Artificial intelligence continues to adjust, and the future market is still optimistic

Per editor: Xiao Ruidong

On June 26, the broader market rebounded in the morning, the ChiNext index turned red for a while, and the market returned to weakness in the afternoon, and the Shanghai Composite Index fell below 3150 intraday and approached the year's low. On the market, new energy rebounded, but AI-related TMT selling pressure was heavier, and weighted industries such as Zhongzitou and food and beverage also failed to form support, and nearly 4200 shares fell during the day. By the close, the Shanghai Composite Index was down 1.48% at 3150.62 points, and the ChiNext Index was down 1.16%. A-shares traded 979.1 billion yuan throughout the day, narrowing from the previous month; Northbound funds bought more than 2.1 billion yuan in the last day, and Shenzhen Stock Connect inflowed significantly.

Image source: Wind

Last week's hawkish statement by the Fed obviously suppressed the risk appetite after the opening of A-shares, Powell stressed that June was only a "suspension" of interest rate hikes, and there may still be two rate hikes this year; The Fed doesn't expect rate cuts to happen anytime soon. On June 26, the offshore yuan continued to fall against the US dollar, falling below the 7.24 mark.

Image source: Wind

Subsequently, there is still uncertainty in the short term of the Fed's interest rate hike, but it is also gradually approaching the end of this round of interest rate hikes. And from the valuation point of view, A-shares are still in the historical low area, including LPR reduction of 10bp recently, mortgage interest rates in various places have been adjusted, and the extension of new energy vehicle purchase tax reduction policies, a series of policies are expected to promote economic fundamentals, and A-shares still have opportunities for valuation repair in the second half of the year.

AI-related sectors suffered heavy losses on June 26, especially software ETF (515230) closed down 5.99% and computer ETF (512720) closed down 5.36%.

Image source: Wind

Recently, there have been many incidents of listed companies in the field of artificial intelligence to reduce their holdings, including Cambridge Technology, Kunlun Wanwei, etc. have successively announced shareholder reductions, which has caused the relevant sectors to be affected by market sentiment caused by the reduction. On the other hand, since mid-to-late May, the main line of artificial intelligence has performed strongly, and the transaction proportion of the TMT sector has returned to a high of 40%, and the congestion has increased significantly. At the same time, in the recent stage of volatility at the low level of the broader market, software ETFs, computer ETFs and other targets have risen rapidly, and short-term excess returns have been significant. Coupled with the end of the second quarter, some funds need to adjust positions, and the pressure on the sector to take profits increases.

Although the sector is facing short-term adjustment pressure, the long-term outlook remains promising. On June 13, OpenAI announced a major upgrade to its large language model APIs (including GPT-4 and gpt-3.5-turbo), achieving performance improvement and cost reduction.

From a domestic point of view, on June 9, iFLYTEK released the "iFLYTEK Spark Cognitive Big Model" V1.5. On June 13, 360 Group held a 360 intelligent brain large model application conference, and officially released the cognitive general large model "360 intelligent brain" version 4.0. With the rapid iteration of large models at home and abroad, the trend of cost reduction and efficiency improvement is expected to promote the rapid prosperity of domestic and foreign applications.

In addition, in the software industry, the vertical large model is about to usher in an intensive release period, and the application results are also accelerating. For example, on June 28, the joint press conference of Hang Seng Electronics & Hang Seng Juyuan Digital Intelligence Financial New Products will be held in Hangzhou, releasing a number of new digital intelligence financial products for the financial industry. On June 29th, the Topsky Model Achievement Conference will be held to share the application results of the Topsky model in the media, government affairs and finance. On July 10, Huayu Software will officially release the large-language model "Vientiane" in the legal field. Looking ahead, we are about to enter a new era under the transformation of artificial intelligence, but under the combination of negative factors, short-term volatility may intensify, especially in July, which will gradually face the test of earnings season. The relevant sectors rose rapidly in the early stage, and the financial results were temporarily difficult to fully cash.

It is recommended that investors can give patience in the face of new technologies for a longer period of time and understand the long-term investment opportunities that may be brought about by the profound social changes behind them. After the sector adjustment, you can consider placing computer ETFs (512720) and software ETFs (515230) in batches after the sector adjustment.

On June 26, the PV 50 ETF (159864) closed up 1.19%, becoming one of the few bright spots in the market. Last week, the National Energy Administration released national power industry statistics from January to May 2023, with new installed capacity of photovoltaics reaching 61.21GW from January to May 2023, a year-on-year increase of 158.2%, and 12.90GW of new installations in May, a year-on-year increase of 88.9%, and domestic installed capacity maintained a high growth rate.

Looking forward to the whole year of 2023, with the decline in the cost of the industrial chain, the breakthrough of new technologies, and the centralized volume, domestic, European, and Latin American demand is expected to continue to increase, the demand of the United States and India is expected to pick up, the demand of the Middle East and Africa is expected to start, and the growth rate of global photovoltaic demand is expected to be about 40%.

