Under what circumstances will the current AI bull market end?

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Under what conditions will the current AI-driven large wave rally in the A-share market end?

The Shenwan Hongyuan strategy team provided a judgment framework in their weekly report on May 23, using a historical review: By reviewing the ending logic of the three rallies—A-shares in 2015, 2021, and Nasdaq in 1998—they identify three situations in which a large wave rally ends: positive cycle of incremental funds exhausted, industry trend disproved, or deterioration of the macro environment.

Currently, none of these three conditions have been triggered. The team believes:

"The large wave rally has not ended, momentum is building for another move."

How history ends major rallies

Shenwan Hongyuan summarizes the factors that have ended large wave rallies into three categories:

First, positive cycle of incremental funds exhausted. The typical case is A-shares in 2015. Margin balances shifted from rapid rising to steady rising, weakening market support; stricter regulation on leveraged trading and stock market leverage accelerated the emergence of the bull-bear tipping point.

Second, industry trend disproved. Typical case: A-shares in 2021. Public funds remained in a positive cycle, but the boundaries of the new energy industry trend became clear, with mid-term supply and demand pressure emerging, and consensus forming around "second derivative turning negative." The rally ended as a result.

Third, macro environment deteriorates in a big way. Typical cases: Nasdaq in 1998 and A-shares in 2018. This situation has a key feature: when industry trends persist and incremental fund potential is not exhausted (as in A-shares in 2018), macro shocks result in mid-wave corrections, rather than a complete end to the rally. If the macro environment improves, structural rallies may restart.

Current comparison: none of the three clues is present

Funds: positive cycle far from fully played out.

Sector ETFs are an important marginal source of funds in this rally, and the room for policy tightening is very limited. Crucially, incremental funds from the "asset shortage" among residents—insurance, fixed income+, quant—are not yet in a positive cycle. The report points out that the ratio of A-share float to resident deposit balances is still at a low to mid historical level, indicating ample space for incremental funds to enter the market.

Industry: AI trend still exceeding expectations.

AI large models have established a cash flow mode. US stock AI cloud business Q1 earnings exceeded expectations, and the current stage of AI is "strengthening rather than disrupting existing business," with operating cash flow still able to cover capital expenditure increments. The current mid-term cost-effectiveness is only approaching the high of 2021 (still some distance, and 2021 was also not a fully played-out rally). The report’s logic is clear: if the AI industry trend is disproved, the rally can end; but as the trend persists, a two-stage upward rally can continue.

Macro: disturbance, not substantial deterioration.

Short-term disturbance comes from the Middle East risk chain: reduced navigation capacity in Hormuz Strait → inflation expectations → Fed tightening expectations → rising US Treasury yields → suppressing risk appetite. Shenwan Hongyuan judges that intermittent reopening of Hormuz is highly likely, not permanent closure; even if rate hikes combat inflation, it would only be sporadic, and persistent rate hikes do not optimize economic management. Adjustments triggered by macro disturbance are "more likely to be corrections during oscillatory consolidation, rather than destructive to the large wave rally."

Short-term reality: differentiation extremes

The report does not avoid short-term structural contradictions. It notes two current sets of "capital siphoning": Strong sector ETFs siphon scale from weak ones; actively managed funds focused on a single sub-sector siphon scale from broader sector ETFs. Under this pattern, the supply and demand of funds "can only support an extreme divergence scenario, and hardly sustain a broad market breakout."

Data shows 77% of strong stocks in the electronics sector, 62% in the STAR Board, continuing to expand; meanwhile, banking, coal, agriculture, forestry, animal husbandry and fisheries all contracted—differentiation is stark. Short-term momentum is concentrated in semiconductor equipment and computing power inflation (PCB, electronic fabrics, etc.); under Middle East risk, the seesaw effect continues between non-ferrous metals and oil.

On a mid-term dimension, the report suggests watching for clues in global industrial structure adjustments post US-Iran conflict—directions include those that enhance China’s energy security and supply chain security, raise global market share, and efficiently pass prices to overseas markets. Key areas: new energy boom inflection point, continued boom of new energy vehicles, chemical boom verification and overseas price pass-through.

In summary, Shenwan Hongyuan judges: the accumulation cycle of profit-making effects is still continuing, and has reached a qualitative change point; short-term microstructural contradictions are still accumulating, and the positive cycle of incremental funds has yet to unfold. When new catalysts emerge for industry trends, starting a positive cycle of incremental funds, the conditions for upside will be even better.

Source: Shenwan Hongyuan Strategy Weekly Review & Outlook, May 23, 2026. Analysts: Fu Jingtao, Wang Sheng, etc.

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