Chen Guo: Short-term emotional overheating has led to adjustments, but the market has not ended; "Artificial Intelligence +" has shifted to the prosperity verification stage

On the last trading day of February, the index experienced a comprehensive pullback. How should we assess the subsequent market trends?

On March 2, the strategy team led by Chen Guo at CSC shared their judgment on the current market situation in their latest research report.

The investment workbook representative summarized the key points as follows:

1. The recent market adjustment is primarily due to the overheating of short-term trading in the main sectors combined with external negative catalysts.

2. Drawing from the experience of "Tariff 1.0," the current policy implementation will lead to a decline in exports and GDP growth, but the actual impact may be much smaller than theoretical estimates.

3. Based on historical reviews, the overheating in the technology sector typically takes about half a month to one month to significantly ease.

4. For the large-scale TMT market with rising volume and price, short-term emotional overheating during high-level fluctuations may lead to index adjustments, but the market is not over.

5. As the Two Sessions approach, the performance forecast period will begin in mid-March, and policy and performance signals will become the anchor points for investors in the next phase.

6. The logic of the current medium to long-term confidence reassessment of Chinese assets remains unchanged, and the index center will continue to rise, with long-term funds maintaining patience.

The A-shares market is fully shifting towards the "AI+" main line, and the "Artificial Intelligence +" market has transitioned from valuation speculation to a phase of verifying prosperity, with a solid industrial foundation for forming a long-term main line. Looking ahead, Chen Guo believes that the market will maintain a phase of consolidation in the short term. With the Two Sessions convening and the performance disclosure period at the end of March approaching, attention to policies and corporate earnings reports will increase.

In the medium term, the improvement in profits brought about by stable demand and supply contraction, along with capital inflows, has not changed the mid-term environment. The reform dividends of the capital market will continue, and under the consensus of industrial trends, the technology growth sector remains the main line. From a global comparison and selection perspective, the mid-term trend of confidence reassessment in Chinese assets is also expected to continue.

Below is the content extracted from Chen Guo's team's research report shared by the investment workbook representative (WeChat ID: touzizuoyeben):

The Actual Impact of Trump's Tariff Policy May Be Less Than Estimated

Following Trump's restart of the trade war in February, he recently announced the "America First" investment policy and increased tariffs on China.

As early as the beginning of February this year, Trump accused China of inadequate control over fentanyl, claiming that the raw materials for this synthetic opioid were flowing into the United States in large quantities through the Mexico-U.S. border. For this reason, the U.S. announced that starting from February 4, 2025, an additional 10% ad valorem tariff would be imposed on all products from China, and this policy has already taken effect.

Recently, Trump reiterated that on March 4, he would officially impose a 25% tariff on Canada and Mexico while additionally imposing a 10% tariff on China. If this policy is implemented subsequently, the cumulative additional tariffs imposed by the U.S. on China will reach 20% In fact, just a week before this speech, Trump signed a memorandum called the "America First Investment Policy," further intensifying the economic confrontation between the two countries. The memorandum mainly includes the following contents: first, to adopt various legal and administrative measures to restrict U.S. investment in China, especially in areas involving artificial intelligence, semiconductors, quantum computing, etc., and to strengthen the review mechanism. Second, to limit the inflow of Chinese capital into key sectors in the U.S., including reassessing the "U.S.-China Tax Agreement" and possibly suspending this agreement, as well as strictly reviewing whether Chinese companies meet the audit standards of the "Foreign Company Accountability Act."

Drawing on the experience of "Tariff 1.0," the current policy implementation will lead to a decline in exports and a decrease in GDP growth rate, but the actual impact may be much smaller than theoretical calculations.

Looking back at the "Tariff 1.0" period from 2018 to 2019, we found that the elasticity of tariffs on exports to the U.S. averaged about -1.3, and the long-term impact of tariffs would lead to a trend decline in market share of exports to the U.S. Based on past situations, a static calculation of a 10% + 10% tariff would lead to a 3.23% decline in exports, dragging down GDP growth by 0.61 percentage points.

However, factors such as domestic policy hedging, companies avoiding trade through transshipment, accelerated overseas expansion of companies, a greater degree of diminishing marginal tax elasticity, and the strong ability and willingness of listed companies to pass on tariffs will all mitigate the impact of "Tariff 2.0" on the export chain. Therefore, the final actual impact may be far less than the calculated situation.

Overheating of previous mainline sectors and external negative catalysts lead to market correction

Under the impact of overseas policies, global funds flowed back to the U.S. and triggered risk-averse sentiment, ultimately leading to a significant depreciation of the RMB on February 28 and a comprehensive adjustment of the AH stock market.

