China's economy is currently exhibiting a pronounced K-shaped divergence, with many traditional industries experiencing slowing growth and some sectors facing overcapacity pressures, while emerging industries are thriving. In the manufacturing sector, for instance, traditional manufacturing has been dragged down by three consecutive years of sharp declines in real estate investment, pushing overall fixed asset investment growth into negative territory. This has caused growth to slow in parts of the manufacturing sector, with the PMI for both July and August falling below the 50-point boom-bust line, indicating the sector is in a contraction phase. In stark contrast, high-tech and advanced manufacturing industries are seeing year-on-year growth of over 10%, illustrating a very clear divergence.

This divergence is closely tied to the broader context of China's economic transformation. Real estate, once a pillar industry of the national economy, has been undergoing a period of adjustment over the past few years, with sustained declines in real estate development investment. This has led to a downturn in nearly 60 industries upstream of the property sector. Additionally, some traditional industries are grappling with overcapacity, a problem exacerbated by weak demand. While some companies have responded by exporting to shift surplus capacity abroad, many others lack that option and are left competing fiercely in a saturated domestic market.

To cut costs, many manufacturers have turned to robotic arms and industrial robots to replace human workers, resulting in significant layoffs. In the short term, this lowers production costs and boosts efficiency, but over the medium to long term, it has displaced a large number of workers, contributing to sluggish consumer spending. As a result, many factories have had to shut down and cover with dust cloths the industrial robots they purchased for tens of thousands or even hundreds of thousands of yuan just a few years ago. This is the objective reality we currently face.

Simply improving production efficiency cannot solve the economic problems at hand. The key is to raise household incomes, thereby boosting consumer purchasing power and confidence. Only then can consumption growth see a fundamental improvement. Recently, measures such as trade-in programs and national subsidies have been introduced to stimulate consumption, and multiple government departments have launched special actions to boost consumer spending. However, whether these policies will prove effective remains to be seen. With the Mid-Autumn Festival and National Day holiday approaching, which mark the traditional peak consumption season, whether this can drive a consumption rebound will be a key focus.

In sharp contrast to traditional industries, emerging sectors are performing exceptionally well. High-tech manufacturing, for example, is showing notable growth. Areas highlighted in the 15th Five-Year Plan, such as embodied intelligence, artificial intelligence, chips and semiconductors, and computing power, are attracting significant capital inflows daily. In particular, the recent tech rally in the capital markets has enabled more innovative companies to list, gain access to vital capital, and have the opportunity to scale up. In the AI arena, China and the US are the clear leaders, with other countries largely following. China and the US are now racing neck-and-neck in AI development.

The K-shaped economic divergence presents both opportunities and challenges for the capital markets. On the opportunity side, these tech-driven industries are likely to spawn more unicorns, or even industry giants, offering investors promising opportunities. On the challenge side, traditional industries provide a substantial number of jobs and contribute significantly to GDP. Their sluggish performance can drag down overall economic growth, increase unemployment, and consequently hinder the recovery of consumption.

As investors, we must deeply recognize the economy's transformative phase and actively position ourselves in strong industries and companies that benefit from this transition, while avoiding sectors and businesses plagued by severe overcapacity. Recently, news broke that my fellow Henan native and renowned investor Zhang Lei lost a staggering 10 billion yuan on an investment in a leading photovoltaic company. This serves as a stark reminder that in industrial investment, once overcapacity sets in, large-scale profits can quickly turn into massive losses, and stock prices can plummet. Even seasoned investment gurus aren't immune to such losses.

It's not just the photovoltaic champion that suffered; previous investments in home appliance leaders also resulted in losses exceeding 10 billion yuan. This is a powerful lesson: we must respect economic laws, recognize the current state of economic divergence, avoid industries and companies with overcapacity, seize the right opportunities to achieve solid returns, and be aware that betting on the wrong direction can lead to enormous investment losses. Investing is an objective and unforgiving endeavor. Whether you're a salaried worker or a business owner, a novice or a veteran investor, failing to see the industry trend can lead to significant losses. We should all take heed of this warning.

Following the market's sharp drop in July, many tech stocks have largely completed the process of deflating their bubbles. However, investor confidence has been severely shaken and will take time to recover, warranting extra caution in our investment approach at this time. I've repeatedly advised that back in May and June, when market sentiment was exuberant and everyone was chasing light-related stocks, it was crucial to overcome greed, take profits in a timely manner, and protect against the sharp declines that come with tech bubble deflation. Now, after the significant correction, the opposite is true: it's time to restore confidence and exercise patience. This is the moment to conquer fear.

Looking at investment themes, the tech rally is likely to remain a primary focus, including hard tech benefiting from the AI boom. However, the second half of the year is likely to be volatile and may see further divergence. Tech leaders with solid earnings and order books are likely to perform more sustainably, while non-leaders, particularly theme and concept stocks, may struggle to recover and could even decline further. Making money in the second half of the year is set to become more difficult.

