China Securities Co.,Ltd.: The June allocation recommendation is to adopt a "barbell structure" with both high prosperity base camp and cyclical price appreciation chain coexisting.

China Securities Co., Ltd. released a research report stating that in May, the market focus was highly concentrated in the communication, electronics, and AI hardware sectors. Funds continue to revolve around industry prosperity and performance realization pricing. However, the AI sector has seen a significant short-term increase in prices and increasing trading congestion. It is not advisable to further increase the total AI position in June. Internally, it is recommended to shift focus from high-growth segments towards stagnant segments with improved fundamentals such as semiconductor materials, equipment components, PCB materials, and domestic computing power support. The industry allocation strategy should adopt a "barbell structure": on one end, maintain a low AI, semiconductor, and export manufacturing position; on the other end, allocate high dividend, stable cash flow assets to control portfolio volatility; in between, use cyclical price increases, new energy recovery, and policy order themes as flexible positions. If PPI recovery continues and income-inventory differentials improve, the weight of the cyclical price increase chain can be moderately increased, gradually expanding from coal and non-ferrous metals to chemicals, machinery, transportation, etc., under the condition that price increases can be transmitted to income and profit margins. Key points from China Securities Co., Ltd. are as follows: 1. The current economic situation presents the characteristics of "stable overall volume with prominent structure." The production side maintains a certain resilience with industrial value-added growth rates falling from previous levels. The high-tech manufacturing industry continues to maintain high prosperity, demonstrating the growing support of emerging industries for economic growth. Demand remains a major constraint, with slow growth in total retail sales of consumer goods, weak household consumption recovery, and real estate-related consumption still at a low level. Prices have shown a moderate increase, with improvements in PPI both month-on-month and year-on-year boosting profits for some upstream industries. However, this is more reflective of price-driven improvement rather than comprehensive demand expansion. Credit conditions are weak, with social financing growth relying mainly on government bonds issuance. Both corporate and household long-term loans are under pressure, indicating that the demand for real entity financing has not yet significantly recovered. Overall, the macro environment is more favorable for structural directions with clear prosperity, price recovery, or strong policy support. 2. From the perspective of industry fundamentals, the current industry clues are focused on the AI chain, export chain, and price increase chain. In the AI chain, high-tech industry value-added, integrated circuit exports, automatic data processing equipment exports, and electronic equipment manufacturing investments have performed well, corresponding to directions such as semiconductor design, wafer manufacturing, semiconductor materials, PCB, optical modules, servers, computing chips and signal creation. In the export chain, auto exports, appliance exports, electronic exports, aluminum, and some general manufacturing industries are still resilient. Follow-up attention is needed for changes in overseas orders, exchange rates, tariffs, and freight prices. In the price increase chain, improvements in PPI, rising raw material purchase prices, and price recovery of some industrial products provide support for coal, chemicals, non-ferrous metals, semiconductor materials, passive components, PCB, shipping, and shipbuilding. However, it is important to note whether price increases can be sustained, inventory can be digested, and profit margins can be improved, as these are key factors in judging the sustainability of related industry trends. 3. In May, the A-share market continued the trend of structural differentiation, with a highly concentrated performance in industries. Among the Shanghai Stock Exchange's level 1 industries, communication and electronics saw the highest increases, followed by utilities, building materials, and mechanical equipment, which also achieved positive returns, while most industries experienced declines. Traditional cyclical sectors such as petroleum and petrochemicals, agriculture, forestry, animal husbandry, fisheries, and steel saw significant declines, while consumer, pharmaceutical, media, and computer sectors experienced varying degrees of adjustments. The core of market pricing is no longer the total economic recovery, but is centered around AI industry trends, performance realization, price elasticity, and policy catalysts. The strength of communication and electronics reflects the continued focus of funds on the computing power chain, semiconductor, PCB, optical modules, storage, and other high-prosperity directions; while the decline in traditional cyclical and consumer sectors reflects market concerns about insufficient demand, sustainability of profits, and valuation recovery space. Overall, the market in May was a typical situation of "a few main themes contributing to the major gains." 4. The technology sector remained the most important industrial trend in May. Overseas, Nvidia's performance exceeding expectations continued to validate the strong global capital expenditure in AI; the rapid evolution of large-scale models and agent applications is driving the diffusion of computing power demand from the training side to the inference side. Domestically, domestic computing chips, super node servers, AI PCs, semiconductor manufacturing, and storage price increases collectively strengthened the technology chain prosperity. In terms of new energy, new energy vehicle sales continue to grow, with benefits for the power battery and energy storage sectors from anti-cyclical policies and supply-side optimization expectations. Lithium carbonate prices have surged significantly, and the progress of sodium-ion battery industrialization is also worth paying attention to. In the high-end equipment sector, there have been positive changes in commercial aerospace, intelligent body, industrial robots, and shipbuilding, especially with shipbuilding new orders and hand-held orders continuing to lead globally, showing that China's competitiveness in high-end manufacturing exports is still increasing. Consumer and real estate chains are relatively weak directions in this period. Retail sales growth year-on-year in April showed a significant slowdown, with poor performance in optional consumer categories such as automobiles, jewelry, appliances, furniture, and building materials, indicating that consumer willingness has not significantly recovered. Data on cultural tourism continued to grow, but with limited elasticity in income and average spending, indicating a more quantity-oriented recovery in consumption rather than a comprehensive improvement in prices and profitability. In the real estate sector, indicators such as development investment, new construction, and funding sources continue to be under pressure, with negative growth in sales area and sales volume. While some cities have seen marginal improvements in prices, overall stabilization is not yet enough to support a complete reversal of the real estate chain. Therefore, consumer and real estate chains are more suitable for observation at this low level. 5. In terms of industry prosperity, the upward channel continues to widen, but internal differences are evident. Directions such as semiconductor design, wafer manufacturing, PCB, semiconductor materials, passive components, optical modules, energy storage, shipbuilding, shipping, computing chips, semiconductor equipment are in an "upward but insufficient supply" state, presenting good investment value. Industries like photovoltaics, engineering machinery, panels, white goods, and charging piles have seen improvements in prosperity, but still face constraints due to oversupply. High-end liquor, catering, kitchen appliances, medical beauty, aviation, and tourism sectors are in a downward trend or facing significant supply-demand pressure. Entering June, industry allocation should shift from simply chasing technological flexibility to focusing on "prosperity verification, valuation constraints, and portfolio balance." The key areas to focus on are the AI hardware chain, semiconductor equipment materials, and energy storage, while keeping public utilities, banks, and telecom operators as high-dividend assets in the base holding. Caution should be exercised in directions with weak demand, insufficient price elasticity, or excessive trading. Allocation recommendation for June: barbell structure, maintain a base holding in AI/semiconductor and export manufacturing with high prosperity, allocate high dividend/cash flow assets for volatility control, and use cyclical price increases, new energy recovery, and policy order themes as flexible positions. Scenario one: AI chain continues to be strong, but congestion is increasing. Do not increase the total AI position, but shift focus internally towards stagnant realization segments such as semiconductor materials, equipment components, PCB materials, and domestic computing power support. Scenario two: PPI continues to recover, income-inventory differentials improve. Weight of cyclical price increase chain can be raised, expanding from coal and non-ferrous metals to chemicals, machinery, and transportation; provided that income-inventory differentials turn positive. Risk alerts: - Slow implementation of capacity reduction policies - Increasing uncertainty in global macroeconomic operations - Liquidity risk in capital markets - Spreading geopolitical conflicts.