On February 2, the market experienced a full day of volatile adjustments, with all three major indices dropping over 2%. By the close, the Shanghai Composite Index had fallen 2.48%, the Shenzhen Component Index declined 2.69%, and the ChiNext Index dropped 2.46%.
From a sector perspective, baijiu (distilled spirits) and power grid equipment defied the broader downtrend to post gains. Sectors such as non-ferrous metals, oil and gas, chemicals, coal, and semiconductors were among the biggest decliners.
More than 4,600 stocks fell across the market, with 123 hitting the daily downside limit. The combined turnover on the Shanghai and Shenzhen exchanges was 2.58 trillion yuan, shrinking by 250.8 billion yuan compared to the previous trading day.
It was not entirely unexpected, as the A-share market's February performance got off to a headwind start.
Similar to the market landscape last Friday (January 30), cyclical sectors like precious metals, non-ferrous metals, oil and gas, and chemicals opened "unsurprisingly" weak, with pessimistic sentiment spreading rapidly.
In the morning, some sectors that had received positive news over the weekend were still able to attract capital, leading to a period of sideways oscillation for the major indices.
However, as the session progressed, the intraday buying power gradually weakened, with some sectors that had initially surged pulling back from their highs.
On the other hand, large capital that had been continuously flowing out of broad-based ETFs showed no significant signs of supporting the market before 13:54, leaving the major indices with little resistance during their decline.
Nevertheless, after 13:54, synchronized buy orders finally appeared in the top 10 broad-based ETFs by size, providing a slight upward lift to the indices—but that was the extent of the support.
The Shanghai Index, which closed at 4117.95 points last Friday, plunged to an intraday low of 4013.66 points and closed at 4015.75 points—marking its closest approach to the 4000-point level so far in 2026.
So, what conditions are needed for the market to stabilize and recover? We believe they should include at least the following: (1) The aforementioned sectors affected by "futures-spot linkage" and "futures-stock linkage" must stop falling, with no further waves of stocks hitting the daily limit-down.
Taking gold and silver as examples, by Monday's session, the spot gold price had fallen to just over $4,500 per ounce from its high last Thursday ($5,598/oz). Spot silver's decline also continued unabated, with topics like "Gold and Silver Prices Continue Sharp Falls" and "Silver Wipes Out a Month's Gains in 2 Days" attracting significant attention.
Wind data shows that among on-market commodity ETFs, gold ETFs and Shanghai Gold ETFs experienced widespread limit-down moves, yet still traded at premiums of 3% to 4%.
Multiple gold stock ETFs encountered their second consecutive daily limit-down today; the silver LOF, which had been widely shared online for "arbitrage" strategies earlier, remained limit-down throughout the session, with nearly 9 billion yuan in sell orders queued at the close.
(2) The movement of large capital should shift from "significant net outflows" to "minimal outflow" and eventually to "net inflows."
A Dongwu Securities research report pointed out that last week, broad-based ETFs were still experiencing continuous outflows. However, it was observable that on January 30, most broad-based ETFs showed a significant characteristic of reduced turnover, suggesting that subsequent selling pressure from these ETFs might gradually diminish. Meanwhile, sectors like communications, chips, chemicals, petroleum & petrochemicals, and Hong Kong-listed non-bank financials showed characteristics of capital inflows, and the sustainability of these flows warrants attention.
Structurally, the market is exhibiting characteristics of a chaotic period in the short term. Some industries that had performed relatively weakly previously attempted low-level rotational advances last week, such as Hong Kong dividend stocks, food & beverage, and overseas computing power, but their sustainability remains to be seen.
The report believes that although the index level is still expected to be stable subsequently, the investment difficulty in February might be higher than in January from an operational perspective.
(3) After a significant adjustment, the market should exhibit a recovery action, maintaining the long-term trend.
"A significant rebound often follows a major fall" was a pattern repeatedly validated by the market during the volatile period before the "17 consecutive gains" that began late last year. Today, the Shanghai Index has completely erased its gains from January. Whether it can stabilize in a timely manner is a key focus.
A Guotai Haitong Securities research report believes that recent A-shares have demonstrated strong market resilience amidst intertwined overseas risks and regulatory signals. Current fundamental data, policy support, and liquidity conditions are all relatively positive, and the equity risk premium can hardly be described as extreme.
Therefore, it believes that leading up to the Spring Festival and even the Two Sessions in March, the overall market will display relatively smooth performance and strong resilience. Any pullbacks could present opportunities for repositioning.
"Entering the February earnings vacuum period, industrial catalysts for science and innovation sectors will become more密集, and small and mid-cap styles are more likely to obtain liquidity premiums. For allocation, it is still recommended to focus on the dual main lines of pro-cyclical and sci-tech innovation equities, supplemented by certain REITs, chemical commodities, and short-to-medium duration fixed income to balance volatility. For commodity-related sectors like non-ferrous metals, it's advisable to wait for stabilization signals."
Finally, let's look at the few major directions that buying capital was still focused on today.
(1) Power Grid Equipment On the news front, the National Development and Reform Commission and the National Energy Bureau recently issued a "Notice on Improving the Capacity Price Mechanism on the Generation Side," pointing out the need to guide the stable and orderly construction of adjustable power sources, ensure the safe and stable operation of the power system, and assist in the green and low-carbon transformation of energy.
Furthermore, according to the latest CCTV report, the explosive growth of global AI computing power centers has made transformers a scarce resource. The delivery cycle in the US market has extended from 50 weeks to 127 weeks, with product orders already scheduled until the end of 2027.
Dongguan Securities believes that the average annual global investment scale in power grids still has significant room for improvement, bringing new overseas opportunities for domestic power grid equipment companies. It recommends focusing on leading power grid equipment enterprises with advanced technology and scale, which are expected to benefit long-term from the global energy structure transformation.
(2) Baijiu (Major Consumption) A Citic Securities research report stated that the baijiu sector's significant rise last Thursday (January 29) was primarily driven by better-than-expected distribution prices and sales volume for Kweichow Moutai, recognition of its reforms, as well as loosened property policies and expectations for PPI turning positive.
On January 30, Moutai's wholesale prices continued to rise, with prices for Feitian, vintage, and zodiac wines all increasing, indicating robust channel sales. It is anticipated that the industry will bottom out in 2026, with leading companies' market share increasing. The report is optimistic that the baijiu sector might present a major bottom-fishing opportunity around the Spring Festival, potentially a ten-year low.
Currently, the valuation of the baijiu sector is at a historical low, possessing strong value for bottom-fishing allocation. Attention should also be paid to potential consumption policy catalysts, following a bottom allocation logic centered on performance clearance shedding burdens + strong brand support for sales + strong operational empowerment of channels + exploration of new marketing models.
(3) AI Applications (Turned lower and weakened in the afternoon) Analysis suggests that the launch of a Spring Festival red envelope campaign by Tencent's AI application "Yuanbao" over the weekend ignited enthusiasm for AI applications.
Additionally, this morning, Alibaba's Tongyi Qianwen APP also announced the launch of a "Spring Festival Treat Plan," investing 3 billion yuan for free consumption experiences, aiming to invite users nationwide to experience new AI-powered ways of dining, entertainment, and leisure during the holiday.
Some analysts point out that the 2026 Spring Festival red envelope battle has evolved into a strategic positioning war centered on AI as the core engine, vying for the next-generation super traffic portal. On one hand, this will accelerate the penetration and popularization of consumer-facing applications, with segments like AI Agents and multimodal AI benefiting from the explosion in C-end traffic; on the other hand, domestic data centers will also benefit from the surge in AI traffic during the Spring Festival.
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