GF Securities: When will there be a “single top” in a bull market

The Zhitong Finance App learned that GF Securities released a research report saying that back to the present, the core driving factor for the rise in AI in the Chinese, US, Japan, South Korea, and Taiwan markets since the end of the first quarter was the strengthening of the main industry trend, not a one-off factor. (If there is a one-time factor, it is probably only South Korea's leverage) Therefore, with the exception of South Korea's storage, which is at risk of spikes, other sectors of the market should probably not be spikes, at least have repeated multiple top structures. If new vertical models lead to an explosion in demand in the future, they may reach new highs.

The main views of GF Securities are as follows:

In July, the world's major equity markets retreated at the same time. Technology assets showed a steep downward trend, and the short-term trend pattern formed a relatively obvious “spike” characteristic. So, in the process of peaking the bull market, is this kind of “spire” or “single peak” a probable event or a special case? This article discusses the topping pattern and fund allocation ratio of the bull market, the possibility of a “single top” in the bull market, and the repair and trading space that currently exists in the racetrack sector from several perspectives.

1. The top pattern of the bull market: single top and multiple top

The “single top” is a special case in the market. The A-share broad base only appeared in 2015, the Dow and S&P 500 did not appear, and the NASDAQ only appeared in 2000. A single top may occur in two situations: one is an irreversible impact on capital (deleveraging), and the other is a rapid reversal of the profit cycle (one-time profit or strong cycle).

Currently, if AI is at the peak, then positions must be reduced every time it rebounds. If AI has repeated multiple peaks, then at least it can maintain positions and wait for a rebound in the second half of the year. If AI still has the possibility of reaching new highs, then now is a good time to increase positions. Judging from past experience, only the 15-year Internet+ and 00-year Science Network are typical “spires”; most of the rest are “repeated multiple top structures”. In summary, the formation of “spires” is a one-time factor other than the main industry trend. The one-time element of Internet+ in 15 years was leveraged capital, and the bubble ended with regulatory deleveraging. A one-time factor of the 00-year science network was the explosion of switching capital expenses caused by the 1999 millennial bug crisis. The end of the bubble and the millennial bug crisis in the beginning of 00 was falsified (there is no need to switch machines again).

Back to the present, the core driving factor for AI growth in the Chinese, US, Japan, South Korea, and Taiwan markets since the end of the first quarter was the strengthening of the main industry trends, not a one-off factor. (If there is a one-time factor, it is probably only South Korea's leverage) Therefore, with the exception of South Korea's storage, which is at risk of spikes, other sectors of the market should probably not be “spires”, at least “repeated multiple top structures”. If a new vertical model causes an explosion in demand in the future, it may reach new highs.

2. Fund allocation ratio: single top and multiple top.

1. Few cases: Fund allocations show a “spike” and fall rapidly from a high level, often due to deteriorating fundamental expectations and rapid falsification in the reallocation industry

Individual industry configuration peaks also rarely occur in the form of “spires.” There are few examples, represented by the fund's allocation of liquor in 2012 and the allocation of non-banks at the end of 2014.

Why did fund holdings in these two “cliff-style” declines in the next 2 quarters? Basically, it corresponds to the rapid deterioration of fundamental logic, and it is difficult to reverse it in the short term, making institutions quickly and consistently adjust positions.

2. Most cases: At the top of the industrial cycle, the institutional allocation ratio will fluctuate at a high level for a period of time, presenting multiple complex top patterns

From the perspective of the industrial cycle, focus on: ① 07-09 big finance; ② 13-15, mobile internet; ③ 16-17, supply-side reforms; ④ 19-21, core assets; ⑤ 21-22, new energy industry.

In the process of development of the industrial cycle described above, institutional holdings were continuously verified and the allocation ratio soared in line with the industrial logic. In these cases, the top of the fund allocation ratio often does not appear in the form of a “spire”. From forming an industrial consensus, to reallocating the industry to best determine the direction of earnings, to finally confirming that the industrial cycle is slowing down, the allocation ratio fluctuates repeatedly at a high level, showing multiple complex top characteristics.

(1) The development of a large-scale industrial cycle does not happen “overnight”. Whether it is technological breakthroughs, policy benefits, or business model innovation, institutions need to gradually verify the new logic. Judging from positions, even if it falls in the short term after reaching a new high, it will peak again due to new industrial catalysts.

(2) If the scope and boundaries of the industrial chain are broad enough, the order of benefits of the different links is not the same; in this process, the institutional preferred structure, several “peaks” in allocation ratio, and the corresponding heavy warehouse companies are not the same.

(3) Finally, when a rapidly growing industry and the economy slows down, there are often differences in the market. The two key empirical rules [30%] & [-50%] in terms of performance also require extensive research and testing when approaching an inflection point; as fundamentals confirm the slowdown, the allocation ratio slowly digests from a high position.

Back to the present, combined with recent financial reporting guidelines for North American CSP core companies, it is difficult for AI to compare liquor in '12 to brokerage firms in early '15, that is, fundamental logic has essentially deteriorated. Therefore, referring to more industrial cycle cases (mobile internet, core assets, new energy), the layout of the new technology revolution is often moving forward in twists and turns, and moving forward in disagreement. Even if the pulse value of a single season needs to be corrected in the short term, it is more important to track subsequent industrial catalytic and commercial progress at any time.

Risk warning: The geographical conflict exceeded expectations, causing the upward pressure on global inflation to exceed expectations; overseas inflation and the resilience of the US economy made global liquidity enter the austerity cycle faster; steady domestic growth fell short of expectations, causing economic recovery to weaken and market risk appetite to decline.