August 16, 2026 (InvestinChina.asia) – The liquidity-driven rebound that lifted Chinese A-shares in early August has largely run its course, and the market is entering a phase where performance will hinge on earnings rather than cheap money, according to the latest strategy note from China Merchants Securities (CMS). With the interim earnings season approaching and macro-micro liquidity improvements fading, the brokerage advises investors to pivot toward structural opportunities along three lines: technology innovation, corporate globalization, and low-valuation rebalancing — with a particular emphasis on electronics, power equipment, chemical pharmaceuticals, non-ferrous metals and coal.
The note arrives at a pivotal moment. The Wind All-A Index’s price-to-earnings ratio (TTM) has climbed to 18.5, sitting at the 78.3rd percentile of its historical valuation range — a level that leaves little room for another broad-based leg higher without fresh fundamental catalysts.
Liquidity Tailwind Fades as Fed Stands Pat
Over the past two weeks, overseas liquidity expectations have been repeatedly revised upward following the U.S. Federal Reserve’s policy signals and a surprisingly weak payrolls report. July inflation data confirmed the cooling trend, with CPI easing to 3.4% year-on-year and core CPI declining to 2.5%, further cementing market expectations that the Fed will hold rates steady in September.
Yet CMS argues that the risk-on sentiment fueled by these liquidity improvements has already been fully priced in. Domestically, July’s social financing data reflected a structural pattern of “loose money but weak credit” — new RMB loans contracted by 340 billion yuan while direct financing emerged as the primary support. The brokerage expects the PBOC to maintain an accommodative stance in the second half, but cautions that monetary easing alone can no longer drive a systematic re-rating.
Japan Rate Hike: A Pulse, Not a Trend
The A-share selloff on August 13, which coincided with a drop in gold prices, was widely attributed to rising speculation around a Bank of Japan rate hike. CMS pushes back against this narrative, arguing that the impact on A-shares will be limited and transient.
Unlike the panic-driven unwinding of the yen carry trade in August 2024 — when the Nikkei plunged 12.4% in a single session — the current BOJ tightening is well-anticipated, with markets pricing in a 74-76% probability of a hike at the September 18 meeting. As such, any position-covering will be gradual, not disorderly. Moreover, A-shares remain relatively insulated because carry-trade capital has limited direct exposure to the mainland market; the primary transmission channel is emotional, not fundamental.
The real tail risk, CMS warns, lies in a “double trigger” scenario where a BOJ hike coincides with a hawkish Fed pivot. Investors should closely monitor the BOJ’s guidance on September 18, the Fed’s policy trajectory, and upcoming U.S. inflation and employment data.
AI Value Chain: From Capex Hype to Profit Realization
This week marked a critical inflection point for the overseas AI industry — not because capital expenditure forecasts were raised again, but because three segments simultaneously delivered fundamental validation: compute leasing, data storage, and high-speed interconnect.
CMS highlights four concrete signals:
- Enterprise flash storage: Western Digital’s SanDisk projected that potential demand for enterprise data center flash could reach 1.2 zettabytes by 2030, with data-center revenue already surging to 24.7% of its total mix, up from 11.2% a year earlier.
- Silicon photonics: Nvidia announced full-scale mass production of its Spectrum-X Ethernet photonics switch, delivering roughly 5x power efficiency gains and 10x system resilience improvements, signaling that network bandwidth — not just GPU supply — has become the binding constraint on cluster efficiency.
- Compute leasing economics: Nebius posted Q2 revenue of $582 million, up 454% YoY, while CoreWeave’s revenue grew 112% to $2.575 billion, with newly signed contracts showing 5-10 percentage point margin improvements — evidence that the compute rental market is not yet in a supply glut.
- Cross-regional optical interconnect: Google unveiled three new subsea cable projects across the Americas, extending optical demand from intra-cluster Scale-up to inter-regional Scale-across.
The pricing logic for AI infrastructure, CMS notes, is migrating from distant total-addressable-market narratives toward order books, pricing power, and earnings realization.
Hong Kong: Triple Tailwinds Converge
CMS identifies three favorable factors gathering momentum for Hong Kong equities:
- Index upgrade: The Hang Seng Tech Index consultation paper proposes expanding constituents from 30 to 50 stocks and introducing a dual-track selection mechanism. Artificial intelligence would be elevated to a first-tier theme, addressing long-standing criticism that the index lacked “tech density.” Simulations show the 10 new “revenue-growth group” constituents achieved a median revenue growth rate of 82.0% over the past 12 months.
- Capital inflows returning: Southbound funds have resumed net inflows after recording their first monthly net outflow in three years this May. Institutional investors have stopped systematically reducing Hong Kong positions, with active mutual fund holdings now standing at 342.1 billion yuan — below the 444 billion yuan benchmark, implying room for re-allocation.
- Profit migration toward cloud providers: The AI profit pool is shifting from hardware and large-model vendors toward cloud service providers. Combined cloud revenue from North America’s four hyperscalers reached approximately $116.2 billion in the latest quarter, up 43% YoY, with total backlog hitting $2.33 trillion, up 188%. This directly benefits Hong Kong-listed cloud names such as Tencent and Alibaba.
Market Action: Divergence, Not Direction
In the trading week of August 10-14, the ChiNext Index rose 1.77% and the CSI 1000 gained 1.18%, while the STAR 50 fell 1.51% and the Beijing Index 50 dropped 4.12%. Daily turnover averaged 2.35 trillion yuan, down 3.16% from the prior week. Sector rotation favored comprehensive sectors (+7.21%), telecommunications (+5.10%), and healthcare (+1.92%), while non-ferrous metals (-3.70%) led the decliners as investors took profits.
Funds data reveals a tug-of-war: margin financing recorded a net inflow of 26.48 billion yuan over the first four trading days, but ETF redemptions drove a net outflow of 74.44 billion yuan. New equity-fund issuance shrank to 4.22 billion units, down 1.57 billion from the prior period. Margin capital concentrated its buying in electronics, non-ferrous metals, and power equipment.
Sector Recommendations
CMS recommends a balanced allocation across three threads:
- Technology Innovation: Semiconductors, memory chips, power equipment — supported by June global semiconductor sales surging 123.60% YoY to $134.45 billion.
- Corporate Globalization: Companies with genuine overseas earnings exposure.
- Traditional Low-Valuation Rebalancing: Coal and non-ferrous metals, where spot prices are rising and inventories are drawing down.
Beyond the three main lines, CMS flags humanoid robotics as a long-term thematic opportunity. The industry is transitioning “from concept display to industrialization validation,” with Chinese manufacturers already leading in scale — AgiBot shipped 5,168 units in 2025, capturing roughly 39% of the global market. The brokerage suggests focusing near-term on core hardware components (six-axis force sensors, roller screws, precision reducers, dexterous hands) before the investment focus eventually migrates toward software and embodied intelligence algorithms.
CMS cautions that risks remain if economic data disappoints, policy intentions are misread, or overseas monetary tightening exceeds expectations.
Leave a Reply