The stock market moved higher in volatile trading on Monday, June 29th, with all three major indices closing in positive territory. The Shanghai Composite Index rose 1.16% to 4073.90 points. Market sentiment remained elevated, with turnover reaching 3.54 trillion yuan, suggesting that daily trading volumes around the 3 trillion mark are becoming the new normal. Hong Kong markets were strong throughout the session, with the Hang Seng Index gaining 1.57%, ending a nine-day losing streak, and the Hang Seng TECH Index surging 3.23%.
Oversold pharmaceutical assets staged a long-awaited and powerful rebound! A- and H-share innovative drug stocks led the gains all day, with a combined 26 stocks surging over 10%. ETFs heavily invested in A-share innovative drugs and those fully concentrated on Hong Kong-listed pharmaceuticals saw explosive gains of around 8%, both setting record single-day increases. The CXO and AI healthcare sectors followed closely behind, with related popular Hong Kong Stock Connect healthcare ETFs and broader healthcare ETFs posting significant gains of 6.22% and 5.07%, respectively.
Technology stocks initially surged at the open but then experienced a sudden sharp pullback, leading to rapid divergence among subsectors. Hard tech stocks staged a rebound in the afternoon. An ETF with a comprehensive focus on the chip industry saw its volume surge and price rise 5.05% to a new high, with an intraday swing exceeding 7%. Hong Kong-listed chip stocks also recovered, with the largest and most liquid Hong Kong Stock Connect information technology ETF in its category closing up 2.15%, following massive net inflows exceeding 5.7 billion yuan over the previous four days.
The recovery attempt in the optical communication sector, including CPO (co-packaged optics) and fiber optic cables, proved unsuccessful. One component stock extended its decline by over 7%, while others staged significant V-shaped recoveries. An ETF focused on CPO and AI on the ChiNext board closed down 1.46% for its second consecutive negative session, after falling more than 4% intraday. Massive capital continued to chase the "light" theme, with the ETF seeing a substantial net subscription of 102 million units for the day, following cumulative inflows of over 2.2 billion yuan in the prior week.
Since the optical communication sector began its correction, defensive sectors have started to warm up. This trend is also reflected in the U.S. market, where pharmaceutical giants like Eli Lilly and Johnson & Johnson have seen frequent price movements recently, with their stocks hitting record highs. In a market environment characterized by存量资金博弈 (存量资金博弈 - competition among existing funds), how will the market style evolve going forward?
From a medium-to-long-term perspective, the AI hardware rally is driven by the global AI industry trend, with domestic and overseas tech stocks moving in sync. Before the capital expenditure growth rate of overseas tech giants peaks, it is difficult to declare the end of the mainstream AI hardware trend. However, from a short-term view, the extreme concentration of funds in certain themes has increased market instability. Subsequent market volatility may continue to amplify, especially around key time nodes like quarter-ends, with the potential for sharp style corrections.
In terms of the direction of style rebalancing, the market adjustment may revolve around sectors with positive interim earnings expectations, rather than a broad-based rotation from high to low valuations across all industries. Sectors that were previously dragged down by the capital siphon effect of the tech rally and experienced mispricing—such as securities, chemicals, innovative drugs, and AI applications—have already begun a recovery since last week. The market may subsequently shift from extreme thematic concentration to a structurally driven recovery based on earnings.
ETF Market Review
Below is a focused discussion on the trading and fundamental situations of several thematic sectors, including pharmaceuticals, securities, and ChiNext board AI.
1. The Sudden Surge in Innovative Drugs
Oversold pharmaceutical assets erupted across the board, strongly leading the market!
Innovative drugs spearheaded the advance. Over ten A-share pharmaceutical stocks surged more than 10%, with one stock hitting the 20% daily limit. Several others rose by the 10% limit. The only on-exchange ETF tracking the pharmaceutical sector saw its price surge 8.15%, closing at the day's high and marking its largest single-day gain since listing.
