Has the tech frenzy broken through the "40% rule"?

Report Summary Since the outbreak of the AI industry, the transaction congestion in TMT over the past two years has always attracted market attention. Because, in the past two years, whenever the transaction proportion of TMT approached the upper limit of 40%, the sector would experience a phase pullback in excess returns. However, around the Spring Festival in 2025, the transaction proportion of TMT broke through 40% and continued to operate at a high level, suggesting that the invisible constraint of 40% seems to have failed in this round. 1. Where is the emotional peak of TMT in this round? In every large technology industry cycle, the central proportion of TMT transaction volume will experience a significant increase, driven by the increase in the number of constituent stocks and their market capitalization proportion, as well as improvements in investors' expectations for fundamentals. Currently, the transaction proportion of TMT is【44%】. Based on past experiences and comparisons with the United States, it is possible that the peak of this round's transaction proportion is between【45%-50%】. 2. After reaching the peak, does the transaction proportion of TMT still have guiding significance in a large technology industry cycle? In the short term, it remains effective. After reaching the emotional peak, there will be a phase pullback in excess returns, but the extent will not be large. In the medium term, the guiding significance of congestion weakens, and market trends depend on whether the fundamentals explode, whether expectations improve, and various observational indicators such as orders, product scale and sales, event catalysts, and performance growth rates. 3. Besides TMT, sectors like new energy and liquor have also experienced an upward shift in the central transaction proportion and a phase of excess return oscillation. It is important to note that improvements in fundamental expectations do not necessarily synchronize with the release of performance. For example, the surge in mobile game scale in 2013 and the increase in new energy vehicle sales in 2020 both occurred before the sector's performance explosion, but they provided investors with strong confidence in the improvement of fundamental expectations. In addition to the improvement in fundamental expectations, the continuous inflow of incremental funds is also an important reason for the increase in the central transaction proportion. 4. The emergence of DeepSeek has changed the situation of TMT lacking fundamental support over the past two years, which is also an important reason for the breakthrough in the transaction proportion of TMT. Comparing with 09-10 and 13-15, the mid-term market observation applies to the number of application endpoints, product penetration rates, and sales orders. In the past two years, market performance has mainly revolved around hardware and computing power benefiting from overseas (NVIDIA) capital expenditures, with a typical representative stock being Zhongji Xuchuang, which has continuously reached new highs and has become desensitized to the trends and crowding of the TMT sector. Currently, with major internet platforms beginning to integrate and increase capital expenditures, the fundamental expectations for the application side have significantly improved, leading to increased demand for computing power. The crowding in the TMT sector may continue to remain high, accompanied by a trend of style dominance. Subsequent tracking and verification of indicators such as the number of applications, product penetration rates, sales, and orders will be crucial. 5. Core conclusions of the Spring Rally in 2025 How to view the sustainability of the Spring Rally in 2025? Historically, the phase with the highest risk appetite is from the Spring Festival to the Two Sessions. In the 30 trading days after the Spring Festival, the overall small and mid-cap style has performed well. From late March to late April, as the expectations for the first quarter reports began to trade, stocks showed differentiation, and risk appetite slightly declined. After mid-April, overall risk appetite clearly decreased; a few sectors may exhibit fundamental trends, known as the "April Decision." Technology remains the main line, and future participation strategies in the technology sector can be developed along the lines of "low-level growth branches" and "performance realization in 2025." First, low-level growth can focus on military industry, cultural exports, satellites, medical devices, AI education, etc. Secondly, look for technology fields with a high probability of immediate fundamental realization in the first half of 2025, which currently mainly includes edge hardware, robotics/autonomous driving, and inference-side computing power. Report Body 1. This Week's Viewpoint: Why Emotional Indicators Fail—A Deep Dive into Trading Volume Proportions (1) Where is the emotional peak of this round of TMT? The peak trading volume proportion for this round of TMT is expected to be between 45%-50%. 1. In every large technology industry cycle, the central tendency of TMT trading volume proportion will experience a significant increase, driven by the increase in the number of constituent stocks and their market capitalization proportion, as well as improvements in investors' expectations for fundamentals. ① From 2013 to 2015, there was a transition from the smart technology industry cycle to the mobile internet technology industry cycle, corresponding to a shift from hardware to applications. The application side entered a stage of fundamental explosive growth, with the transaction volume proportion rising from 17% in 2009-2010 to 30%. ② From 2019 to 2020, there was a transition from the mobile internet technology industry cycle to the 5G technology industry cycle, corresponding to a shift from communication to electronics. The midstream hardware side entered a stage of fundamental explosive growth, with the transaction volume proportion rising from 30% in 2013-2015 to 40%. ③ Before the Spring Festival, DeepSeek emerged, and its low-cost advantage brought AI from dream to reality. Investors expect the application side to soon enter a stage of fundamental improvement, which has also led to the breaking of the relatively stable transaction volume proportion top of 40% in the TMT sector over the past few years. 