Analysis from Shenwan Hongyuan's strategy team.

First Point

The "selling of computing power" by Meta cannot yet be definitively labeled as a "computing power surplus." However, for market narratives, it represents a shift from the assumption that any computing power investment automatically generates demand to a recognition of stratified demand, which is a form of "second derivative turning negative." The market performance in May-June showed significant divergence, with fundamental factors playing a role, but capital flow divergence was even more pronounced.

In the near term, contentious fundamental outlooks, combined with unstable microstructures, make it easier for pessimistic narratives to be priced in. We note that while fundamental divergence exists, capital flow divergence is the more dominant feature. We summarize this as a "three-tier divergence" in capital flows: 1. After the Federal Reserve's tightening expectations intensified, capital flowed back to U.S. stocks, siphoning funds from other equity markets. 2. Since mid-January 2026, there have been inflows into sector-specific ETFs and active funds focused on the tech theme, while outflows have occurred from broad-based ETFs and traditional heavyweight stocks. 3. Since Q2 2026, active funds in the tech theme have been siphoning funds from sector-specific ETFs. Under such significant capital flow divergence, the market's internal stability is weak, making a near-term "second derivative turning negative" in capital flows a distinct possibility. This week, increased fundamental disagreements within the AI computing power chain, coupled with declines in overseas tech stocks, triggered adjustments in the A-share market. Going forward, attention is needed on the potential capital flow divergence effect from the domestic listing of a leading memory chip company and the high valuations and turnover in newly listed segments.

We believe that the "tug-of-war" period for the tech theme in June-July, following the earlier adjustments in non-tech sectors in May-June, means that the recent tech sector adjustment signals the market index is nearing the end of its correction phase.

Second Point

In the short-term wave, if disturbances persist, the tech theme could become oversold. How should this be tracked? A significant decline in fund trading heat for the tech theme may occur when unrealized gains on holdings fall from high levels to near the break-even point. Currently, unrealized gains for holdings in communications and electronics have started to decline from highs but still retain some cushion. If "second derivative turning negative" disturbances re-emerge, vigilance is required as a break in the capital flow inertia could trigger a short-term oversold condition in tech.

We highlight the possibility of a short-term oversold condition in the tech theme. Examining patterns of fund subscriptions and redemptions relative to unrealized gains: during phases when unrealized gains are low and rising, capital accelerates into tech theme funds. When unrealized gains have just peaked and started to decline, capital inflows can still show a contrarian characteristic. However, if unrealized gains continue falling to near the break-even point, concentrated redemptions to avoid principal loss may occur. This week, unrealized gains for electronics and communications holdings have retreated from highs but still maintain a safety margin above the break-even line, corresponding to the ongoing "tug-of-war" phase in the short-term market. But if "second derivative turning negative" disturbances intensify, leading to a further decline in unrealized gains, one must be alert to a potential break in capital flow inertia, which could trigger a short-term oversold condition in tech.

Third Point

In the medium-term wave, the computing power inflation trend that began in November 2025 has seen increasingly thorough exploration of its sub-sectors. Consequently, the difficulty of generating new directions for computing power inflation from medium-term technological changes is increasing, while directions for computing power deflation are more likely to emerge. If short-term capital flow inertia is broken, the pace of the overseas computing power theme may slow, entering a phase of waiting for new catalysts. A renewed challenge of previous highs by the tech theme may also depend on new catalysts to open a new phase of the market.

Fourth Point

More thorough short-term adjustments correspond to a more diversified and vibrant market structure in the next round of upward movement. We maintain that the AI industry trend is the main battlefield in this major market wave, with computing power inflation being the primary source of high elasticity in specific sub-sectors. For the most promising diversification direction, brokerages are the top choice. Concurrently, strategic resources benefit from a moderation in Federal Reserve tightening expectations in the short term. Attention should also be paid to Alpha opportunities in the export/overseas chain and new consumption sectors.

Risk Warning: Overseas economic recession could exceed expectations; domestic economic recovery may fall short of expectations.