After two consecutive days of testing strong support levels, Chinese stocks extended gains for a fourth straight session on Monday. The Shanghai Composite Index not only reclaimed the psychologically important 3900-point level but also climbed back above its 60-day moving average. The Hainan sector stood out with nearly all constituent stocks hitting their daily upside limits.
While the sustained rebound has fueled expectations for a year-end rally, analysts caution that short-term consolidation may still be needed.
**Broad Market Rally with 100+ Limit-Ups** Following four days of consecutive gains, the Shanghai Composite has regained key technical levels as moving averages begin turning upward, signaling a potential trend reversal. On December 22, the index opened higher with a gap above 3900 and maintained narrow fluctuations in the afternoon, ultimately closing above its 60-day average. The Shenzhen Component Index mirrored this performance, setting a new closing high since its recent pullback.
At the close, the Shanghai Composite rose 0.69% to 3917.36, while the Shenzhen Component gained 1.47% to 13332.73. The ChiNext Index outperformed with a 2.23% surge to 3191.98. Trading volume continued to expand across both exchanges.
Most sectors advanced, led by Hainan-related stocks, communication equipment, electronic components, and precious metals. Media, property services, and pharmaceutical commerce bucked the trend. Nearly 3,000 stocks closed higher, including 105 that hit their daily 10% limit, though about 2,300 decliners indicated persistent divergence.
**Hainan Sector's Stellar Performance** The Hainan Free Trade Port sector stole the show with a 9.28% surge after Friday's 4% gain, as optimism grew about post-customs-closure development prospects. Customs data showed December 18's duty-free sales in Hainan jumped 61% year-over-year to 161 million yuan, with shopper numbers up 53.1%.
Boosted by policy tailwinds and strong data, Hainan stocks like Shennong Seed Industry and Kangzhi Pharmaceutical locked 20% limit-ups, while 21 others including Intercontinental Oil & Gas and Hainan Ruize hit 10% ceilings. The sector index's 9.28% gain led all industry groups.
Industrial Securities highlighted Hainan's potential as a new regional offshore trade hub, citing opportunities in Hong Kong-Hainan collaboration, high-end manufacturing leveraging tax incentives, and upgraded duty-free consumption models combining retail with entertainment.
**"Bull Market 2.0" Expected in 2026** The sustained rebound has heightened expectations for a year-end rally. China Merchants Securities sees a classic spring rally taking shape, citing potential early 2026 policy stimulus and institutional buying of broad-based ETFs.
Shenwan Hongyuan predicts a "Bull Market 2.0" in late 2026, driven by cyclical recovery, tech advancements, household asset reallocation to equities, and China's growing global influence. They recommend focusing on blue chips like the CSI 300 and SSE 50, particularly in cyclical sectors including industrial metals, non-bank finance, and travel-related industries, along with domestic computing, commercial space, and nuclear fusion themes.
**Short-Term Consolidation Risks** Amid the optimism, some analysts warn of near-term volatility. Securities analyst Li Ming noted that while the rebound has boosted sentiment, divergences and overheated sector rallies could trigger corrections. The Shanghai Composite now faces strong resistance at 3936 - a breakout with volume confirmation would signal further upside, otherwise a pullback to test support may occur.
Jufeng Investment cautioned that Monday's gains need confirmation as the market remains within its post-4034 correction pattern. They advise waiting for clearer signals including sustained favorable liquidity, concrete policy implementation, and early signs of economic stabilization before increasing exposure, suggesting potential better entry points during any sentiment-driven dips.
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