The market's style has shifted somewhat since the start of July. Sectors that had previously surged, such as chips, semiconductors, and optical modules, have experienced significant pullbacks. Meanwhile, some traditional sectors that had lagged are seeing a rebound, leading to overall market volatility and adjustment.

The underlying reason is the extreme divergence in market structure seen in the first half of the year. While the Shanghai Composite Index rose modestly, the ChiNext and STAR 50 indices posted strong gains, primarily driven by substantial rallies in chips, semiconductors, and computing power. This created significant profit-taking pressure. Coupled with historically high market concentration—where the top 5% of stocks accounted for 50% of total trading volume—a "fear of heights" sentiment has emerged. Historically, when concentration exceeds 45%, it has led to style shifts or even bull-to-bear transitions. The current excessive crowding in a few tech stocks, along with sharp corrections in chip sectors in the US, Japan, and South Korea, has driven a sustained correction in the A-share market, with the Shanghai Composite nearing the 4,000-point mark. Previously strong sectors have retreated notably, while traditional dividend plays have rebounded, suggesting a potential style shift. However, it's not yet confirmed; trends often solidify only after repeated market testing.

From the perspective of the AI industry's massive development, this technological revolution is profoundly impacting all sectors. Early last year, I identified six major investment themes, which have since been validated. These include chips, semiconductors, computing power & algorithms, humanoid robots, commercial aerospace, solid-state batteries, and biopharma. These sectors have benefited from AI advancement, taking turns to rally over the past year or two.

Sectors like chips, semiconductors, and computing power & algorithms are the "shovel sellers" of the AI era, directly benefiting from this revolution and thus posting the largest gains. From a medium-to-long-term view, these themes remain worthy of attention. However, given the previous extreme crowding, high margin debt exceeding 3 trillion yuan, and elevated leverage, I have repeatedly warned of short-term correction risks in tech stocks, advising investors to avoid the recent sharp pullback. Once the correction concludes, opportunities in chips, semiconductors, and computing power & algorithms can be revisited.

Therefore, the six major themes are likely to rotate in performance rather than having a single sector dominate indefinitely. Significant rallies naturally accumulate profit-taking pressure, making corrections reasonable. Overall, the market's slow-bull, long-bull trend remains largely intact, which should maintain investor confidence.

Currently, China's macroeconomy shows considerable divergence. Traditional industries face operational difficulties or cyclical downturns, most notably in real estate and consumption. In contrast, emerging industries exhibit strong vitality. The six themes mentioned belong to the "new quality productive forces" prioritized in national planning, attracting capital and delivering impressive performance.

In the real economy, stabilizing domestic demand is a key policy objective. Bolstering the economic foundation through stable demand helps raise household income and wealth effects. This market rally itself carries significant historical missions. First, it aims to boost consumption by generating property income for investors through structural opportunities, thereby supporting consumption growth. Second, it seeks to stabilize the property market, as some profitable investors may purchase homes, improving market performance. Third, it aims to develop new productive forces, including technological innovation. These factors are crucial for the market's current robust performance.

Thus, as the capital market strengthens, profit opportunities persist. However, in the second half, sector rotation is likely to accelerate, moving away from the extreme concentration seen earlier. This should help spread the wealth effect post-adjustment, benefiting more investors rather than fostering speculative chasing of high-flying sectors. Many investors missed out on strong sectors like optical modules earlier, hesitant to chase highs amid fear—a prudent move to avoid being trapped. Now, with a potential style shift and faster rotation, investors can uncover more opportunities. Enabling broader investor profitability is essential for the capital market to fulfill its function.

This tech revolution requires substantial capital, and a stronger market facilitates capital flow into innovation-driven sectors. Currently, debates over the US AI tech bubble are intensifying, with volatility rising and markets swinging wildly. Recently, news about Meta Platforms Inc potentially selling some computing capacity sparked fears of oversupply and reduced capital expenditure, briefly hammering related sectors. In reality, this move reflects Meta's relatively weaker AI model development compared to peers like Alphabet Inc, not a broad indictment of computing power demand.

Admittedly, an AI tech bubble exists. The Federal Reserve faces dilemmas; Chair Jerome Powell is in a tough spot. Aggressive rate hikes could burst the US AI bubble, severely impacting US stocks, where over 50% of household assets are invested. A burst could devastate household wealth, posing challenges for the political landscape. Conversely, rate cuts might fuel inflation, already elevated for years, increasing living costs and public discontent. Thus, while Powell's rhetoric appears hawkish, his actions lean dovish. Recent comments downplaying inflation risks signal a reluctance to hike rates imminently, easing some concerns.

