Expected Callback - Cautiously Welcome Trump's Visit to China

Last night, we discussed the uncertainties surrounding recent security issues, meaning that the current technological sector should remain vigilant. Although communication is the main focus, it has already risen quite a bit. Additionally, it is very likely that Trump’s visit to China will trigger large-scale news stimuli, which could provide some guidance on certain directions. Whether the subsequent fermentation will benefit specific sectors, or which directions will be favored, there will inevitably be a batch of news. At this point, large capital might be more excited than we are, so it’s necessary to withdraw funds to prepare for future sector choices. Where should we withdraw funds to? Mainly from the technology sector, as it has accumulated too much capital, so withdrawing from here aligns with everyone’s expectations. [Taogu Ba]

With this basic judgment, the current fund withdrawal should involve some portfolio adjustments and stock rotations. The main first-tier sectors are still fine; most issues will appear in second- and third-tier targets, such as first-tier stocks like $Zhongji Xuchuang (sz300308)$, $Changfei Optical Fiber (sh601869)$, $Cambricon (sh688256)$, etc., which are less likely to be affected. However, second- and third-tier stocks like Shennan Circuit, Cambridge Technology, Demingli, etc., may not be as safe. Therefore, the current mainstream approach is to eliminate the weak and retain the strong. Although it may not be suitable for all tech sectors, the main players’ intention is clear: the most valuable ones should be kept, while others are trimmed first. It won’t be a complete end, but when new sectors emerge, they won’t be left without ammunition. Similarly, we should operate this way, especially since Trump is arriving tomorrow. Hopefully, there will be news worth paying attention to.

The market has already shown signs of large-scale capital withdrawal. Today’s military industry, yesterday’s securities firms, and the power grid sectors all strengthened, which was driven by the reduction of positions in tech sectors, even with bulk gains in real estate. These sectors all have reasons to strengthen. For example, the military industry might be related to Trump’s visit to China and his request for escorting the Strait of Hormuz, a demand he mentioned a month ago. The power grid has been continuously strong, with Huadian Power and others rising daily. Although they are somewhat high, the logic is still based on computing power equaling electricity—covering issues like the six networks: computing network, power grid, and others. Today, the six networks are expected to invest 7 trillion yuan, but none surpass the communication network, which makes the communication network combined with power grid targets quite attractive. As for the real estate sector’s strength, it might be related to promotional efforts, especially considering yesterday’s economic data for April. Consumption is a key sector, with real estate being the largest component, so today’s real estate sector still has some value, particularly related to infrastructure targets that may deserve more attention.

The current sector focus is quite clear: the main line is the communication network, which remains the core of the communication sector. The other networks are just following. The communication network must remain the main line; the rest are just explanations. The six networks favor communication networks exclusively. Other sectors don’t need to be overly concerned. The communication network has always been the core of our communication theme, with others emerging as it develops. Longfei Fiber is the leader here. The other stocks following Longfei Fiber—Tongdian, Tongguang, Hanlan—are just followers; even if they hit the daily limit, they are not the leaders. The leader remains Longfei Fiber. These stocks performed very well today; we will continue to observe tomorrow.

Tomorrow is Trump’s visit day. Books on Trump’s negotiation skills have already been published. First, he demands sky-high prices, then offers to pay on the spot. The difficulty in negotiations is likely at the start, meaning tomorrow’s negotiations may not go smoothly. Perhaps an agreement will be reached at the end, but if no agreement is made, it could be problematic—though the probability is low. If communication isn’t good, he might just not come. So, we only need to consider the potential benefits of an agreement and which industries or sectors it favors. Generally, resource sectors and technology are the main areas: the U.S. needs resources, and we need technology. Resources should be easier to agree on, so today’s gains are possible. Technology is more complicated and uncertain, so today’s decline is understandable. Since this morning’s news involved the six networks, the highest probability is that an agreement was reached on the communication network. Of course, communication has always been our main theme. If that’s the case, then no worries—continue focusing on the communication network and bring along Longfei’s other subsidiaries. If not, Longfei has no major issues; it’s the overall market leader. Even if there are problems, they’re not a big deal—just a matter of whether the “Star Sea” is 500 or 700. Either way, Longfei’s “Star Sea” will be seen.

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