In recent months, the volatility of technology stocks, particularly those linked to the artificial intelligence (AI) sector, has captured the attention of market analysts and investors alikeAs we navigate the choppy waters of investment strategies, a prevailing sentiment is raising eyebrows: the trading dynamics within the technology market are becoming increasingly congestedThe ongoing activities in the A-shares market reveal that the technology, media, and telecommunications (TMT) sector has surged to a trading volume that constitutes 46% of total transactionsThis is a significant rise, nearing the historical zenith of 50% recorded in April 2023.

Fund managers have noted that technology stocks have gained a competitive edge during the recent spring trading sessions of prior yearsThe fluctuating market climate, characterized by heightened trading congestion, is reflective of a broader, albeit short-term, adjustment rather than a signal of an impending end to long-term bullish trendsInvestors are urged to remain vigilant, particularly regarding high-valuation stocksIt is advised that they concentrate their efforts on niche sectors characterized by solid performance fundamentals.

The concerns regarding market congestion within the tech sector are not merely speculativeFor example, on February 19, prominent concepts including humanoid robots, advanced AI, and semi-conductors found favor among investors, overshadowing an earlier downturnHowever, the cloud of apprehension still looms, with many investors raising alarms over the increasing saturation of technology stock trading.

Data from Wind indicates that the current trading share of TMT stocks on A-shares has climbed to 46%, nearly reaching the historical high of 50% . This dramatically contrasts with the noticeable decline in the congestion of dividend-bearing assets, implying a severe focus of market funds on technology pathwaysFollowing the release of the GPT-4 model in early 2023, an initial surge of interest in AI-related stocks occurred, only to yield to significant pullbacks when capital became overly concentrated in the sector.

Moreover, active equity funds currently exhibit a robust holding rate of about 14% in AI-related stocks, situating them at historical highs

Advertisements

The AI index currently boasts a price-to-earnings ratio of 40.37, approaching the 41 benchmark from January of last year, yet it still falls short of the peak of 47.17 recorded back in July of the previous yearMarket experts suggest that this surge in interest reflects an ongoing favorability for the sub-sector.

On February 18, amidst a general adjustment in the A-shares market, capital began to exit the technology sector, signaling a rise in risk-averse sentimentThis trend can be traced back to several factors, including unmet expectations surrounding the recent launch of the Grok-3 model by Elon Musk’s AI venture, the lofty valuation of tech stocks, and profit-taking by certain market playersAlthough the current trade in AI appears congested, institutional investors have not reached a historic apex in their asset allocation within this sector.

A fund manager from a Shanghai public asset management firm stated that near-term trading sentiment in the tech sector feels overheated, prompting some funds to lock in profitsThe most congested segments encompass cloud computing, machine vision, operating systems, industrial software, and e-government applications—areas where both trading volume and turnover rates remain elevatedConversely, sectors such as GPUs, fiber optics, HBM storage, PCBs, optical modules, and AI chips show relatively low congestion levelsOverall, the market continues to aim upward regarding its tech sector trajectory.

Historically, indicators suggest that in years with pronounced spring market rallies, the index gains frequently exceed annual returnsVeteran investors highlight that despite the current congestion in technology trading, many are still willing to enter the fray, indicating an intensification in short-term speculative behaviorThe turnover rates in technology segments and the traction of principal funds also reveal an uptick in market speculation.

Recent turnover rates for software, internet, and educational sectors have registered at 7.95%, 7.52%, and 6.89%, respectively, ranking these fields among the top performers across all market segments

Advertisements

Additionally, high turnover rates have been noted in communication equipment, computer hardware, cultural media, and commercial services, all integral to the AI ecosystem.

These trends become even clearer when scrutinizing the net flow of principal fundsAlthough DeepSeek and cloud computing stocks showed impressive performance on February 19, their respective main funds experienced net outflows of RMB 5.4 billion and RMB 4.9 billion, placing them among the most significant outflows in the sectorOver the past five trading days, the Huawei concept and AI-related stocks had net outflows exceeding RMB 80 billion; notably, DeepSeek, humanoid robots, and AIGC concepts faced outflows over RMB 50 billion, with computing and chip concepts following closely behind.

According to another equity fund manager based in Beijing, the advent of DeepSeek has invigorated investor confidence in tech stocks, diverging from previous narratives that surrounded ChatGPT and SoraThis change has encouraged more investors to seek new opportunities despite risks surrounding high valuationsSpecialists advise focusing on niches with robust financial backing, such as domestic computing capabilities, the application of AI in practical settings, and the implications of policies and liquidity changes on market dynamics.

The founder and chairman of Mingze Investment, Ma Kewai, expressed optimism regarding the decision-makers' proactive support for the economy and capital markets, along with emerging trends within China's AI sector, fostering significant structural opportunities for the A-shares market by 2025. The ongoing tech growth narrative is predicted to flourish, fueled by breakthroughs in domestic AI, humanoid robots, and technological advancements, coupled with policy supportThis synergy is anticipated to catalyze long-term growth in industry performance and valuations, ensuring that even in the face of short-term corrections, the overarching upward trajectory remains intact

Advertisements

Investors are encouraged to seize opportunities post-correction.

Zhou Zongzhou, manager of the HSBC Jintrust Innovation Pioneer Fund, reflects on historical patterns, citing how both the internet boom of 2000 and the mobile internet rally of 2010 highlighted a positive correlation between early-stage tech advancements and skyrocketing corporate performancesAs technology finds common ground—positioning China favorably in engineering, business models, and innovation—the potential for similar phenomena is considerable.

Looking ahead, the tech market is poised for a more balanced growth phaseDeepSeek's popularity indicates an increased acceptance of AI large models among usersStatistics show a rising trajectory in user engagement not just for DeepSeek, but also for competitors like Doubao and Kimi, highlighting significant momentumVarious governmental systems and enterprises are integrating DeepSeek into their operations, suggesting a growing embrace of AI within both public and private sectors.

Industry experts note that the current AI investment landscape differs from the surges led by ChatGPT in 2023 and Sora in 2024. The rapid commercialization of AI applications marks a significant turning point, with enhanced penetration rates and a realization of humanoid robots entering their production phaseThis time around, the rally is less about thematic investment and more focused on tangible growth and performance metrics.

The Industrial and Commercial Bank of China Fund suggested that as AI penetration escalates, relevant internet companies might be poised to replace traditional search engines, transforming into AI assistants that accelerate practical applicationsFurthermore, cloud service providers, known as "shovel sellers" in the vernacular, could also benefit from this trend.

Returning to Ma Kewai’s forecasts for 2024, he anticipates that the tech market will showcase balanced characteristicsAs global interest rates enter a downturn in the latter half of the year, this setup will support technology growth styles

Advertisements

Advertisements