Why are technology stocks still falling after policy funds have entered the market?

  • “National team” support is underway, and ETF inflows in October were also substantial, yet the market has still pulled back sharply. Feedback from J.P. Morgan’s sales team’s onshore visits points to local fund outflows: investors who bought the technology-stock dip in July are facing redemption pressure, making year-end loss-cutting an easier choice.
  • This makes short-term share prices more dependent on the relative strength of positioning and policy-driven buying. Large internet stocks continue to move mainly with liquidity and consumption expectations; although there was dip-buying interest after Tencent fell below HK$400, selling was noticeably heavier.
  • Optical communications also faces uncertainty related to the US Federal Communications Commission (FCC), as well as the constraint of heavy positioning by domestic long-only institutions. The team believes policy funds can initially stabilize the market, but redemption-driven outflows may still overwhelm buying.

How is PCB improvement translating from revenue growth into profit?

  • In the third quarter of 2026, Shennan Circuits reported revenue of 10.5 billion yuan, up 66% year on year and 20% quarter on quarter; earnings were 1.88 billion yuan, up 94% year on year and 33% quarter on quarter. Gross margin rose to 34.9%, up 3.5 percentage points year on year and 2.4 percentage points quarter on quarter. Earnings grew faster than revenue, accompanied by an increase in gross margin.
  • The results were consistent with the previous guidance. The next factors shaping the assessment are guidance on AI customers and demand, BT substrate prices, and the profitability of the Guangzhou Guangxin factory; the team regards the last as a signal of progress in mass production of FCBGA and high-end FCCSP.
  • There are also constraints on the enthusiasm for capacity expansion: a news summary relayed Unimicron’s warning that the race to expand AI PCB capacity carries a risk of duplicate orders. Enthusiasm around demand and capacity planning needs to be understood alongside order quality.

Are smaller PCB manufacturers and upstream materials suppliers also sharing in the earnings improvement?

  • The team notes that third-tier PCB manufacturers are still delivering better-than-expected results. In the third quarter of 2026, Aoshikang reported revenue of 2.1 billion yuan, up 45% year on year and 27% quarter on quarter; net profit was 327 million yuan, up 334% year on year and 512% quarter on quarter. Gross margin reached 33.4%, up about 14 percentage points both year on year and quarter on quarter, with profit showing considerably greater growth sensitivity than revenue.
  • Upstream fiberglass cloth suppliers benefited from relatively tight supply and increases in both volumes and prices. Honghe Technology reported third-quarter revenue of 927 million yuan, up 206.82% year on year; net profit was 364 million yuan, up 607.73% year on year and 52% quarter on quarter. These results extend the scope of improvement from PCB manufacturing to upstream materials.

Beyond PCBs, why does the team favor back-end equipment and consumer electronics with light positioning?

  • Support for back-end equipment comes from customer investment budgets: JCET raised its 2026 investment plan by more than 50% to 18.2 billion yuan. The team believes the additional packaging and testing capital expenditure may be related to CoWoS capacity and therefore favors back-end equipment; the link is customers’ investment in capacity expansion, not an automatic conversion of industry enthusiasm into orders for every equipment supplier.
  • The consumer electronics thesis is more focused on a recovery in positioning. The team believes valuations are low and positioning is very light, allowing the sector to benefit from rotation as funds exit AI and memory; the so-called “anti-memory” trade targets sentiment and positioning, not a near-term demand inflection brought about by memory prices.