Summary of Key Points
Recently, the A-share technology sector (silicon-based industries: AI, semiconductors, computing power, etc.) has experienced a sharp decline, while traditional industries (carbon-based industries: consumer goods, agriculture, coal, etc.) have performed strongly against the trend, sparking intense discussions about a "shift from silicon-based to carbon-based economies." However, most market participants believe that this is not a complete change in style but rather a rebalancing of market trends: technology stocks will adjust to reduce overcrowding, and companies with solid performance will continue to rise; carbon-based sectors with low valuations and improving fundamentals are expected to see their valuations recover.
1. What are silicon-based and carbon-based industries? Why is there suddenly such talk about a "sector shift?"
In simple terms:
- Silicon-based industries refer to technology sectors that rely on silicon (a key component for chips), such as AI models, semiconductors, computing power servers, and optical communications, which have been hot topics this year.
- Carbon-based industries represent traditional economic sectors related to carbon, including agriculture, coal mining, consumer goods manufacturing, real estate, and tourism, which were previously neglected.
Why is there now a focus on this shift? Since the beginning of the year, silicon-based sectors have soared (with the semiconductor index rising by 159%), while carbon-based sectors have barely moved (the consumer index only increasing by 0.4%), creating a stark contrast between the two. With the sudden drop in technology stocks and the rise in traditional industries, people are wondering if funds are moving away from technology.
2. Behind the sharp decline in technology stocks: Is the market too crowded, and have valuations "overdrawn" future performance?
There are two main reasons for the decline in technology stocks:
1. Market overcrowding: Out of more than 5,500 stocks in the market, the top 300 (only 5.5%) account for half of the trading volume, meaning most investors are concentrated in these few technology stocks. Once some start selling, it can lead to a cascading decline (with many popular stocks hitting their daily limit down).
2. Overvalued valuations: Technology stocks have risen too quickly, reflecting future earnings expectations several years in advance. For example, the AI sector's expected earnings growth for 2025 is 47.8%, but current stock prices may already reflect expectations for 2026 or even later, leaving little room for further gains. Additionally, the sharp drop in U.S. technology stocks (Nasdaq fell 4.18%) served as a catalyst for the adjustment in the A-share technology sector.
3. Opportunities in carbon-based sectors: Can traditionally underperforming industries benefit from this shift?
Carbon-based sectors have several advantages:
- Low valuations: After more than two years of decline, many traditional leaders (such as Tiger Medicine and Ganfeng Lithium) have seen their stock prices drop by over 20%, putting them at historically low valuations and providing a safety margin.
- Improving fundamentals: Some traditional sectors are showing signs of improvement, such as stable coal prices, increasing sales of construction machinery, and supportive agricultural policies.
However, not all carbon-based stocks will benefit. Only those with improving fundamentals and low valuations have potential for growth, such as leading companies in the consumer goods (e.g., liquor) and coal industries, while those with continuously declining performance will remain underperforming.
4. Is it a shift in style or just a rebalancing? Opinions vary!
There are three main viewpoints in the market:
1. Technology proponents (no shift): Represented by private equity manager Zhao Xi, who believes that technology stocks are undergoing a short-term adjustment and will remain strong. The reasons include ongoing industry trends (e.g., AI development), policy support, and a broad consumer base. However, if large overseas companies (like Microsoft and Oracle) cut their spending on computing power, technology stocks could experience even more significant declines.
2. Equilibrium proponents (more balanced allocation): Represented by the Chen Guo team at Orient Securities, they argue that carbon-based sectors will be revalued, and the market will shift from a focus on technology alone to a balance between technology and traditional industries. Carbon-based industries are an important part of China's economy, but they are currently underrepresented in institutional portfolios and have room for valuation recovery.
3. Long-term proponents (silicon-based sectors still dominant, but with potential risks): Research reports from Zheshang Securities suggest that technology will still outperform traditional industries in 2026, but by 2027, traditional sectors could have a counter-effect (e.g., AI replacing jobs, leading to reduced consumer spending and potentially affecting technology stocks).
In summary, most believe it is a rebalancing of market trends, not a complete shift. Both technology and traditional industries will have opportunities, but investors need to carefully select the right companies.
5. What should ordinary investors do?
- For technology stocks: Focus on those with real performance. Avoid companies that rely on concepts without actual earnings and choose leaders in sectors like AI chips and optical modules. Wait for the market to adjust before investing.
- For carbon-based stocks: Look for those with low valuations and improving fundamentals, such as leading liquor companies in the consumer goods sector, agricultural companies, or coal industry leaders. These stocks have been underperforming for a long time and offer potential gains if their fundamentals improve.
- Avoid chasing hot trends: Don't sell technology stocks just because they are falling or buy traditional stocks just because they are rising; this can lead to missed opportunities or losses. Remember, investment decisions should be based on long-term logic, not short-term price movements.
Finally, remember that the market changes rapidly, and this analysis is for reference only. Always invest cautiously!