On February 28, the Shanghai Composite Index fell by 67.16 points, a decrease of 1.98%; the ChiNext Index fell by 86.12 points, a decrease of 3.82%. After a sustained upward trend, the A-share market experienced its first correction.

After the holiday, driven by the logic of DeepSeek and humanoid robots, funds poured into the broader technology sector, which also triggered a deterioration in the trading structure of A-shares. The trading volume of the TMT sector once accounted for over 50%, reaching a historical high. Against the backdrop of significantly overheated trading in the mainline sectors, there was already a demand for phased adjustment in the market, and the concentrated release of this risk under external shocks led to the decline.

From the perspective of the industries that fell, last week's adjustment was also concentrated in these two most overheated sectors.

Therefore, the real process of recent market adjustments is the overheating of short-term trading in previous mainline sectors + the emergence of external negative catalysts, leading to the adjustment.

Waiting for policy and performance signals

As the Two Sessions are about to convene, the performance forecast period will arrive in mid-March, and policy and performance signals will become the anchor points for investors in the next stage.

Currently, the market has significant concerns about overseas shocks, and attention needs to be focused on the economic goals and policy implementation during the Two Sessions, waiting for further policy efforts In addition, the arrival of the peak period for performance disclosures will become a short-term investment focus. As of February 28, 24 companies in the A-share market have disclosed their financial reports for 2024. Starting from the end of March, the number of companies disclosing financial reports will significantly increase, and by mid to late April, the A-share companies will reach a peak in performance disclosures, with more than 4,000 companies expected to disclose their financial reports in a concentrated manner. At that time, leading companies with performance exceeding expectations are likely to become the market focus, attracting widespread attention from investors.

The Market Has Not Ended

We find insights by reviewing past typical TMT markets under high trading volume ratios. For large-scale TMT markets with rising volume and price, short-term overheating of sentiment during high trading volume fluctuations may lead to index adjustments, but it does not mean the end of the market.

Taking the TMT market from 2011 to 2014 as an example, in 2014, Alipay and WeChat rapidly gained popularity, and the release of 4G licenses continued to enhance market expectations for the development of the internet sector. Multiple factors resonated to give rise to a large-scale TMT market.

In the early stages of the market, the index and trading volume rose together, with trading volume quickly climbing to recent highs. Subsequently, during the high trading volume fluctuations, the TMT index experienced several significant adjustments before continuing to rise.

When trading volume and the index rise together, the high level of market attention indicates a certain industrial logic, and the market also has a certain degree of sustainability. Short-term trading overheating or repeated emotional cycles may lead to rapid adjustments in the index in the short term, but under the background of high trading volume ratios and high market attention, it does not mean the end of the market.

In the TMT market from 2018 to 2019, the TMT sector experienced a rise in both volume and price in the second half of 2019. Similar to 2013 and 2014, during the high trading volume ratio, the market also experienced trading overheating that led to significant short-term adjustments in the technology sector, but the overall direction remained unchanged.

In past TMT markets with high trading volume ratios, the maximum adjustment of the CSI TMT index was 17.6%, with the longest adjustment period lasting 63 days, and most market corrections were relatively short.

Therefore, based on historical reviews, the trading overheating in the technology sector generally takes about half a month to one month to significantly alleviate.

The "Artificial Intelligence +" Market Has Shifted from Valuation Speculation to Prosperity Verification Stage

Since the beginning of this year, the capital market policies have continued the tone set last year, therefore the logic of this round of medium to long-term confidence reassessment bull market for Chinese assets remains unchanged, and the index center will continue to rise, with long-term funds maintaining patience.

With the emergence of DeepSeek-V3 and DeepSeek-R1, investors have realized that China can develop globally leading large models with relatively low computing power investment, which means that China will once again engage in fierce competition with the United States in the field of artificial intelligence, and A-shares have also begun to fully shift towards the "AI+" main line.

We believe that the "Artificial Intelligence +" market has shifted from valuation speculation to prosperity verification stage, which has the industrial foundation to form a long-term main line.

In addition, in the current market environment, although the technology sector has shown strong growth potential and long-term investment value, market volatility and uncertainty factors still exist.

Therefore, if there are short-term adjustments or market sentiment fluctuations leading to a temporary pullback in the technology sector stock prices, investors can still actively seize allocation opportunities.

Source: Investment Workbook Pro Author: Class Representative

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The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk