CITIC Securities: Rate Hike Narrative Reversal, Non-AI Sector Recovery Expected
Taylor Wilson
CITIC Securities argues that cooling Fed rate-hike expectations plus broad-based ETF selling pressure clearing within a week open a repair window for non-AI A-share sectors crushed by the extreme AI-only trade.
How extreme is the AI vs. non-AI split on A-shares?
Since June, A-share semiconductor materials & equipment, CSI Semiconductor, and STAR Market chips have returned +43.2%, +32.9%, and +20.7% respectively. Over the same period the Philadelphia Semiconductor Index fell -1.6% and Korea's KOSPI 50 fell -1.9%.
This means → A-share chip gains are not a mirror of global AI momentum. A large share comes from an indigenous-supply-chain valuation premium — a narrative that simply does not exist overseas.
In plain terms = global chip stocks went sideways while A-share chip stocks surged. The gap is driven by the "domestic substitution" story. The stronger that story, the wider the chasm between AI and non-AI names.
Why is the rate-hike narrative suddenly loosening?
Fed Governor Waller shifted his tone recently: the hawkish stance held, but he acknowledged inflation risk has eased over the past four weeks and said the central bank should let data determine whether AI-driven supply expansion is inflationary or deflationary.
May trimmed-mean PCE — a measure that strips out extreme price swings to gauge the underlying inflation trend — came in at 2.4% year-on-year, well below core PCE. June non-farm payrolls then confirmed a cooling labor market; Treasury yields and the dollar index fell in tandem.
This means → the market's prior narrative chain — "AI infrastructure crowds out energy → carbon-world inflation → Fed forced to hike" — currently lacks data support. Once the strong-dollar story cools, the non-AI sectors hit hardest have room for a valuation reset.
Why did META's IaaS pivot rattle the market?
META announced it would open an IaaS business — infrastructure-as-a-service, essentially renting out its own compute capacity as a cloud offering. The market worried this signals peak AI capex.
CITIC Securities reads it the opposite way: opening IaaS is about making capex more sustainable, not cutting it. This reflects Big Tech turning "captive compute" into "rentable assets" to spread costs and smooth spending.
The more telling signal: the market is hypersensitive to any negative AI headline — which itself shows the prior divergence went too far and needs to rebalance. Hardware names in storage and optical networking have outperformed the Mag 7 this year, with six-month cumulative excess returns hitting 199%.
How long will broad-based ETF selling pressure last?
Over the past three weeks, four major CSI 300 ETFs saw net redemptions of ¥42.2 bn, ¥90.4 bn, and ¥58.5 bn respectively. CITIC Securities estimates that as of July 3, large holders still had roughly ¥20–30 bn left in these ETFs — at the current pace, that clears within one week.
In H1, broad-based ETFs saw cumulative net redemptions of ¥1.86 trillion, while sector and thematic ETFs drew net inflows of ¥253 bn, of which tech ETFs accounted for ¥88.9 bn.
In plain terms = big money has been selling index funds and buying tech all year. Non-AI sectors have spent six months in a market that only shrinks. Once the selling stops, the funding picture for non-AI names improves sharply.
What is CITIC Securities recommending?
AI leg: narrow focus to names with tight supply constraints and low valuations, favoring mid-to-downstream — cloud vendors, storage, gas turbines, diesel generator sets.
Energy & chemicals leg: in clean energy, favor electrolyte and additive makers plus separator producers for near-term earnings delivery; in chemicals, prefer low-valuation, relatively inelastic-demand names — refrigerants, phosphorus chemicals, spandex, dyes, mega-refineries; in metals, recommend tin and copper as "compute metals" whose valuations are temporarily depressed by the rate-hike narrative.
Non-AI repair plays: add low-valuation brokerages (H2 liquidity headwinds fading + mid-year earnings catalyst); favor innovative pharma where positioning has fully cleared. Key checkpoints: whether the rate-hike narrative continues to fade and whether ETF selling pressure clears on schedule.
Content is for reference only, not financial advice.