Societe Generale Securities: The ultimate rotation of A-shares is difficult, and priority is placed on AI hardware and high-end manufacturing after the return of the boom

The Zhitong Finance App learned that Societe Generale Securities released a research report saying that behind the recent extreme rotation of A-shares is an uncertain macroeconomic environment, which has caused market expectations to fall into chaos. As a result, the stock capital game has intensified, and it is difficult for incremental capital to form synergy. However, “time will fit”. Extreme rotation is not the norm, and the future is likely to be bridged through the convergence of macroeconomic and industrial expectations. Since the July earnings season, the typical segment direction of profit improvement has still focused on broad-spectrum high-end manufacturing, represented by AI computing power hardware (electronics, communication equipment, computer hardware), AI equipment, AI upstream materials (new materials, glass fiber, small metals, industrial metals), and manufacturing & export chains (innovative drugs, ships, battery energy storage, paper). After the return of boom investment, the above direction will still be a beneficial aspect of greater flexibility.

I. Behind the recent extreme market rotation

Recently, the biggest feeling that the market has given people is still chaos, rotation, and lack of a main line. The industry rotation intensity index structured by Societe Generale Securities continues to rise, hitting a new high for the year this week.

Behind the ultimate rotation, the first is an uncertain macroeconomic environment and a contraction in risk appetite. The rise in oil prices under the US-Iran conflict formed a cycle with interest rate hikes by the Federal Reserve in anticipation of inflation, and interest rates on US bonds rose repeatedly; in particular, fluctuations in various economic data and differences within the Federal Reserve have further exacerbated the uncertainty of monetary policy expectations and the contraction of global risk appetite.

The second is an empty window period for a new round of industrial narratives, and the absence of a main line of industry. Explosive applications and scenarios that can once again open up expectations of an increase in global capital expenditure have yet to emerge. Most of the high-frequency data on the industrial chain is also in a state of slowing or falling back at a high level. It will still take time to forge a new round of consensus on the main lines of the industry. The market fluctuates and rotates, waiting for a new narrative similar to AI+Coding/Agent at the beginning of the year.

The third is the structural fragmentation of incremental capital and the lack of synergy with the market. According to the results of a survey of institutional investors by Societe Generale Securities, there are two main types of capital raised since August. One is a relatively profitable public offering, and the other is an absolute return insurance fund. The two types of capital with very different investment styles “fight separately”, making it difficult for the market to form joint efforts.

II. How to Converge in Extreme Rotation: Exploring Several Opportunities

Therefore, behind the recent extreme rotation is a macroeconomic environment full of uncertainty. In the face of an empty window of industrial narratives, market expectations have become chaotic. As a result, the stock capital game has intensified, and it is difficult for incremental capital to form synergy.

However, Societe Generale Securities tends to believe that “time will fit”, that extreme rotation is not the norm, and that in the future, it is likely that it will be bridged through the convergence of macroeconomic and industrial expectations. Discuss the next few opportunities for rotational convergence:

First, the decline in macroeconomic uncertainty. This is currently a path that can be seen relatively quickly and can also effectively help the market form a structural consensus. For the current market, especially for technological growth assets, the biggest sticking point is probably not “interest rate hikes.” The experience of the 1999 Science Network, New Energy in '21, and Q2 this year shows that the tightening of macro-liquidity has limited disruptions to the market supported by strong industrial trends. What constitutes the suppression is also a contraction in risk appetite due to uncertainty in monetary policy. After subsequent monetary policy became clear, market differences decreased and uncertainty declined, which in turn helped increase market risk appetite. Expectations for non-agricultural supermarkets and interest rate hikes heated up on Friday (9.4), but the sharp rise in US technology stocks is a good example.

Several important observation points influencing the Fed's decisions are not far away, helping to bridge market differences and reduce macroeconomic uncertainty. Includes 9/11 US CPI data, and the 9.17 FOMC meeting.

Second, the emergence of a new round of industrial narratives. This is currently the lowest level path that can forge a new round of consensus on the main line. September-November is the traditional window for intensive catalysis for the overseas AI industry in the second half of the year, and there will be more and more resonance catalysts that can be provided in the future. Let's sort out a few important observation windows:

The first is ARR data to be disclosed as Anthropic approaches its launch. Anthropic is likely to have an IPO before the end of October. Companies to be listed will need to publicly submit and publish prospectus to the entire market at least 15 days before the roadshow begins. At that time, they will disclose more clear ARR calculation methods and financial data. Judging from historical experience, after major model manufacturers disclose impressive ARR data, the market's capital expenditure on Hyperscalers and AI upstream profit expectations will be revised, which will also help ease recent market concerns about ARR and AI ROIC.

Second, the arrival of a new financial reporting season provides a more clear guide to next year's industry expectations. A new round of overseas technology earnings season will begin one after another in mid-October. Compared to the July-August interim report, this earnings season will provide more information on next year's industry expectations and provide a clearer judgment for the market. In terms of specific timing, focus on 9.10 Oracle, 9.30 Micron, Intel+ Big Four Cloud Factories in late October, and several major optical communication leaders in November.

Third, September-November is a traditional intensive window for major North American manufacturers to hold annual conferences. Each company will focus on showcasing the latest achievements and progress. It is an important observation window for new AI applications and the opening of new scenarios. September is Salesfoce, Meta, OpenAI, and November is Microsoft and Amazon.

Therefore, with the subsequent decline in macroeconomic uncertainty and the increase in the weight of industry and economy, it will help break the recent state of extreme market rotation. After market confusion and differences are bridged through the convergence of macroeconomic and industrial expectations, consensus on the main line will gradually be consolidated in this process.

3. After extreme rotation and convergence, boom investment is expected to return

In the recent process of extreme market rotation, the market chose to respond through three ways of thinking. The first is to shift to a “dumbbell” configuration of “microdisk+dividends” to cope with the rotation of the industry structure through an extreme style; the second is to seek “make up for gains” in previously low-level industries and pursue safety based on odds; and the third is to quickly switch between hot spots and concepts (such as El Niño and AI applications) to obtain excess profits by gaining short-term flexibility.

The combination of these three coping ideas is the failure of boom investment. The earnings of the “High Sentiment Index”, which measures the performance of leading stocks in the booming industry, once again turned negative during the year, and already outperformed dividends and micromarkets.

As the opportunity for subsequent rotation and convergence approaches and the weight of fundamental pricing increases, the benefits will still be the return of boom investment in this year's market environment where macro-liquidity has been tightened and the main pricing conflict has turned profitable.

Since the July earnings season, the typical segment direction of profit improvement has still focused on broad-spectrum high-end manufacturing, represented by AI computing power hardware (electronics, communication equipment, computer hardware), AI equipment, AI upstream materials (new materials, glass fiber, small metals, industrial metals), manufacturing & export chains (innovative drugs, ships, battery energy storage, paper). After the return of boom investment, the above direction will still be a beneficial aspect of greater flexibility.