China Securities Co., Ltd.: Escalating differences, how to view the market in the third quarter?

China Securities Co., Ltd. released a research report stating that the overall direction of the third quarter fundamentals has not reversed, but there are more disturbing factors compared to the first half of the year. The frequency and magnitude of short-term rebalancing may increase compared to the second quarter, but the conditions for triggering a medium-term major switch are not mature yet and need to wait for actual implementation to verify. In terms of industry allocation, although the logic of AI computing power remains prosperous, the volatility has increased. It is recommended to be cautious about chasing highs and to position oneself on the dips. The lithium battery sector is expected to enter a peak season, with energy storage demand continuing to warm up, and there are opportunities for phase valuation repair in the new energy sector. Dividend stocks are expected to see oversold rebounds, with high cost-effectiveness in allocation. Key points from China Securities Co., Ltd. are as follows: After a short-term rebound in the market, investors have different interpretations of the market performance in the following three quarters. The following factors are worth paying attention to: 1) From a fundamental perspective, the computing power sector still maintains high prosperity and is highly correlated with the overseas market. The performance reports and overseas financial reports will affect the trend of A-share technology and even the overall market. Since April, the domestic economy has been under marginal pressure, and the measures set out in the July political meeting and the efforts to boost the economy are also crucial. 2) In terms of liquidity, the repeated expectations of a rate hike by the Federal Reserve and vague statements by Chairman Powell have increased uncertainty about the flow of overseas funds. However, domestic liquidity expectations remain stable and neutral. 3) In terms of risk appetite, geopolitical events may intensify market volatility, and the listing of storage giants may cause short-term fluctuations in the technology sector. With the strengthening global linkage effect of technology stocks, it is necessary to continue tracking major overseas computing powers such as Japan, South Korea, and the United States. In summary, the overall direction of the third quarter fundamentals has not reversed, but there are more disturbing factors compared to the first half of the year. The frequency and magnitude of short-term rebalancing may increase compared to the second quarter, but the conditions for triggering a medium-term major switch are not mature yet and need to wait for actual implementation to verify. In terms of industry allocation, as the central pivot of market fluctuations in the third quarter is likely to rise, it is recommended to consider both the prosperous main lines and defensive hedges. The trend of the computing power sector has not turned, with increased volatility under high trading congestion. It is advisable to wait for a phase of correction to layout high-elasticity sub-sectors with logical price increases. The lithium battery sector is entering the traditional peak season combined with the resurgence of energy storage demand. Midstream materials production and prices have room for recovery. It is necessary to track production data to verify the prosperity elasticity. The dividend style showed weak performance in the second quarter, with opportunities for oversold rebounds. In the background of increased market volatility in the third quarter and low interest rates, the high dividend defensive value is expected to gradually release, highlighting the cost-effectiveness of allocation. Key focuses: banking, coal, utilities, AI, optical modules, storage, chips, industrial metals, lithium battery materials (VC), etc.