Another characteristic of the second half, which I've emphasized before, is the acceleration of sector rotation. We've already seen many sectors experience "one-day rallies" – one day agriculture, the next military, then non-ferrous metals, then liquid cooling. This dizzying rotation increases the difficulty of investing. If you chase hot sectors and buy high and sell low, you're likely to keep losing money. Given the rapid rotation, investors should adopt a "respond to changes with constancy" approach: maintain a moderate position, patiently wait for the adjustment to complete before adding to positions, avoid being fully invested, and never use leverage. This will help you ride out the current period of turbulence and prepare for the next market wave.

In terms of asset allocation, sticking to a strategy of "one hand in tech, one hand in dividend stocks" is advisable. The recent record highs in the four major state-owned banks confirm what I suggested during the tech correction: tech and dividend stocks act as a seesaw. When tech adjusts, dividend sectors tend to rise. Holding both provides a balanced defensive strategy. Unless you have the skill to perfectly time the high-low switch, maintaining a half-and-half allocation is the safer bet. The logic is straightforward: tech represents growth investment, while dividends represent value investment. When growth stocks fall sharply, value stocks start to rebound.

Of course, this seesaw effect makes it hard for most investors to profit overall, but a balanced allocation at least helps prevent significant losses. Betting on a single direction can lead to repeated losses during such rotations. Some follow the historical pattern that the fourth quarter is primarily for value stocks, and there is indeed some historical basis for this. As risk appetite typically declines in Q4, investors tend to focus more on fundamentals like earnings and valuation. So value stocks deserve attention in the fourth quarter.

The US stock market remains at elevated levels, and while the US tech bubble has formed, it doesn't necessarily mean it will burst immediately. It's important to actively monitor US stock movements. I suggest checking the overnight performance of US stocks every morning – if the US market is stable, all is well. If the Nasdaq experiences a significant drop, especially a single-day decline of more than 5%, be cautious – a stampede could occur, and it might be wise to consider halving your position. If the Nasdaq drops over 7%, triggering a circuit breaker, or even falls 10%, the bubble may have truly burst, and it could be time to liquidate to protect capital.

Currently, there are no signs that the US AI tech bubble is about to burst, but further observation is needed. We shouldn't try to predict the top, as no one knows where the peak is. As Buffett humorously said, only fools and maniacs try to predict market tops and bottoms. All we can do now is watch and wait. As long as the US tech bubble doesn't burst, the A-share tech rally is likely to continue.

I have long advocated for value investing with Chinese characteristics, which has two key connotations. The first is position management: when you have good profits, be sure to take them in a timely manner. For example, during the May-June period when everyone was chasing light-related stocks, I suggested a three-step strategy to guard against a sharp drop from overly concentrated positions: first, de-leverage; second, reduce to half position; third, hold one hand in tech and one in dividends. Many investors who followed this avoided the July crash. The signals were clear to me then, with at least three indicating a market peak. First, the top 5% of stocks accounted for a record 50% of trading volume. Second, daily trading volume exceeded 3 trillion yuan, which is also a peak signal. Third, margin financing balances surpassed 3 trillion yuan, heavily concentrated in those high-flying 5% stocks, unlike a decade ago when 2.27 trillion in margin financing was dispersed across nearly all stocks during a broad bull market. This time it's a structural market. Additionally, fund semi-annual reports showed public funds allocating up to 43% to the electronics sector – a sign of extreme herding, which inevitably leads to crowding unwinding and sharp declines. This is why the first tenet of value investing with Chinese characteristics is to lock in profits when gains are made; otherwise, your year-end summary will again be just the word "profited."

The second connotation is interpreting policy. Whether it's macro or industrial policy, we should focus on sectors supported by government policy and avoid those that are restricted. Everyone likely has painful lessons about this. Contrarian investing is a crucial part of value investing. My eight-character investment philosophy is "when others abandon, I take; when others chase, I abandon." When everyone is piling into a sector, it's time to be cautious and take profits. When there's a wholesale sell-off, new opportunities may be emerging.

So how should ordinary people adapt to avoid being left behind in the AI transformation? I believe the most important thing is continuous learning to improve your understanding. Investing is the monetization of cognition, not diligence. Only by enhancing your cognitive abilities can you determine which sectors to allocate to and which to avoid. It's also essential to master position management, remember that the market favors the disciplined, don't fantasize about overnight riches, control risk by investing only spare money, and resolutely avoid leverage. This will make your investing sustainable and better positioned to capitalize on this market cycle. While there's ongoing shifting between tech and dividend stocks, dividend stocks still hold an advantage in the near term. Until the next tech rally arrives, dividend sectors are likely to continue performing well. Pay attention to this and use balanced allocation to navigate the market volatility.

Sina's statement: This content is reposted from Sina's partner media. Sina.com publishes this article to convey more information and does not imply agreement with its views or verification of its description. The article content is for reference only and does not constitute investment advice. Investors who act on this do so at their own risk.