The A-share market experienced significant volatility and divergent movements on July 20th, 2026. The Shanghai Composite Index closed at 3796.28 points, up 0.85%, while the Shenzhen Component Index fell 0.71% to 13610.23 points. The ChiNext Index rose 0.42%, and the STAR 50 index edged up 0.19%. A clear divergence emerged between large-cap and small-cap styles, with the blue-chip-heavy CSI 300 Index surging 1.53%, while small and mid-cap stocks faced notable pressure, with over 3,700 individual stocks declining. The combined turnover for the Shanghai and Shenzhen markets was 2,718.1 billion yuan, maintaining a level around 2.7 trillion yuan.
In terms of sector performance, non-AI sectors showed overall strength. Resources and high-dividend sectors such as oil & gas, power, and coal led the gains, helping the Shanghai Index stabilize and rebound. In contrast, AI-related industries continued their adjustment, with concepts like memory chips and CPO among the top decliners. The market still exhibited broad-based weakness for the day, with more stocks falling than rising, reflecting a shift of capital from high-volatility growth sectors towards those with lower valuations and higher certainty.
Overall, this round of correction is not due to a systemic deterioration in domestic fundamentals. Instead, it results from a combination of global tech deleveraging, excessively crowded trading in the domestic tech theme, and concentrated outflows of leveraged funds. Looking ahead, the market is likely to gradually find a bottom through a differentiated process of "squeezing bubbles in growth" and "value providing support." Regarding allocation strategy, maintaining a balanced approach between offense and defense is recommended. On the defensive side, sectors like banking, which offer both dividends and defensive characteristics, can provide a stabilizing effect. On the offensive side, opportunities can be sought along two main lines: interim earnings reports and industry trends. Focus areas include resource products benefiting from improving supply-demand dynamics, export and overseas revenue generation sectors, as well as overseas computing power where the industry logic remains intact and domestic computing power benefiting from self-reliance and control. Overall, the market is still in a phase of risk release and digestion of crowded positions in the short term. Restoring a balanced style will take time. Investors should watch for signals confirming a market bottom, such as reduced volatility and stabilization of core assets, and rationally seize structural opportunities.
Coal Sector's Defensive and Dividend Appeal
As the peak summer power consumption season approaches, the defensive and dividend attributes of the coal sector are once again drawing market attention. Recently, with tight supply at production areas and rising pithead prices, thermal coal offers have seen consecutive increases. The National Development and Reform Commission has also recently stated it will enhance stable production and supply capabilities, ensuring the production and supply of primary energy sources like coal and natural gas. From a fundamental perspective, the medium to long-term support for the coal sector is being re-evaluated by the market. Supply constraints are expected to persist until the "15th Five-Year Plan" period. Against the backdrop of accelerated westward relocation of coal production, significantly rising resource fees and per-ton investment costs, the rigid costs of domestic economic development and rising import coal costs are all expected to support coal prices at a relatively high central level. The industry still maintains characteristics of high earnings, high cash flow, and high dividends.
From an investment vehicle perspective, the Coal ETF (515220) tracks the CSI Coal Index (399998). This index selects listed companies involved in coal mining, washing, and coking processing from the CSI All Share Index sample, collectively reflecting the performance of the A-share coal industry. As of July 20th, the forward P/E (TTM) of the CSI Coal Index is approximately 20.17x. The relatively high P/E percentile is mainly due to the sector's earnings facing periodic pressure and a lower denominator during the coal price cycle downturn. From a medium to long-term industry cycle viewpoint, the coal sector's value as a dividend-yielding asset for allocation remains worthy of tracking.
Compared to selecting individual stocks, using an ETF for one-click allocation can better diversify the operational and safety risks associated with a single company. During the seasonal window of peak summer power demand coupled with energy supply guarantees, for investors looking to capture the dividend attributes of the coal sector, the Coal ETF (515220) holds certain observation and allocation value. Specific decisions should be made rationally in conjunction with one's own risk preferences.
Innovative Drug Sector Shows Strength
The innovative drug sector performed strongly today. ETFs such as the STAR Innovative Drug ETF (589720), Hang Seng Biotech ETF (520930), Biopharma ETF (512290), and Innovative Drug ETF (517110) all rose over 3%.