International gold prices have seen significant volatility. After hitting my target of $5,600/oz earlier this year, profit-taking and Fed hike fears drove a sharp drop to around $3,800/oz. Last week, I noted prices below $4,000/oz presented a "golden pit" for long-term investors. Subsequently, Powell's dovish comments on inflation spurred a rebound to around $4,100/oz, moving away from sub-$4,000 levels. While short-term gold prices fluctuate on various factors, the long-term upward trend remains supported by de-dollarization and concerns over US government credit. Allocating 10-20% of a portfolio to gold assets is an effective strategy against currency depreciation. The long-term outlook for gold is positive, though a straight-line rally is unlikely after two strong years of gains. Central bank buying may provide further support.

In the second half, market rotation is expected, with the six themes remaining focal points. At June's end, I suggested focusing on innovative drugs and humanoid robots in July. The former benefits from policy clarity exempting patented innovative drugs from centralized procurement, reducing market fears and supporting a potential rally. The latter gained on news of Elon Musk's upcoming Optimus V3 robot, sparking a strong rebound in early July. While mass production remains some way off, capital may front-run the sector's growth phase.

The robotics sector is currently in a volatile, two-steps-forward-one-step-back pattern. However, the onset of mass production could unlock significant opportunities. Humanoid robots could become China's fourth major industrial pillar after home appliances, mobile phones, and new energy vehicles, leveraging China's manufacturing strengths. Success in new energy vehicles could be replicated, positioning China as a global hub. China boasts a complete supply chain for robot components, with even Tesla Inc sourcing 70-80% from Chinese firms. The sector's high domestic content and strong demand warrant continued attention. Both themes remain relevant for the second half.

Additionally, previously high-flying sectors like chips, semiconductors, computing power, and optical modules, after substantial corrections, may gradually reflect value. Given AI's long-term growth trajectory, earnings growth in areas like memory chips and optical modules can justify valuations, offering entry points for investors who missed earlier rallies.

Overall, the second half may see increased rotation. Both technology and HALO assets (heavy asset, low volatility) offer allocation value. Traditional sectors with high dividends may also attract yield-seeking investors. Thus, sector rotation and a broadening wealth effect are anticipated.

Market opportunities always exist; investors must employ correct methods and mindset to seize them while managing risks. The chip demand cycle is turning upward, with leading companies expanding capacity through significant investment. However, new supply typically takes about two years to come online, suggesting a supply-demand gap and robust demand in the interim. This growth-driven demand may outweigh cyclical factors, potentially extending the upcycle. The sector is expected to remain in a high-growth phase for the coming year. Yet, stock prices often outpace fundamentals, and excessive rallies can lead to sharp corrections. Thus, chasing highs is discouraged. In late May, I advised against chasing optical modules, suggesting instead to wait for corrections and profit-taking before buying on dips.

Broadly, we remain optimistic on the long-term prospects of sectors like memory chips, PCBs, and optical modules. However, profit-taking pressure persists, potentially affecting share prices. It's crucial to distinguish between industry growth rhythms and stock price movements to avoid being trapped in speculative rallies. Patience is key; consider positioning in industry leaders after adjustments.

The tech sector will likely see significant divergence. Companies with solid earnings and leading positions may continue hitting new highs driven by fundamentals. However, stocks driven purely by speculation may struggle to recover. The Hang Seng Tech Index, comprising major tech and internet giants, has underperformed recently. While labeled as tech, much of their profit stems from consumer-facing businesses, which are slowing, dampening earnings. Capital flow shows high valuations for AI-related hardware tech but lower valuations for traditional internet firms, reflecting a shift from the internet era to the AI era. While these internet giants are investing in AI, these are early-stage efforts without substantial earnings yet, weighing on their stocks. Recently, some capital favoring undervalued traditional leaders has started deploying, offering the index a rebound chance, though sustainability is uncertain, and a major rally hasn't materialized.

Amid the AI revolution, companies that can sustain growth in AI may perform well. Many traditional companies may not regain previous high valuations, more likely settling into reasonable valuations with potential for valuation repair.