CICC: Tech Rally Enters Mid-Stage, Second Half Expected to Broaden After Q3 Correction
0xBroomberg
CICC calls the global tech pullback a halftime pause, not an ending. Q3 still faces triple pressure — U.S. funding stress, yen carry-trade reversal risk, and Korean semiconductor leverage — but once risks are digested, the rally should broaden from AI hardware into applications, industrials, and resources.
Why "halftime" and not "top"?
CICC argues the structural logic of this cycle is intact: the AI investment cycle continues, underpinning real U.S. growth and earnings momentum.
The short-term friction is real, though — a funding boom (heavy corporate issuance) colliding with tightening liquidity, on top of crowded positioning and high leverage. The market needs time to digest.
This means → CICC's call is "pause, then resume," not "it's over." Q3 volatility is a tactical risk, not a structural reversal.
How are a new Fed chair and funding pressure squeezing the market at the same time?
New chair Waller has barely spoken since his nomination, breaking the post-2008 playbook of "signal → price → deliver." CICC expects him to run a "rules-first, market-second" stance, which has pushed rate-hike expectations sharply higher since March.
In plain terms = the Fed used to telegraph; markets could front-run. Now the new chair isn't telegraphing, so markets are guessing — and guessing hawkish.
The funding numbers are stark: Q3 net Treasury issuance is projected at $671 billion (Q2 was $189 billion), with $367 billion in medium- and long-dated paper. The Treasury General Account (TGA — the government's cash balance at the Fed) is expected to stay near $950 billion, continuously draining liquidity.
Corporate debt adds to the load — Q3 net issuance may top $460 billion. Tech-sector CDS spreads (credit default swaps — the price of insuring against default) are rising, yet investment-grade credit spreads remain near historic lows. This reflects a market that may not have fully priced the funding squeeze.
Why could a yen carry-trade reversal hit global markets?
Carry-trade positions — borrowing cheap yen to invest in higher-yielding assets — are at historic extremes: Japanese foreign-bank internal-account assets near ¥160 trillion, net short yen futures and options above 160,000 contracts.
CICC's FX team sees conditions closely resembling the August 2024 carry unwind: weak yen, crowded positioning, official intervention, and a BoJ rate hike — all four triggers present.
This means → if the yen reverses, the move could be far faster than a normal rate-differential shift. Historical data show that during yen appreciation phases, annualized equity returns in China, the U.S., Japan, and Europe are 23.5%, 7.9%, 20.5%, and 16.1% lower, respectively, than during depreciation phases.
How does Korea's semiconductor selloff transmit to U.S. equities?
SK Hynix and Samsung have fallen more than 28% and 22% from their peaks, dragging the Philadelphia Semiconductor Index lower. In June, foreign investors net-sold ₩47 trillion of Korean equities while retail investors net-bought ₩40 trillion — institutions are leaving; retail is catching the knife.
Korean margin balances sit at roughly ₩38 trillion; leveraged ETF AUM is $33 billion, still drawing over $2 billion per week in net inflows since July.
In plain terms = high concentration (all piled into semis) + high divergence (foreign vs. retail) + high leverage (margin + leveraged ETFs) = a fragile structure. If memory prices or AI capex expectations weaken, forced deleveraging by retail margin accounts and leveraged ETFs could cascade into U.S. semis via foreign-fund redemptions.
After halftime, where does the rally broaden?
CICC reiterates that the global economy remains in a K-shaped split: the upper leg (AI investment chain) is strong, while the lower leg (consumption, housing, small business) is weak — job openings hover near lows and real disposable income growth has fallen to roughly zero.
This means → the liquidity squeeze driven by rate-hike expectations won't last indefinitely. Once consumption and housing weaken further, rate-cut expectations will naturally re-emerge.
After Q3 digests the risks, CICC sees the rally broadening within the K-shape's upper leg: from AI hardware into AI applications, industrials, resources, and broad safety assets — this will be the key test of whether the cycle's second half plays out as expected.
Content is for reference only, not financial advice.