenditure of the four cloud providers (Amazon, Google, Microsoft, Meta) reaching $250.3 billion in 2024, an increase of 62.6% year-on-year. Driven by demand, chip manufacturers represented by Nvidia saw strong performance growth, with Nvidia's revenue increasing by 125.9% year-on-year in 2024, and net profit increasing by 581.3%. In this context, the Nasdaq index rose by 43% in 2023 and reached a historical high before the rate cut cycle began in 2024. Conversely, at this stage, domestic AI had not made breakthrough progress, and the technology sector in A shares did not perform well. It was not until the shift in policy in 2024 and the release of DeepSeek-R1 in early 2025 that reversed the innovation narrative in China, especially in the technology sector, which saw a trend of rising. This also proves the importance of industrial high prosperity and profit realization for the growth style. In conclusion, even in an environment of high macro uncertainty (such as rising inflation, weak growth, and tight liquidity), if the probability of tail risks is low and the high prosperity industry trends are combined with profit realization, the corresponding sectors are still likely to have independent market trends. Conversely, if the prosperity trend declines, even in a relatively loose macro liquidity environment, the growth style may also perform poorly. How to judge the growth stock market trend? In a previous research report, it was pointed out that although there may be fluctuations in the growth market due to factors such as valuations and macro environments, the essential change in industry trends is the key factor in determining the possible end of the market trend. However, recognizing trend changes can be difficult, and stock prices may react in advance, so it is important to pay attention to more forward-looking indicators. For example: 1) Slowing of industry penetration rate increases. For instance, based on Wind data, the global penetration rate of smartphones reached 20% by 2010, and although the penetration rate continued to increase thereafter, from the perspective of stock prices, the consumer electronics industry in China had peaked by the end of 2010. The focus of industrial trends shifted towards the application side after 2013, although the penetration rate of smartphones continued to rise and products upgraded, the electronic sector started to perform weaker than media and computer sectors since 2012, as the latter benefited from the trend of mobile internet popularization. The penetration rate of the new energy vehicle industry chain started to increase from 2020, and in mid-2022 the penetration rate broke through 20% (according to Wind data), although the rate is still on the rise, the speed of increase has slowed down, and the high point of the stock prices of the new energy vehicle sector generally occurred from the end of 2021 to mid-2022. 2) Second derivative change in profit growth. Another indicator to observe the trend change in growth markets is through the second derivative of profit growth. Typical growth trends are often characterized by valuation expansions followed by substantial profit growth to digest high valuations, and stock prices often reach peaks around the time of the trend change in profit growth. Following that, profits continue to grow strongly, and valuations decline, but stock prices also experience significant declines. For example, during 2021-2022, industries like batteries, photovoltaics, energy metals, and semiconductors saw their sector indexes reaching peaks around the time of the trend change in profit growth (Chart 7). Liquidity, valuations, and other factors are not decisive, although they may cause short-term market disruptions, they do not directly affect medium-term trends. Specifically: 1) When trading overcrowding is high, there may be stage adjustments, but the medium-term trend may continue. For example, in the ChiNext index trends in 2013-2014 and 2020-2021, there have been instances of high turnover rate drops, index stages of oscillation, or adjustments, but the medium-term trend continued under the impetus of industrial trends (Chart 8). When measuring the crowdedness of sector trading with the ratio of sector trading to total market trading volume, its effectiveness in judging growth market trends is limited. 2) The high concentration of mutual fund allocations is a result of pursuing high prosperity, not the reason for the market peak. Recently, investors have been paying more attention to the issue of mutual funds concentrating on technology stocks. Some views suggest the emergence of a fifth "holding together" market trend, but it is believed that this phenomenon is usually the result of investors pursuing prosperity, which generally complies with market laws. The phenomenon of "holding together" by itself does not determine whether a style of trading has peaked, and from the experience of historical "holding together" trends, there is no absolute threshold level (Chart 9). However, if mutual funds themselves become the main source of incremental funds, and inflows of funds passively drive reinforced consolidation, this is a risk that needs attention. 3) When valuations rise, the market may become more sensitive to disruptions in liquidity and news, but if the industrial trend continues and medium-term business profit growth can digest valuations, any temporary adjustments due to other factors may provide opportunities for positioning. For example, the electric vehicle industry had high valuations in 2020, with a P/E TTM exceeding 125 times at the end of the year, reaching historical highs, but the profit growth in Q1 2021 was over 250% year-on-year, with subsequent quarters seeing some decline but overall strong profit growth, leading to the trend continuing until the end of 2021 (Chart 10). Therefore, if the industrial trend does not change, prosperity and profit have no substantial changes, any short-term adjustments due to other factors often provide opportunities for positioning. Looking ahead: trend-based growth markets + cyclical market trends Recently, the rise of growth styles represented by the ChiNext Index momentum is essentially at the high prosperity at the molecular end. Since the US-Iran conflict in March, signaling a significant increase in macroeconomic uncertainty, the rise in oil prices has raised the threshold for global inflation risks and Fed rate cuts, which is not a typical bullish environment for growth styles. However, both the Nasdaq and the ChiNext Index have hit new highs, we believe this is mainly due to strong prosperity in AI mitigating the negative impact of the denominator end. At the beginning of this year, the open-source AI Agent framework OpenClaw came out, allowing for automated operations through natural language, pushing AI from general dialogue to practical production tools; from January 25 to April 26, GitHub Stars had soared to over 364,000, [2] several tech giants were actively setting up AI Agents based on OpenClaw, accelerating the popularization of AI Agents by users, showing the market the possibility of the AI industrial chain forming a commercial closed-loop and realizing substantial performance. On the other hand, AI giants are expanding their capital expenditures and increasing their investments in computing power, with the year-on-year growth rate for global semiconductor sales reaching 61.7% in February, setting a record high in nearly 40 years, further accelerating the global semiconductor cycle at a high level. In addition, the high growth in demand for energy storage, coupled with the acceleration of energy transition expectations due to high oil prices, has made the energy storage battery industry chain a driving force for the strong market indexes. With the easing of geopolitical trade tensions, this high prosperity trade is returning to lead the market. In the future, the focus of the growth style will continue to be on tracking prosperity. Combined with the analysis above, the focus of the current growth structural market trends in the future will be on tracking prosperity, such as the capital expenditure expectations of leading stocks in the US stock market, the global semiconductor sales cycle, when the second derivative of profit growth in the core race track changes, and when the industry penetration rate level slows down. The issue of mutual funds "holding together", which the market is more focused on, is observed not to be a concentrated inflow of incremental funds in certain sectors in this round of active mutual funds, with quick gains in some sectors like the AI-related sector possibly related to the overall market inflows, and the mutual fund holdings in the communication and semiconductor sectors are relatively high, not solely due to the concentrated inflow of funds, but related to the significant rise in those sectors compared to others. Continuing with trend-based prosperity and cycle improvement as the main themes. As pointed out in a previous research report, growth will still have advantages in 2026