This week, the three major indices all posted gains, with the Shanghai Composite Index rising 2.81%, the Shenzhen Component Index up 5.39%, and the ChiNext Index gaining 6.55%. What lies ahead? Here is a look at institutional perspectives.
Where to begin
CSC Financial believes a "W-shaped bottom" has been established, alleviating earlier concerns, and the recovery rally is proceeding as expected. Historical patterns suggest that the overall rebound for A-shares is still relatively short in duration, with the recovery reaching about half the historical average. This sets the stage for a continued recovery in August. The technology and growth sectors, which experienced larger declines, have a more limited recovery so far, leaving significant room for further gains. The small and mid-cap style has benefited from improved liquidity, leading to strong rebounds, but its recovery pace is roughly on par with the broader market. Sector allocation should follow the logic of oversold recovery and improving fundamentals, focusing on AI computing power, innovative drugs, non-ferrous metals, and machinery equipment.
Waiting for bearish positions to clear
Shenwan Hongyuan Securities notes that the market is focused on domestic AI chains and small/micro caps as medium-term leaders. In the near term, the rebound in these areas appears more certain. For non-tech cyclical sectors, opportunities exist in pharmaceuticals, precious metals, industrial metals, and basic chemicals. While a major upward wave in the AI industry chain requires more time, periods of technological micro-structure issues and fundamental adjustments may repeatedly offer opportunities for high-dividend assets. The firm suggests a strategy of comparing the CSI 800 index weight to fund holdings to find effective high-dividend assets, focusing on banks, non-bank finance, food & beverage, and utilities. For a larger upswing, technology is likely to lead, but the market will become more diversified, with opportunities both within tech and in other cyclical sectors showing signs of improvement.
Interpreting July non-farm data
GF Securities analyzes the weak July U.S. employment data, which showed lower-than-expected non-farm payrolls, downward revisions to previous months, decreased employment breadth, and cooling wage growth. However, the firm cautions that U.S. non-farm data is notoriously "jagged" and noisy, with significant single-month volatility. The typical sampling error can be around ±100,000, requiring repeated adjustments to confirm the trend. Given the relatively high July PMI, the firm leans towards a view that the job market is not as negative as the unemployment rate suggests, nor as positive as the non-farm data implies. For the Fed, waiting and observing is the rational choice, with inflation data being the next key indicator.
Revisiting the tech M-top and the second wave
Guosen Securities argues that the A-share bull market will continue after the recent disturbance, with balanced allocation being the key strategy for the mid-to-late stage of the bull run. The recent pullback in July is a normal adjustment in the mid-to-late phase, not a sign of a bear market reversal, as conditions for a major downturn—such as market overheating, tightening liquidity, or a weakened macro environment—are not present. Looking ahead, the July Politburo meeting has signaled stronger counter-cyclical adjustments, which should support macro and micro-economic repair. External demand remains resilient, with July exports growing 23.9% year-on-year. The cooling U.S. inflation and political pressures may make a September rate hike difficult. Supported by these positive factors, the A-share bull market is expected to deepen. Structurally, the firm recommends focusing on the diffusion of opportunities within the growth sector, as well as on dividend stocks and domestic demand-related areas. This includes the potential for AI computing chains to move higher, a shift towards lower-tier opportunities within tech, and the appeal of high-dividend assets due to long-term capital inflows and market volatility. Also worth noting are sectors with solid fundamentals like pharmaceuticals, securities, and policy-driven domestic consumption areas like baijiu and real estate.
Earnings season verification period
Zheshang Securities points out that August marks the mid-year earnings verification period. In the cyclical sector, price trends for non-ferrous metals are diverging, while indicators for coal, oil, chemicals, and steel face some pressure. In the TMT space, computing hardware maintains high景气度, and box office revenue continues to rise. Among consumer sectors, home appliance export sales are recovering, and innovative drugs remain in a high state. In finance and real estate, China's property sales and investment are declining, while the securities sector sees high trading volumes and margin financing. From a industry perspective, the firm advises focusing on electronics with improving sales cycles, media with rising box office revenues, and innovative drugs with high BD data. In traditional sectors, continue to watch the securities sector benefiting from high market activity.
A clear policy bottom for A-shares
Zhongtai Securities asserts that with the global AI capital cycle not yet at its peak, the market is bottoming out in August, but the full year could still reach new highs, entering a long-term allocation zone. They recommend gradually increasing allocation to the Sci-Tech 50 index, represented by high-end manufacturing and domestic semiconductor equipment leaders. They also suggest focusing on areas benefiting from the implementation of physical AI, such as military AI and satellites, specifically in optical fiber and tungsten-molybdenum. For defensive positions, they advise against simply allocating to high-dividend stocks and baijiu, and instead recommend shifting to chemicals, engineering machinery, and precision equipment leaders that are integrated with high-end manufacturing.
Are tech adjustments over?
Huajin Securities believes that the A-share adjustment may be over, and the market could continue to rebound in the short term. They see three supporting factors: first, the economy and corporate earnings are likely to maintain a recovery trend, driven by strong exports, stabilizing infrastructure investment, and recovering consumption; second, liquidity is likely to be marginally looser, as the U.S. jobs data and falling dollar may ease global liquidity conditions, while domestic liquidity remains accommodative; third, policies are likely to remain positive, and external risks should be limited. For short-term sector allocation, they recommend focusing on technology and cyclical sectors with high景气和 policy support, such as electronics, communication, computers, media, non-ferrous metals, new energy, innovative drugs, and military. They also suggest low-valuation blue-chip stocks in securities and consumer sectors with potential for improvement.
Earnings season as the key turning point
Dongwu Securities, based on four dimensions (market volatility, stock price levels, congestion, and financing), concludes that the market has entered a phase of declining volatility and bottoming. The upcoming August earnings season will be a crucial turning point, with the AI theme likely to strengthen again. The most certain opportunities in the tech hardware recovery are those with a "volume increase" logic that hasn't priced in price increases, such as optical module leaders, semiconductor equipment, domestic computing power, CPU, and AI-related PCB. Other areas of interest include innovative drugs/CXO, where earnings and policies are resonating; power equipment, which has export advantages; and non-ferrous metals, where the expected rate cut could boost gold and copper prices.
Short-term market rebound with three earnings themes
Everbright Securities predicts the A-share market will continue to rebound in the short term. The weaker-than-expected U.S. July jobs data has cooled expectations for a September rate hike, boosting risk appetite. Additionally, the stabilization of overseas stock markets, especially the semiconductor sector, has a positive impact on A-share tech stocks. The August earnings season is expected to be a turning point, shifting the market from valuation digestion to earnings-driven growth. The firm identifies three main earnings themes: first, tech hardware, which is the strongest area for earnings improvement; second, the price-increase chain, which directly benefits from PPI recovery; and third, export manufacturing, which benefits from global manufacturing restocking and supply chain advantages. They also note that non-bank finance, pharmaceuticals/CRO, and military sectors also show promising earnings prospects.
Strong July exports drive market rebound
Xiangcai Securities, from a long-term perspective, notes that China's continued proactive fiscal and moderately loose monetary policies will support stable economic operation and a "slow bull" market in 2026. In the short term, after a significant decline in July, the market has stabilized, supported by accelerated domestic investment policies and strong July export data. They recommend focusing on the service consumption sector, which has policy support, and AI-related sectors, which have high fundamentals and may rebound after adjustments.
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