CAITONG SECURITIES: Growth has been leading the market, dumbbell strategy gradually rotating to TMT

According to the Zhitong Finance and Economics APP, Caitong Securities released a research report stating that in May, financial data continued to show characteristics of "squeezing out excess liquidity". The new social financing for the month reached 2.06 trillion RMB, with new RMB loans of 819.7 billion RMB falling short of the expected 1.02 trillion RMB, indicating pressure still exists in the real estate and corporate sectors. However, government bond financing expanded significantly by 1.2 trillion RMB, with the accelerated issuance of ultra-long national bonds, showing strong policy support intentions. With the current domestic economic expectations converging, the market's response to economic data has become relatively weak, showing resilience at the index's bottom position. This macro state is conducive to interpreting structural market trends, with growth and thematic style assets expected to perform well. In terms of industry allocation, the dumbbell strategy is gradually rotating towards TMT, focusing on new productive forces such as computing power/robots/AI.

Key points from Caitong Securities are as follows:

Economy is relatively stable, market at bottom position, structural market trends, optimistic about growth leading the way

Last week, the market continued to fluctuate, with investors showing reluctance near the 3000-point mark. Without external shocks, it is difficult to break through key levels; the economy is stable, with limited impact and driving force on the market. Risk appetite is rebounding, with the communication, computer, electronics, and media industries all ranking in the top 5 in terms of performance last week, with growth leading the market. There are three conditions for the start of growth stocks: 1) US month-on-month inflation data falls to 0.2%; 2) The Fed's rate cut is expected to kick off the A-share index market; 3) Industrial policies catalyze growth. Currently, conditions 1 and 3 have begun to materialize (US May core CPI month-on-month seasonally adjusted data fell to 0.2%/PPI month-on-month -0.2%, the establishment of the third phase of the National Big Fund with a registered capital of 344 billion RMB, focusing on investing in the AI chip industry, NVIDIA igniting overseas innovation trends and capital expenditures, driving the prosperity and performance of the computing power industry chain), in line with the second-quarter market strategy assessment.

In terms of allocation, continue to be optimistic about the return of the dumbbell strategy, especially the TMT end of the dumbbell strategy

On the dividend end, transitioning from dividend value to dividend quality, from a win rate perspective, dividend quality leads when the economy is up; from an odds perspective, there is greater room for dividend quality to rise relative to PB, crowding, and fund holding ratios. On the growth end, TMT has better odds. Focus on new energy, electronics (Apple chain, PCB), AI, low-altitude economy (China's first unmanned aerial vehicle globally transports goods to Mount Everest at 6000 meters), computing power (Huawei's Wuhu data center officially launched), satellite internet (China's satellite internet lands in Thailand), robots (Musk says humanoid robots will become industrial mainstays).

US inflation pressure easing, similar to 2019, favorable for equity performance

Last week, the most crucial signal overseas was the US core CPI month-on-month seasonally adjusted data for May falling to 0.2% (down from 0.4% to 0.3% the previous month), with important inflation data declining for two consecutive months, making the rate cut path clearer, leading major markets to rise significantly. This year's market evolution is similar to the three stages of 2019: "trading on rate cut expectations -> rate cut expectations disappointed -> actual rate cut implemented", with the core logic chain being "US inflation falling -> The Fed rate cut -> Rate cut leads to strong US economic inventory replenishment -> Inventory replenishment drives Chinese exports and economic upswing.

During the two stages of trading rate cut expectations and actual rate cut implementation, the global market will see excellent performance. The former has been realized from October 23 to February 24, and the second half of the year can be expected: 1) Growth stocks in the early stage of rate cut implementation, similar to TMT leading the market from August to October 2019; 2) Rate cut implementation + economic recovery phase, growth stocks + export chain, similar to the surge in TMT/metals/automobiles/home appliances/construction machinery in November-December 2019.

Domestic social financing remains weak, but fiscal support is in place, and the market has shown relative resilience.

In May, financial data continued to show characteristics of "squeezing out excess liquidity," with new social financing totaling 2.06 trillion RMB, including new RMB loans of 819.7 billion RMB, falling short of the expected 1.02 trillion RMB. This indicates that there is still pressure on real estate and enterprises, but government bond financing has expanded significantly by 1.2 trillion RMB, with the accelerated issuance of ultra-long government bonds. The strong willingness for policy support is evident. With the current domestic economic expectations converging, the market's response to economic data has been relatively weak, showing resilience at the index's bottom position. This macro state is conducive to interpreting structural trends, and growth and thematic style assets are expected to perform well.

Additionally, it is necessary to carefully monitor the mid-year economic slowdown in China and the US, as well as uncertainties surrounding various countries' elections. Due to the slow decline in US inflation at the beginning of the year, leading to a delay in rate cuts, various economic data in the US have shown clear signs of decline. Both Chinese and US economic data may enter a weak phase for about two quarters. If there are fluctuations in inflation affecting the rate cut path, the short-term impact could be strong. As the Fed cuts rates, global monetary policy asynchrony will also increase market fragility. The 10th European Parliament elections show a clear rightward shift, which will significantly impact the international political landscape. The US will also enter a heated election phase, leading to increased political uncertainty.

Industry allocation: Dumbbell strategy gradually rotating to TMT, focusing on new quality productivity such as computing power/robots/AI

1. The current TMT index has a widening gap of -19% compared to the dividend index, entering the advantageous zone for TMT index odds, highlighting the cost-effectiveness of the growth direction. 2) The State-owned Assets Supervision and Administration Commission and central enterprises have intensified 11 application-based research action plans, covering quantum information, 6G, deep-sea exploration, controllable nuclear fusion, cutting-edge materials, etc. Pay attention to the future investment direction of the national mega-funds and the direction of autonomous controllable and new quality productivity, with potential policy reinforcement at the Third Plenum. 3) Under the catalysis of the NVIDIA industrial chain, the AI computing power track has a large capacity and good performance.

Risk warning: Fed rate hikes exceeding expectations, overseas financial risks exceeding expectations, historical experiences becoming ineffective