Summary of Key Points
During market volatility and adjustments, the foreign institution UBS Securities has clearly stated that technology and AI will continue to be the main investment directions for the A-share market in the second half of the year, providing three key reasons to support this view. The firm also recommends three derivative themes worth paying attention to and analyzes the timing of the consumer sector's recovery—although a turnaround is still expected to occur in the short term, possibly only after 2026, when corporate profits boost residents' incomes.
Why Technology and AI Can Be the "Stabilizing Forces" in the Second Half of the Year?
UBS has identified three reasons that are easy for the general public to understand:
1. Guaranteed Profitability: The global development of AI (such as the popularity of technologies like ChatGPT) combined with domestic policy support (e.g., AI industry plans being promoted across various regions) creates prospects for increased profits in technology companies. In simple terms, AI-related businesses can generate more revenue for these firms.
2. Continuing Capital Flow: Both individual investors buying technology ETFs, funds specifically targeting the tech sector, and private equity institutions are continuously investing in the tech sector. The more capital flows into this area, the easier it is for the sector to grow.
3. The Trend of Concentration Hasn't Reached Its Peak: The current trend of concentrated investment in tech stocks is likely to continue based on historical experience. It took about three years for public funds to significantly over-allocate to a sector from its bottom, and the tech sector's concentration has just begun; there is still room for further growth.
How Do Foreign Investors View the Issue of High Valuations in the Tech Sector?
Some investors believe that tech stocks are currently too expensive and want to sell their holdings once they make a profit. UBS believes that while some may realize gains in the short term, this will actually relieve the overcrowding pressure caused by excessive buying. Subsequently, funds may reallocate their investments, meaning that they will continue to buy tech stocks. After all, the underlying logic for investing in technology remains intact, and the issue of high valuations will be gradually resolved as profits grow in the future.
What Other "Potential Stock" Themes Exist in the Second Half of the Year Besides AI?
UBS has identified three additional areas that complement the main focus on AI:
1. AI-related Derivative Sectors: For AI to function effectively, there is a need for data centers (where data is stored), power equipment (such as gas turbines that supply energy to data centers), robots (for practical applications of AI), and commercial aerospace (space businesses integrated with AI). These are all supplementary demands driven by the development of AI.
2. Profit Recovery Sectors: While everyone is focusing on AI, the profitability of certain industries is improving, such as lithium batteries (due to increased demand for electric vehicles), chemicals (as industrial production resumes), securities and insurance companies (as the stock market becomes more active), and innovative pharmaceuticals (with progress in new drug development). If the tech sector experiences a temporary pullback, these sectors could attract investment.
3. Chinese Companies Expanding Overseas: An increasing number of A-share companies are selling their products abroad, and the profits from overseas operations are often higher than those domestically. Industries such as home appliances and renewable energy companies stand out for this reason, as overseas markets can generate significant additional revenue.
When Will the Consumer Sector Recover?
Many people are concerned about when consumer stocks (such as those in the liquor and home appliance sectors) will start to perform well. UBS suggests that it is still too early, as two key issues need to be resolved:
1. Real Estate and Income Issues: Consumption has been sluggish in recent years due to weak real estate markets and slow growth in residents' incomes. Although housing prices in major cities have stabilized to some extent, the situation has not fully improved.
2. 2026 as a Critical Turning Point: UBS predicts that if non-financial companies in the A-share market achieve a 11% increase in profits by 2026, they will be more willing to raise employee salaries and spend on marketing. As residents' incomes rise, consumption will naturally recover, and the consumer sector will benefit accordingly.
In Conclusion
Foreign investors have strong confidence in technology and AI, and their investment strategy remains unchanged despite market fluctuations. Other derivative themes and profit recovery sectors can serve as alternative options. The consumer sector, however, requires patience; economic and income improvements are necessary before it sees a turnaround. Individual investors can choose to focus on the main themes or supplementary areas based on their risk tolerance, but they should be aware of potential market volatility.