Yan Xiang of Founder Securities: Watch Global AI Capital Expenditure; Bullish on Two Main Lines for A-Shares in Q4—Hardcore Tech and Undervalued Dividend Stocks

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Shanghai Securities News, China Securities Network (Reporter Sun Zhong) "Since the third quarter, global stock markets have experienced a rapid pullback, which is largely related to changes in expectations for Federal Reserve rate hikes and AI capital expenditures," said Yan Xiang, chief economist of Founder Securities, in a recent exclusive interview with a Shanghai Securities News reporter.

Yan Xiang believes that the market is currently worried about whether the global technology cycle can continue as the global interest rate center rises systematically. Despite external uncertainties, the foundation for the medium- and long-term improvement of the A-share market in the fourth quarter has not changed, and structural opportunities are still worth anticipating, especially in two directions: hardcore technology and low-valuation blue chips.

Two variables hit global markets

In the third quarter, global stock markets cooled markedly after the second-quarter rally, and the core leading technology sector that had led gains earlier underwent a significant correction.

Yan Xiang believes that the notably increased volatility in global capital markets in the third quarter, along with rising market divergence and risk aversion, was mainly caused by two factors.

First was the shift in Federal Reserve monetary policy. The Fed's September policy meeting announced an increase in the target range for the federal funds rate by 25 basis points to 3.75%-4%, the first rate hike since July 2023, and the dot plot showed there may be one more hike within the year. The European Central Bank and the Bank of Japan also tended toward tighter monetary policy, long-end U.S. Treasury yields climbed rapidly, with the 10-year yield rising from about 4.44% at the end of June to as high as 5.36%, and the 30-year yield once breaking through 5.73%, hitting multi-year highs.

Yan Xiang believes that the systematic rise in the interest rate center directly suppresses the pricing of risk assets such as equities, with high-valuation growth stocks coming under particularly obvious pressure.

Second, the AI narrative has seen new changes. With the release of listed companies' financial reports, the drain of massive AI investment on corporate balance sheets has become visible, and technology giants have successively launched large-scale bond issuance. The market has therefore re-examined the sustainability of AI capital expenditures, with questions arising over whether large investments can be supported by companies' free cash flow; at the same time, after technology assets accumulated large gains in the first half, risk exposure began to emerge, the Korean market was the first to adjust due to leverage risks, and differences over financing and regulation further amplified market volatility.

As the interest rate center rises systematically, whether the global technology cycle can continue has become one of the issues of greatest concern to the market.

Yan Xiang said that from the perspective of industry fundamentals, the AI industry remains highly prosperous at the levels of construction, prices, revenue and macro conditions, with problems mainly concentrated on the funding side: first, despite continuous upward revisions, the market's expectation for the capital expenditure growth rate of the five major North American cloud companies still peaks in 2026, and the expected decline in growth will put pressure on the revenue of upstream hardware manufacturers; second, the market has already begun to price clear divergence among cloud players, with the spread curve clearly widening between Oracle and Meta and the other three, and an industry stratification pattern has begun to emerge; third, the pace of hardware price increases, represented by storage, shows signs of slowing, and the price increase cycle may shift from acceleration to decelerating upward movement. Looking ahead, if the third-quarter reports of the five major cloud companies' capital expenditures and operating cash flow fall short of expectations, the "downward shift in growth" may arrive early.

The hardware rally driven by capital expenditure expansion is not uncommon in U.S. stock market history. Yan Xiang said that around 2000, the development and spread of new technologies such as the internet drove large-scale infrastructure investment, operators competed to build networks, and hardware manufacturers such as Cisco benefited from the rapid growth in communications equipment procurement, which has many similarities with the present.

"From historical experience, in hardware rallies driven by capital expenditure expansion, the turning points in stock prices, valuations and fundamentals usually show strong regularity: valuation peaks first, then capital expenditure growth peaks, then stock prices peak, and finally revenue, earnings and total capital expenditure peak one after another," Yan Xiang said. In this round of the AI hardware cycle, the median forward PE of seven AI hardware sample companies in the U.S. stock market peaked in October 2025, and the equal-weighted stock price index clearly pulled back after peaking in June 2026, with the valuation peak leading by eight months, in line with the historical rhythm. Capital expenditure growth was about 90% in the first half, the highest of this cycle, and the market consensus expects it may accelerate again in the third quarter but slow in 2027.

"Therefore, whether the June index high is the top of this round still needs verification. Third-quarter financial reports and subsequent capital expenditure conditions may provide significant guidance for the sustainability of the AI hardware stock rally in the future," Yan Xiang stressed.

Bullish on two main lines in the A-share market in the fourth quarter

"Compared with overseas concerns about the sustainability of capital expenditures, the development of China's technology industry still has dual catalysts from industry and policy," Yan Xiang believes.

On the one hand, pressure on domestic funding is relatively limited, and investment related to scientific and technological innovation is still accelerating. In the first eight months of this year, China's investment in intellectual property products grew 9.2% year on year, 0.1 percentage point faster than in January-July; investment in high-tech industries grew 5.2% year on year, 0.2 percentage point faster than in January-July, with the cumulative growth rate accelerating for three consecutive months. On the other hand, policies to promote scientific and technological innovation and the development of new quality productive forces are still being stepped up.

Yan Xiang believes that with the continuous advancement of comprehensive investment and financing reform, China's capital market is showing more and more positive changes, and its internal stability and investment value are continuously strengthening. Looking ahead to the fourth quarter, despite uncertainties in the external environment, the foundation for the medium- and long-term improvement of the A-share market has not changed, and structural opportunities are still worth anticipating.

Yan Xiang believes two directions can be watched in the fourth quarter. First, preference should be given to hardcore technology sectors with strong certainty of earnings delivery. After the deep adjustment in the third quarter, the micro trading structure of the technology sector has improved significantly. After the third-quarter reporting window opens, high-prosperity directions with strong certainty of earnings delivery and room for further upward revision of expectations are more likely to attract capital. Second, low-valuation, high-dividend dividend assets with defensive attributes. High-dividend stocks have certain characteristics of high dividends or low valuations; behind companies' high dividend behavior is abundant and stable cash flow, which can provide investors with predictable cash returns and effectively hedge the drawdown pressure brought by market volatility, while low valuations provide a sufficient margin of safety and strong resilience against declines when market risk appetite falls.

"From historical experience, the A-share dividend strategy has been proven effective over long time horizons. Since 2005, the CSI Dividend Index has shown a long-term upward trend and relatively steady performance, with a very good long-term return trajectory. In addition, against the backdrop of continuous inflows of medium- and long-term funds in China, allocation demand for the dividend strategy is expected to expand further, bringing sustained incremental capital support to related assets," Yan Xiang added.

(Source: Shanghai Securities News · China Securities Network) Body middle embedded advertisement