2. The current transaction volume proportion of TMT is 44%. Based on past experiences and international comparisons, it is possible that the peak of this round of transaction volume proportion will be between 45%-50%. ① Since 2009, the market capitalization proportion of the TMT sector has increased at a relatively stable slope, corresponding to an increase of about 10% for each major technology industry cycle compared to the previous one. ② Since 2013, the peak transaction volume proportion of the TMT sector in China and the U.S. has been relatively close (the U.S. stock market uses the sum of the information technology and communication services components of the S&P 500). Since 2024, the peak transaction volume proportion of S&P 500 TMT has been stable at around 50%. (2) In a major technology industry cycle, does the peak transaction volume proportion of TMT still have guiding significance? 1. Short-term effectiveness remains, and after reaching the emotional peak, there will be a phase of excess returns retreat. In the short term, whether near the 30% transaction volume peak in 2013 or the 40% peak in 2019, we can see that excess returns experienced a phase of retreat. Therefore, being near the peak of transaction volume proportion is not a good buying point; it is better to wait for a retreat in transaction volume proportion before reallocating. However, it is worth noting that during the high emotional phase, the transaction volume proportion may not retreat significantly; generally, it may rise again when it reaches 50%-70% of the emotional peak. 2. In the medium term, the guiding significance of congestion weakens, and market trends depend on whether the fundamentals explode, whether expectations improve, and various observation indicators such as orders, product scale and sales, event catalysts, and performance growth. ① During the periods of 2013-2015 and 2019-2020, there were instances where, supported by fundamental expectations, the congestion center rose and maintained at a high level, leading to oscillating upward excess returns. For example, in Q2 2013, the TMT sentiment broke through the sentiment peak of 2009-2010 and remained high until the first half of 2014. During this period, the TMT sector, especially gaming, saw significant excess returns. This trend was driven by a strong first-quarter report for TMT in April and the expansion of the gaming scale starting in the second half of 2013, which provided the market with strong fundamental expectations, even though the gaming sector's performance surge occurred in 2014-2015. Another example is from Q4 2019 to Q1 2020, where the TMT sector sentiment broke through the sentiment peak of 2013-2015 and remained high. During this period, the electronics sector drove the TMT excess returns upward, supported by the continued improvement in the growth rate of semiconductor and consumer electronics performance in Q3 2019, which provided strong confidence to the market and further strengthened expectations for subsequent improvements in semiconductor and consumer electronics performance. ② Besides TMT, other sectors such as new energy have also experienced improvements in fundamental expectations, with the congestion center rising and maintaining at a high level. In Q4 2019, after Tesla's Shanghai factory began production and the Model 3 started deliveries in January 2020, the transaction volume share of the new energy vehicle sector rose to around 6%. By mid-year, with the launch of BYD Han and Wuling Hongguang Mini, and the year-on-year growth rate of new energy vehicle production and sales turning positive, the upward shift in market fundamental expectations pushed the transaction volume share of the new energy vehicle sector to break 6% in the second half of 2020. After the explosive growth in new energy vehicle performance in 2021, the transaction volume share of the new energy vehicle sector peaked at around 9%, and the sector sentiment remained high. (3) In addition to improvements in fundamental expectations, the continuous inflow of incremental funds is also an important reason for the rise in transaction volume share. Incremental funds can, to some extent, drive the transaction volume share to break through the peak, but the essence still comes from the stability or improvement of fundamentals. A typical example is the liquor and new energy sectors from 2019 to 2021, which were also the most favored assets during the large-scale inflow of foreign capital and the peak of public fund issuance In the context of global monetary easing over the past 20 years, foreign capital has begun to accelerate its inflow into stable core assets and new energy, while public funds have also increased their allocation to liquor and new energy sectors, driving the transaction volume proportion of liquor and new energy sectors to break through previous highs. During the massive issuance of public funds in Q4 20 to H1 21, the sentiment center of the liquor and new energy sectors remained stable at a high level. However, it is worth noting that the support from incremental funds is more of a "result," while the "cause" actually comes from the stability or improvement of the fundamentals, which attracts incremental funds. Therefore, the core still comes from the judgment of fundamental expectations. (4) For the present, DeepSeek has brought about an improvement in fundamental expectations, and the subsequent mid-term market trend will observe indicators