Sinolink: The appeal of Chinese assets is strengthening; recommend seeking defensive allocation clues along both macro and industry lines.

Sinolink released a research report stating that despite overseas disturbances, this week, through the joint efforts of stabilizing market forces such as stabilization funds entering the market and market buybacks, combined with inherently lower valuation levels horizontally and a certain degree of decoupling from the US AI industry chain, A-shares and H-shares demonstrated a degree of resilience. Considering that the endogenous stability of Chinese assets remains solid, coupled with the recent strengthening of stabilization policies, the appeal of Chinese assets is strengthening. The path of declining capital costs under AI deceleration has become clear: the first half of the shock comes from a synchronous decline in capital returns, while the second half will present opportunities globally. Some signals of earnings resilience and marginal improvement have already emerged, and the bank recommends seeking defensive allocation clues along both macro and industry lines. Sinolink's main viewpoints are as follows: Global computing power begins a synchronous pullback This week (November 2 to November 6, 2026, same below), volatility in the US stock market increased significantly. Affected by the midterm election results, with the Democratic Party completing a "sweep" of both chambers, the market began to reassess the policy risks facing AI data center expansion after the US midterm elections. The AI computing power chain suffered concentrated selling, with the Philadelphia Semiconductor Index once posting its second-largest historical decline on Thursday. Under spreading panic, global risk assets came under significant pressure, while safe-haven assets such as gold and US Treasuries rose. From the perspective of policy risk alone, strengthened regulatory scrutiny of data centers has long crossed party lines, with differences lying more in the scope and degree of restrictions involved; by comparison, Democrats are stricter, with more candidates supporting bans or moratoriums. The fundamental reason for the sharp market reaction may still be that in the previously released third-quarter reports of cloud vendors, the pace of realizing AI-related profits and cash flows struggled to match the expansion of capital expenditures. The core contradiction between future investment returns and financing sustainability remains unresolved. Coupled with the slowdown in the second derivative of capital expenditure expectations among core cloud vendors (META, Microsoft, Google, Amazon, and Oracle, same below), any potential downward revision risk is easily interpreted by the market as a signal that the hardware prosperity cycle has substantially peaked. After the midterm elections, the Democratic Party's "landslide victory" further intensified this concern, ultimately triggering comprehensive risk aversion in the market. US AI siphon effect weakens, interest rate peak basically confirmed, downside space needs observation Objectively speaking, what is happening now is still mostly a change at the level of market expectations. Considering that AI data center construction, as the main driver of US economic growth over the past two years, itself has strong job and income creation capacity, it remains necessary to closely track the substantive implementation of policies by elected officials and the final return rates of cloud vendors' data center projects after new reviews and cost-sharing arrangements are completed. As for a new round of trending gains in the AI market in the future, what may be more important is whether new application scenarios can emerge or evidence of broader penetration into various macro industries can appear, driving up investment returns and ultimately completing a positive cycle of "cloud business growth cash flow repair capital expenditure expansion." For US Treasury yields, expectations of slower AI capital expenditure have further strengthened. However, October US manufacturing PMI and nonfarm payroll data show that the current US economic fundamentals remain resilient, and with oil prices at high levels, short-term downside space still needs observation. A rapid decline in rates still requires waiting for substantive signals of rapid contraction in AI financing or a pullback in oil prices after a major easing between the US and Iran. The end of the strong dollar, Chinese assets show resilience amid volatility Despite overseas disturbances, this week, through the joint efforts of stabilizing market forces such as stabilization funds entering the market and market buybacks, combined with inherently lower valuation levels horizontally and a certain degree of decoupling from the US AI industry chain, A-shares and H-shares demonstrated a degree of resilience. The CSI 300 ended 12 consecutive weeks of declines, while the Hang Seng Index/Hang Seng Tech rose 5.1%/8.6% for the week, outperforming major global markets. This round of global AI deceleration, from a long-term perspective, has weakened the ability of US dollar assets to attract global capital. For non-US assets, this is a medium-term positive, and Chinese assets are an important choice among them, so one should not be pessimistic in the long term. From the perspective of market breadth, whether across all A-shares or within tech stocks, this week both showed a rebound from the bottom, and market breadth improved marginally amid A-share resilience. Combined with the trading indicators the bank has continuously tracked: The margin financing guarantee ratio stood at 262.6% as of Thursday this week, rebounding from last Friday's low of 245.56%. However, considering that A-shares also fell on Friday amid overseas market volatility, if Friday's market adjustment is taken into account (assuming other conditions unchanged, calculated based on the 1.86% decline in the Wind All A Index), Friday's margin financing guarantee ratio may have fallen to around 257.7% from Thursday. Current implied volatility in the market remains elevated. The implied volatility of the STAR 50, ChiNext Index, and CSI 1000 has further risen to above the 95th percentile level over the past three years, while last Friday it was above the 90th percentile over the past three years. All things are about to be born but not yet born Considering that the endogenous stability of Chinese assets remains solid, coupled with the recent strengthening of stabilization policies, the appeal of Chinese assets is strengthening. The path of declining capital costs under AI deceleration has become clear: the first half of the shock comes from a synchronous decline in capital returns, while the second half will present opportunities globally. Some signals of earnings resilience and marginal improvement have already emerged, and the bank recommends seeking defensive allocation clues along both macro and industry lines. Specific allocation recommendations: First, as US real interest rates peak and decline, gold is expected to see opportunities; subsequently watch whether US-Iran geopolitical intensity picks up, though a medium-term bottom is being established. Second, for the energy chain (coal, oil, oil shipping), after the short-term stress test following price declines, it will continue to benefit from global restocking demand for energy; in fact, the energy chain itself is a resilient asset under capital cost volatility and geopolitical conflict. Third, from an earnings perspective, recommend focusing on: Continued high prosperity: medical services, shipping ports, and sub-sectors within nonferrous metals and chemicals, etc.; Distressed reversal strategy: sub-sectors within textiles and apparel, as well as papermaking, refining and trading, medical devices, express delivery, dairy products, etc. Risk warnings: Domestic economic recovery falls short of expectations; overseas economies decline sharply.