Higher-than-expected inflation in May triggered a market correction:On Friday, the United States released inflation data for May, which was 8.6% year-on-year, exceeding expectations and hitting a 40-year high, and the US stock market plummeted. The market focused on the FOMC meeting, and the Fed's interest rate hike gradually formed a consensus expectation of a rate hike 50bps. Last week, the S & P 500 fell 5.05% and the Nasdaq fell 5.60%.

Expectations of "temporary" inflation were partially falsified this time.From the perspective of various indicators: CPI rose 1.0% month-on-month, 8.6% higher than the same period last year, especially due to the rise in services and car prices. Some of the items may be short-lived, such as the resumption of tourism activity after the peak of the Omicron epidemic, which led to a sharp rise in air freight prices in both May and June, contributing 0.1 per cent to inflation.

At the same time, tensions in the supply chain of the auto industry have led to a 1.0 per cent increase in the prices of new cars and 1.8 per cent of used cars, which also contributed 0.1 per cent to inflation. Considering that the rise in price indices such as rents and services is difficult to ease in the short term, inflation may remain at a high level in the coming quarters.

Consumer sentiment is falling: inflation and opinion polls at the University of Michigan have added to suspicions that the Fed will further affect growth while controlling inflation. Although household balance sheets are still healthy, consumer mortgage applications have fallen sharply amid soaring mortgage interest rates in the US.

Inflation still suppresses the valuations of growth stocks, but the fundamentals of consumer electronics, the Internet and cloud computing are expected to differ greatly from those affected by inflation:

With further higher-than-expected inflation, the Fed is expected to further revise its tightening path, thus putting some pressure on the valuation center of growth stocks: judging from the pricing of the interest rate futures market, we believe that the current market expectation of raising interest rates is about 2023 to around 350bps.

Although inflation is still rising, the prices of some spare parts with sufficient capacity in the overseas consumer electronics industry chain have begun to fall, and retailers are also under inventory pressure. From the supply side, shortages in the upper reaches of the electronics industry are expected to continue for several quarters in most sub-industries. From the perspective of the Internet, the advertising expenditure of small and medium-sized enterprises is expected to have a greater marginal impact on the industry, while the basic software plate of IaaS in cloud computing may be relatively resilient.

From the perspective of overseas Chinese stocks, we believe that although the valuation space of growth stocks is suppressed to a certain extent, on the whole, overseas interest rate hikes and inflation will not be the most important marginal factors, and their trend will diverge from the US stock market:

We believe that for overseas Chinese stocks, their liquidity is affected by both overseas and domestic liquidity, while China / the United States is in a different easing / tightening path, and the marginal 10-year Treasury bond interest rate is not the most important factor.

From a fundamental point of view, the main market of US-listed stocks is located in China, and the focus of the fundamentals is the landing of the policy of steady growth after the epidemic, the recovery of demand, and the results achieved by enterprises in reducing costs and increasing efficiency. The impact of inflation in the United States is not the most important factor. Chinese stocks may be used as a risk aversion option to obtain a certain relative capital inflow.

Investment advice:In overseas technology companies1) resilience may be more important than growth, so the review of customer structure is more important: taking into account the resilience of customers' ability to spend, if the customer structure is better and is less affected by inflation, then it is possible to show greater resilience. We focus on Microsoft Corp, basic software plates, which can show greater resilience in consumer electronics and to B.

2) pay attention to the ability of scientific and technological innovation to drive demand beyond the economic cycle: historically, the scientific and technological innovation cycle is a force that can transcend the macroeconomic cycle. We suggest that we continue to pay attention to the progress of technology giants such as Apple Inc and Meta, as well as the opportunities of the industrial chain, which are invested in wearing VR/AR devices.