Huachuang Securities Strategy Special: After Negative Feedback - Transmission and Recovery in the Global Tech Selloff
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Huachuang Securities' strategy special argues that synchronized global equity plunges typically stem from liquidity negative-feedback loops rather than sudden fundamental deterioration. This tech selloff was triggered by cracks in the AI narrative, rising Federal Reserve rate-hike expectations and geopolitical conflict, then amplified by a triple-nested leverage shock in Korea - off-market lending, margin financing and leveraged products - whose unwinding created a self-reinforcing 'decline, liquidation, decline' spiral that spread globally through supply chains and capital flows.
Reviewing five comparable episodes including the 1998 LTCM crisis, the report finds stabilization hinges on where leverage sits: when confined to capital markets rather than real-economy credit, markets bottom roughly two to three weeks after targeted policy intervention. It judges the worst has likely passed. North American cloud providers' capital spending - projected at US$745 billion for 2026 - confirms AI prosperity, credit spreads have narrowed from highs, and Korean leveraged funds have retreated to pre-May or start-of-year levels, signaling deleveraging is nearly done. With the market-implied probability of a September Fed hike down to 44%, overall risk is limited and a rebound has begun. Ahead, cloud capex should keep supporting the global AI chain, and delayed Fed tightening could open a friendly window for risk assets in the second half.