Short-term polysilicon prices have fallen rapidly and are near the bottom in the historical range. Looking forward to the future market, the inventory of polysilicon materials and wafers still needs a certain amount of time, but the industry price is basically the end. After the subsequent price bottoms out and stabilizes, the pessimistic expectations and wait-and-see sentiment caused by the price reduction are expected to be gradually repaired, and the installed demand may be released intensively, and it is expected that the photovoltaic industry will usher in the peak season in the third quarter, and the production schedule is expected to increase significantly. The current low valuation also has a good allocation price-performance ratio, and the sector may have a phased rebound opportunity.

The Green Power ETF (159669), which is in the same green energy track as the PV 50 ETF, also performed strongly on June 26, bucking the trend and rising 1.11%.

Image source: Wind

El Niño phenomenon hit, the summer of 2023 may become the hottest summer in history, high temperature catalytic power load growth, power supply and demand tight or intensified. In this context, the construction of the mainland power system will be accelerated, of which the digitalization of the power grid, as well as the improvement of different types of power supply, energy storage, and user-side regulation capabilities are the main tasks, which can effectively improve the flexibility of the power system and ensure that the power system responds in time to changes in supply and demand.

On the cost side, polysilicon capacity is at risk of overcapacity. From the perspective of operating rate, the operating rate of enterprises remains at about 80%, affected by the high cost of silicon plant shutdown, the industry still maintains a high operating load, so polysilicon production capacity is expected to continue to expand. In the absence of significant changes in downstream demand, upstream inventories continue to increase, so some silicon plants have adopted price reductions to reduce inventories.

Image source: Wind, China Photovoltaic Industry Association, Guosheng Securities Research Institute

From the policy side, in May, the National Development and Reform Commission issued the Notice on Provincial Power Grid Transmission and Distribution Prices and Related Matters in the Third Regulatory Cycle, which listed the system operating costs separately. In 2023, the policy focus will shift from the electricity consumption side to the user side, but the adjustment direction will lay the foundation for a high proportion of new energy consumption, and the reform of transmission and distribution prices will help guide the system to adjust the reasonable allocation of costs, rationalize the price mechanism, and benefit the investment willingness and investment capacity of the power grid. At present, the investment sentiment and valuation of the green power track are at the bottom, and interested partners can pay attention to the green power ETF (159669).

Let's focus on the pharmaceutical sector. In the short term, the pharmaceutical industry will benefit from improved performance. As the economy gradually recovers, all aspects of R&D, production and sales, whether hospitals or pharmaceutical factories, are expected to return to normal quickly, so the improvement in the performance of related companies should be expected. Policy support, aging and consumption upgrading also support the prospects of the pharmaceutical sector in the medium and long term.

On the evening of June 21, the National Joint Procurement Office of Chinese Proprietary Medicines announced the results of the national collection and procurement of proprietary Chinese medicines, and finally 15 of the 16 product groups were selected by enterprises. Overall, 16 purchasing groups, 42 products, and 296 specification dosage forms finally produced 68 selected results. In the past year, the policy of traditional Chinese medicine has been continuous, and the decline in this round of centralized procurement has been moderate, and it is expected to continue to promote the high-quality development of innovative traditional Chinese medicine drugs in the future.

After a relatively long-term adjustment since the end of 2020, the valuation level of the underlying index of the biomedical ETF is currently at the historical 13% percentile. From the perspective of adjustment time, the overall adjustment of the sector has been relatively sufficient. Whether it is relative to its own history or relative to other sectors in the same period, the pharmaceutical sector has strong investment attractiveness. You can pay attention to the Biomedical ETF (512290).

Image source: Wind

Risk Warning:

Investors should fully understand the difference between regular fixed investment and fractional savings methods such as regular fixed investment of funds. Regular fixed investment is a simple and easy way to guide investors to make long-term investments and average investment costs. However, regular fixed investment does not avoid the inherent risks of fund investment, does not guarantee investors to obtain returns, and is not an equivalent financial management method to replace savings.

Both stock ETFs/LOF funds are securities investment funds with higher expected risk and expected return, and their expected return and expected risk level are higher than hybrid funds, bond funds and money market funds.

The Fund's assets invested in stocks on the STAR Market and ChiNext Board will face unique risks arising from differences in investment targets, market systems and trading rules, which investors are reminded of.

The short-term rise and fall of sectors/funds is only used as auxiliary material for the analysis of the article, is for reference only, and does not constitute a guarantee of the performance of the fund.

The short-term performance of individual stocks mentioned in the article is for reference only and does not constitute a stock recommendation, nor does it constitute a forecast or guarantee of the performance of the fund.

The above views are for reference only and do not constitute investment advice or commitment. If you need to purchase relevant fund products, please pay attention to the relevant regulations on investor suitability management, make a risk assessment in advance, and purchase fund products with matching risk levels according to your own risk tolerance. Funds are risky and investment needs to be cautious.

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