Policy Support: Institutional Breakthroughs and Payment-Side Expansion
A significant institutional breakthrough has been achieved in the National Essential Medicines List. The official release of the "National Essential Medicines List (2026 Edition)" features a major highlight: an institutional breakthrough in the inclusion of innovative drugs. The positioning of the list has been upgraded from a singular "ensuring basics" to "ensuring basics + promoting innovation," with volume-based procurement (VBP) "making room for the new" to support innovative drugs. The 12th round of VBP clarified the policy direction of continued high-intensity "making room for the new," which is expected to free up approximately 50 billion yuan in medical insurance funds to support innovative drug payments. In 2025, medical insurance payments for innovative drugs were around 120 billion yuan, expected to grow to 150-160 billion yuan in 2026, and potentially reach 200 billion yuan by 2027. The funds freed up by VBP will effectively support the expansion of the innovative drug market. Continued policy support from the payment side is providing incremental growth beyond expectations, forming a stronger domestic fundamental anchor beyond the initial rebound recovery.
Fundamental Performance: Better-Than-Expected Earnings and Improving Sentiment
Innovative drug companies' core earnings exceeded expectations. Overall innovative drug sector performance in Q2 2026 was better than anticipated. Market concerns about the impact of the May-June medical anti-corruption campaign on profits were less severe than feared. Apart from generic drugs and traditional Chinese medicine, there were essentially no cases of earnings missing expectations.
The CXO sector maintains high activity. In the CDMO field, new order intake in Q2 2026 remained at a high level, with demand expected to continue into Q3. In the peptide field, the volume growth of oral dosage forms continues to exceed expectations. Their bioavailability characteristics mean the required dosage for equivalent treatment scenarios is dozens of times higher than for injectable forms, which is expected to drive peptide CDMO demand for the next 3-4 years. The CRO sector benefits from rapid growth in U.S. biopharma financing and the relaxation of FDA clinical trial approvals. There is potential for leading companies to raise their full-year earnings guidance.
From a technical perspective, it's important to note that the short-term intraday negative correlation between innovative drug and tech-related indices remains high. Today's weakness in sectors like semiconductor equipment and chips, alongside continued market style rotation, provided liquidity space for the healthcare sector. The current position is no longer low, and there may be a risk of correction once the tech theme regains momentum. Investors should be cautious about chasing highs and consider accumulating on dips.
Overall, institutional breakthroughs and payment-side expansion on the policy front, combined with better-than-expected earnings and improving CXO sentiment providing fundamental support, warrant continued close attention to the "seesaw" dynamic between tech and healthcare. The current position is no longer low, and there may be a risk of correction once the tech theme regains momentum. Interested investors may continue to monitor related products, exercising caution against chasing highs and considering accumulation on dips.
Hong Kong Internet Sector: A Window for Sentiment and Valuation Repair
The Hong Kong internet sector is entering a window for sentiment and valuation repair. On July 20th, the Guotai Hang Seng Internet ETF (513720) closed up 3.74%. After a prolonged period of prior adjustment, Hong Kong's tech industry is regaining market focus.
Fundamentally, signals of an inflection point are emerging on the profit front, with AI moving from "storytelling" to "financial statement delivery." On July 8th, leaked preliminary figures for Alibaba's new fiscal year Q1 performance exceeding expectations triggered a broad rally in Hong Kong stocks. The pressure for downward revisions to earnings for major internet companies is easing. Consensus expectations suggest the sector's Non-GAAP net profit growth rate may bottom in Q2 2026 and recover quarter-by-quarter in the second half of 2026, forming a positive cycle of AI investment and growth realization. On the other hand, pessimistic factors like intense competition in food delivery are showing marginal improvement. The food delivery subsidy wars that previously weighed on internet giants' profit expectations have cooled somewhat. The low base formed by increased food delivery investments last July is also favorable for a rebound in growth rates in Q3.
In terms of fund flows, global capital rebalancing and sustained southbound inflows into Hong Kong also constitute positive factors. Increased volatility in the Japan-South Korea AI hardware supply chain and a phase of valuation correction in upstream hardware are prompting global capital to seek more cost-effective directions within the AI theme. As capital rotates from high-valuation hardware to lower-valuation internet leaders, Hong Kong, as a valuation洼地 (depression), is attracting incremental international capital, with southbound funds accelerating their entry since July. Simultaneously, expectations for Federal Reserve tightening are gradually being digested, easing the liquidity pressure on Hong Kong as an offshore market.
From the perspective of valuation and fundamental logic, the cost-effectiveness of the current Hong Kong internet sector is becoming apparent. The forward P/E (TTM) of the CSI Hong Kong Stock Connect Internet Index, tracked by the Hong Kong Internet ETF (513720), is now below 20x, at a historically relatively low level. The Hang Seng Tech Index has also retreated to its level from late 2024, making its overall valuation relatively attractive. For investors bullish on the long-term value of Hong Kong internet leaders and possessing a certain tolerance for sector volatility, the Hong Kong Internet ETF (513720) already holds certain observation and allocation value.
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