such as the number of application endpoints, product penetration rates, sales, and orders. The emergence of DeepSeek has changed the situation over the past two years where TMT lacked fundamental support, which is also an important reason for the breakthrough in the original transaction volume proportion of TMT. From the perspective of industrial trend evolution, the AI industry cycle from 2023 to the present can be compared to the cycles of 09-10 and 13-15, transitioning from the smartphone industry cycle to the mobile internet technology industry cycle, and switching from hardware to application endpoints. In 2009, with the launch of the iPhone 4, smartphone shipments entered a rapid explosion phase, with hardware represented by consumer electronics and components showing strong excess returns; however, after entering 2013, as the penetration rate of smartphones quickly rose to over 70%, the application side began to show stronger trends. Looking back over the past two years, market performance has mainly revolved around hardware and computing power benefiting from overseas (NVIDIA) capital expenditures. A typical example is the representative stock Zhongji Xuchuang, which has continuously reached new highs and has clearly desensitized from the overall trend and congestion of the TMT sector. Currently, the industrial cycle is beginning to shift towards the application side, with the corresponding endpoint entering a period of intensive catalysis since the fourth quarter of last year. The direction of capital expenditures has also shifted from overseas to important domestic internet platforms, and the explosion on the application side has increased the demand for computing power, forming a spiral support for the improvement of fundamental expectations. Although compared to the previous round of explosive growth in the application side from 13-15, the penetration rate of carriers or products is still not as high as in 2013 (when the penetration rate of smartphones reached around 70% at the beginning of 2013, which was also an important prerequisite for the explosion on the application side) However, considering that technology may be more point-like rather than linear, just as investors could not predict the emergence of DeepSeek, it is highly likely that the future will trigger a comprehensive explosion on the application side with the emergence of certain technologies and products, especially against the backdrop of major internet platforms beginning to integrate and increase capital expenditures. With the continuous improvement of fundamental expectations, the congestion in the TMT sector may remain high and be accompanied by a trend of style dominance. It is important to note that the improvement in fundamental expectations may not have to wait for performance releases, such as the surge in mobile game scale in 2013 and the increase in new energy vehicle sales in 2020, both of which will provide investors with strong confidence in the improvement of fundamental expectations. Therefore, subsequent tracking and verification of indicators such as the number of applications, product penetration rates, sales, and orders will be crucial. (V) Core Conclusion of the Spring Excitement in 2025 DeepSeek breaks traditional narratives and is expected to guide a global phase re-evaluation of Chinese technology. In the medium term, attention should be paid to the shift of the technology growth style from theme-driven to fundamental expectation-driven, which has the potential to enter a trend of dominance. In this case, "the proportion of TMT transaction volume exceeding 40% of A-share transaction volume" may no longer be a suppressive factor. How to view the sustainability of the spring excitement in 2025? Over the past fifteen years, during the period from the Spring Festival to the Two Sessions, the probability of the Shenwan Small Cap Index rising is 100%. Looking at the sustainability of the small cap index's rise after the Spring Festival, over the past 15 years, the small cap index has averaged an increase of 31 trading days after the Spring Festival, with a median of 32 trading days. In 2025, the rise of the Shenwan Small Cap Index is basically following the upper edge of the historical range, currently showing sustainability for 13 trading days. Historically, the highest risk appetite phase is from the Spring Festival to the Two Sessions. From late March to late April, trading begins on first-quarter report expectations, leading to stock differentiation and a slight decline in risk appetite. Therefore, in the 30 trading days after the Spring Festival, the overall small and mid-cap style performs well. However, after mid-April, the overall risk appetite clearly declines (with the possibility of early exits). After April, some sectors may emerge with fundamental trends, known as the "April Decision." Subsequent participation strategies in the technology sector can continue along the lines of "low-level growth branches" and "performance realization in 2025." First, in low-level growth, in addition to the low-altitude economy, semiconductor equipment, and photovoltaics that have reacted after the Spring Festival, attention can also be paid to military industry, cultural exports, satellites, medical equipment, and AI education Secondly, look for institutional capacity stocks with a high probability of immediate fundamental realization in 25H1. Currently, in the technology sector, we expect to see performance realization in AI orders/sales, mainly in edge hardware, robotics/autonomous driving, and inference computing power. Author of this article: Liu Chenming S0260524020001, Zheng Kai, Zhao Yang, Source: Chenming's Strategic Deep Thinking, Original Title: "Why Do Sentiment Indicators Fail? How High Can the Proportion of Technology Transactions Reach? [Guangfa Strategy Liu Chenming & Zhao Yang]" Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at your own risk