Hong Kong Stock Connect innovative drug stocks also launched a strong offensive. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), which holds 100% innovative drug R&D targets, hit an intraday high of 8.99% and closed up 7.94%, also setting a historical record. Its turnover skyrocketed 139% to 861 million yuan. Thirteen of its constituent stocks, including core heavyweight Kintor Pharma-B, gained over 10%.
A- and H-share healthcare themes also flourished comprehensively, led by CXO and AI healthcare concepts. The pharmaceutical group collectively rose. A Hong Kong Stock Connect healthcare ETF with over 45% CXO exposure and a large-scale healthcare ETF surged 6.22% and 5.07%, respectively, with the latter seeing explosive turnover of 1.035 billion yuan.
What are the driving factors behind the sudden surge in pharmaceutical assets from their bottoming zone?
On the policy front, recent developments regarding the national medical insurance and commercial insurance drug catalogues have entered a substantive negotiation phase, with new mechanisms like预申报 (pre-declaration) and 8-year price protection being implemented.
Industrially, several innovative drugs were approved for market launch recently, involving treatments from various companies. Furthermore, several pharmaceutical firms have密集达成 (intensively reached) overseas licensing or strategic R&D cooperation agreements, with potential total transaction values nearing $9 billion.
From a trading perspective, the market style has been fragmented this year, with tech companies, represented by AI, siphoning funds. This has led to a significant divergence between pharmaceutical stock prices and their fundamentals, highlighting their oversold and undervalued status. In a存量资金博弈 (competition among existing funds) environment, structural rotation may provide valuation repair momentum for the sector.
Analysts point out that as the global competitiveness of domestic innovative drug companies' clinical pipelines continues to improve, and with医保政策 (medical insurance policies) and商保 (commercial insurance) accelerating their tilt towards innovative drugs, many innovative drug companies are expected to enter a period of业绩收获 (harvesting earnings). Against the backdrop of strengthening global innovative drug asset景气度 (prosperity), the current Chinese innovative drug sector faces an upward基本面 (fundamental) trend but downward valuations, presenting highly弹性 (elastic) bottom-fishing investment value.
2. Frequent Moves in the Securities Sector
The logic that "buying securities is like buying a basket of discounted tech stocks" continues to gain traction. The securities sector saw another intraday move. A top-tier securities ETF with assets over 37 billion yuan直线冲高 (shot up in a straight line) in the morning, with its intraday涨幅 (gain)一度上探 (once reaching) 2.65%. It remained active throughout the session, closing up 1.32%. Leading securities firms集体发动 (collectively advanced), with several gaining over 4%, others over 3%, and major players rising over 2%.
Recently, the securities sector has seen frequent movements, with持续提升 (continuously increasing) capital attention. As of a recent date, the securities company index罕见地 (unusually) posted three consecutive positive weekly closes,累计上涨 (cumulatively rising) 8.36% over the period. It became one of the few non-AI sectors to achieve positive returns and significantly outperformed the broader market, marking a stark contrast to its previous持续低迷 (persistently weak) performance. More notably, it broke the past存量资金跷跷板效应 (seesaw effect of existing funds) where value stocks rose and tech stocks fell. Instead, securities and hard tech achieved共振走强 (resonant strength).
The reasons may be related to two main logics. On one hand, securities firms are deeply tied to numerous high-quality hard tech companies through投行跟投 (investment banking co-investments) and股权直投 (direct equity investments), and their科创价值 (scientific and technological innovation value) is being gradually recognized by the market. On the other hand, with the interim reporting season approaching and against the backdrop of a火爆 (booming) A-share market, securities firms'业绩 (performance) is expected to see an爆发 (outbreak). A new round of价值重估 (value reassessment) may be underway.
As近期提出的 (recently proposed) by institutions, "buying securities is buying tech." Regulations明确 (clarify) the mandatory co-investment system for保荐机构 (sponsoring institutions). With the recovery of hard tech IPOs and the催化 (catalysis) of the secondary market tech rally, securities firms'科创投资业务 (tech innovation investment business) is entering a period of较强的收益兑现 (stronger profit realization). Data shows significant average gains for科创板 (Sci-Tech Innovation Board) IPOs. If the total科创板IPO规模 (scale) reaches a certain level with an average co-investment ratio, the industry's co-investment capital would be substantial, and based on historical gains, expected floating profits could be significant.
