Shenwan Hongyuan Group Strategy: Adjustments Are Coming to an End, a New Round of Slow Growth Awaits.

1. Adjustment phase is entering the final stage: Non-technology sectors will adjust first in May-June, followed by adjustments in the technology sector in June-July. The adjustment structure is approaching perfection, with the profit effect and momentum effect contracting sufficiently. The adjustment phase is already showing signs of coming to an end. In the final stage, attention should be given to the potential impact of the listing of domestic storage industry leaders on fund differentiation. Non-technology assets were already at low levels, and with the adjustment in the technology sector, the adjustment structure has become more complete. At the same time, the profit effect and momentum effect contraction has been sufficient, and we are not far from the bottom of this round of adjustments. In the final phase, it is necessary to pay attention to the impact of fund differentiation caused by the IPO of domestic storage industry leaders. While the profit from holding technology sector positions has decreased to a low level, it may still be near breakeven, and there may be a concentration of fund outflows. If realized, this could be the absolute bottom of this round of adjustments. 2. Slow down, a new round of upward movement needs to be carefully planned: The mining wave that started in mid-November 2025 has reached a sufficient level of breadth and depth in market evolution. In the short term, it is highly probable that the inertia of supply and demand in funds has been disrupted, which could be a turning point in the segmented market movement in the technology sector. The pace of the technology sector market has slowed down, entering a phase of waiting for new significant industrial catalysts. When the market restarts, it is likely to be a new phase, rather than a simple continuation of the previous stage's market clues. The inertia of funds has been disrupted, and the pace of the technology market may slow down accordingly. In the shining market of the technology sector in May-June, it seems that "waiting for new catalysts before making decisions" is always wrong. Without significant new catalysts, the market will continue along its current path with significant market segmentation. However, after the disruption of fund inertia, we believe that a new round of upward movement needs to be carefully planned, and now "waiting for new catalysts before making decisions" is the right approach. We discuss 3 reasons: 1. Since 2025, there have been 3 main points where the floating profits of the electronics industry sector turned negative, which were in early April 2025, mid-November 2025, and late March 2026. Although the adjustments in April 2025 and March 2026 were due to external factors such as geopolitical disturbances, these three points were also windows of segmentation in the market movement, and the start of a new upward market phase was based on the realization of significant industrial trends. Before April 2025 was the DeepSeek market phase, followed by the beta market phase with high overseas AI capital expenditures. In September 2025, the overseas AI capital expenditure beta market reached a high point, and in mid-November, the launch of the Google AI chain marked the beginning of the mining wave. In late March 2026, after the US-Iran conflict adjustment, Anthropic's profit model took off, pushing the mining wave market to a higher level. This time, with the disruption of fund inertia, we also need to wait for the catalyzing effect of ShenZhen New Industries Biomedical Engineering to restart the upward market movement. 2. The depth and breadth of the mining wave market phase have reached a sufficient level, which is also a reason why the technology market may need to enter a new stage. With the deepening of the mining wave market phase, the difficulty and elasticity of introducing new technological innovations increase, and the probability of a new wave of mining contraction also increases. Recently, concerns have been raised about supply shocks caused by industry chain mergers and acquisitions, and speculation about future technological developments may also lead to significant short-term fluctuations, showing the market's vulnerability. 3. There is a significant market segmentation, with funds flowing cyclically in the sector, which may not meet the demands for market stability. Products in the technology sector limit large redemptions to avoid concentrated trading and this trend might continue. After the disruption of fund inertia, it will take time for the positive cycle to resume, as well as the support of additional industrial catalysts. 3. Medium-term structural scenario remains unchanged: The trend in the AI industry is still the main stage of the large market movement. The technology sector continues to lead, and only when a broad range of structures can rise will the complete picture of the large market movement emerge. In the direction of diverse structures, securities firms are the top choice. At the same time, industrial metals and basic chemicals are favored over precious metals in strategic resources, and attention is given to Alpha in the export/outbound chain and new consumption. The medium-term structural scenario remains unchanged, and the dominant style is likely to persist throughout the large market phase. In the next stage, the AI industry trend remains the main focus, with the mining wave (demand increase, existing bottleneck in supply, price increase supported by profit, and valuation center rising forming a double punch) still a typical mode of high-elasticity investment cases. The technology sector continues to lead, with a richer structure of incoming funds from improved fundamentals, and only when a broad range of structures can rise will the complete picture of the large market movement emerge. In the direction of diverse structures, securities firms are the first choice, and non-bank financial institutions are the only "low PB, high ROE" first-tier industry; significant institutional holdings have been cleared out; profits follow the market cycle, and venture capital and outbound investments provide Alpha. The setbacks in the securities sector in the short term mainly come from adjustments, with significant differences among securities firms. Following the restart of the upward phase, it is highly likely that the securities market will pick up again. The depth of the large market movement will determine the level of the securities market. In addition, in the short term, the rise in US bond yields is being driven by expectations of high inflation, but will shift towards actual interest rates and term spread, causing assets like industrial metals and basic chemicals to outperform precious metals. At the same time, mid-term opportunities are focused on Alpha in the export/outbound chain and new consumption. The conditions for these two directions to contribute excess returns are: waiting for short-term disturbances from the US-Iran conflict to pass and for the potential new trade friction boundaries to be clarified; strengthening of the upward trend in the medium term. New consumption waits for the restart of consumer IPOs and the landing of approvals for new consumer funds. Risk Warning: Overseas economic recession beyond expectations, domestic economic recovery below expectations.