It is worth noting that, as of now, the securities sector's估值 (valuation) still hovers at historically low levels. The price-to-book ratio (PB) of the relevant index is only 1.32x, sitting at a low percentile over the past decade. On one side is low sector valuation, and on the other is the持续贡献增量 (continuous contribution of增量 - incremental gains) from "investment banking + investment" businesses. The mismatch between fundamentals and valuation constitutes the core starting point for the sector's value reassessment. Some analysts point out that the non-bank financial sector is "not tech but胜似科技 (better than tech)," and the securities logic is持续验证中 (continuously being verified), with空间依然很大 (still significant room).
3. New Technology Path Sparks CPO Valuation Rethink?
The optical communication direction, including CPO and fiber optic cables, moved against the trend and corrected, with明显分化 (clear divergence) in the performance of individual stocks within the sector. One stock led declines, falling over 10%, while another fell over 7% and remained weak all day. Simultaneously, two leading stocks staged significant V-shaped rebounds intraday, with one narrowing its loss from over 7% to a 1.6% decline, and another from over 6% to a 2.7% decline.
Regarding popular ETFs, one focusing on CPO and AI on the ChiNext board探底回升 (bottomed and rebounded) throughout the day, having一度跌超 (once fallen over) 4% intraday before pulling back up in the afternoon to最终收跌 (finally close down) 1.46%. On the资金面 (capital flow front), this ETF received a net subscription of 102 million units that day, following cumulative吸金 (capital attraction) of over 2.2 billion yuan in the previous week.
The direct trigger for this round of decline in optical communications was the release of a new glass optical interconnect platform by a major U.S. fiber optic company at a recent industry conference. The market is concerned that this technology, which uses wafer-level preformed glass waveguides to achieve passive alignment between optical fibers and photonic chips, will significantly simplify the fiber array units (FAUs) and精密主动耦合设备 (precision active coupling equipment) relied upon by traditional CPO architectures. This could lead to long-term萎缩压力 (contraction pressure) on demand for related midstream components.
Why did one stock fall significantly more than the others? It likely stems from different positions in the industry chain. The other two companies primarily focus on downstream finished optical modules. The new technology does not affect终端需求 (end demand), as the high景气度 (prosperity) of AI computing power still supports their logic, leading to smaller declines. In contrast, the hardest-hit company is a leading upstream optical component supplier, whose business faces direct substitution expectations from the glass桥 (bridge) technology, hence bearing the deepest pressure.
However, overall, the new "glass bridge" technology paves the "last mile" of assembly for CPO by预置 (pre-setting) optical paths in glass through wafer-level processes, simplifying the coupling between photonic integrated circuits (PICs) and external optical paths. This transforms CPO from a "precision手工 (handcraft)" in the lab into a standardized, mass-producible "工业品 (industrial product)." Therefore, the "glass bridge" is a catalyst for CPO industrialization, not a competitor.
Looking ahead, analysts state that with全产业链迭代落地 (iterative implementation across the entire industry chain), the growth logic for the CPO赛道 (track) is clear, and the industry空间 (space) is fully opening up. CPO, as a disruptive technology for AI data center optical interconnection,彻底打破 (completely breaks) the three physical bottlenecks of traditional pluggable optical modules—power consumption, density, and bandwidth—and is the core evolution direction for next-generation ultra-high-speed computing networks. It is建议 (suggested) to持续关注 (continuously关注 - pay attention to)上游材料及元器件 (upstream materials and components),中游光通信设备 (midstream optical communication equipment), etc.
The mentioned ChiNext AI ETF and its场外联接 (offshore-linked funds)重点布局 (focus on布局 - deploying in) leading CPO companies. Its underlying index has approximately 40% weight in the three mentioned stocks, making it a核心旗手 (core standard-bearer) for AI computing power. Furthermore, this ETF has grown to a significant size with high daily turnover, ranking first in both规模 (scale) and流动性 (liquidity) within its dual-innovation (ChiNext & STAR Market) AI sector.
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