On July 22nd, the Shanghai Composite Index experienced narrow-range consolidation, while the ChiNext Index saw a pronounced correction. Market themes were relatively scattered, with the computing hardware sector undergoing another adjustment. Specifically, the Shanghai Composite Index closed up 0.07% at 3867.03 points, the Shenzhen Component Index fell 1.42%, the ChiNext Index dropped 3.23%, the CSI 300 declined 0.46%, the STAR 50 Index retreated 2.26%, and the CSI A500 decreased by 0.62%. A-share turnover for the day amounted to 2.67 trillion yuan, compared to 2.97 trillion yuan the previous session.
Key Market Drivers
The primary factors influencing today's market are as follows:
Potential escalation of US military action against Iran has sharply heightened geopolitical risks, boosting market risk aversion. On the news front, on July 21st, several senior US officials indicated that former President Trump is expected to decide within days whether to expand military operations against Iran and resume full-scale combat. Expectations of escalating conflict pushed international oil prices to new highs for July. The market is concerned that rising energy prices will further fuel global inflation, reinforcing expectations for monetary tightening by central banks worldwide. This has led to a systematic decline in global risk appetite, putting pressure on A-shares as risk-off sentiment spreads.
Sector Performance
Simultaneously, the precious metals and coal sectors bucked the downtrend to post gains today.
The capital siphoning effect from the technology sector has eased, and the macro headwind from Fed rate hike trades has been removed. Coupled with the initial market reaction to expectations surrounding Trump's Middle East policy, the precious metals sector rose strongly today. News of escalating US-Iran conflict signals boosted safe-haven demand. Additionally, both US June CPI and core CPI came in below expectations year-on-year, while falling crude oil prices in June led to declines in energy commodity and related service prices.
The implementation of a key policy document and expectations for reduced off-balance-sheet production from the supply side contributed to the coal sector's positive performance today. On July 21st, the Shanxi Provincial Government released the "Seventeen New Rules for Coordinating Coal Industry Development and Safety in Shanxi Province (Draft for Comment)." The document focuses on blocking pathways for "off-balance-sheet production." Nationwide off-balance-sheet production is estimated at 154-292 million tons, accounting for approximately 11.73% to 22.25% of actual output.
Market Outlook
Looking ahead, we believe: 1) During this market adjustment, the margin financing and securities lending balance has fallen by over 200 billion yuan from its peak. The scale of the contraction has already exceeded the levels seen during the tariff friction in April 2025 and the "Wash" shock in February 2026, indicating that the unwinding of micro-level trading positions is relatively thorough. With continued net inflows into broad-based ETFs and support from market-stabilizing forces, the negative impact from the trading perspective is diminishing at the margin. 2) Historically, super-sized IPOs typically cause periodic disturbances around the subscription and listing dates. The disturbance from the current subscription date has concluded, and the market has largely priced in the impact of the listing date. Furthermore, regulators are using tools like strategic placement clawbacks and enhanced expectation management to smooth volatility, suggesting the actual impact will likely be limited. 3) The current correction in the main AI technology theme has exceeded the average level of previous emotional adjustments during tech bull markets, indicating that risk has been released relatively fully.
We believe the digestion of this trading structure may be more than halfway complete, and the coming week could present a suitable opportunity for adding positions and repositioning. In previous weekly reports and market commentaries, we have repeatedly reminded investors that market volatility remains high, and investors may consider building positions in batches. The areas we are focusing on include: overseas leading computing power companies, assets experiencing bottom reversals (Hong Kong-listed internet/innovative pharmaceuticals/chemicals), undervalued non-bank financials, and the export chain.
Overall, this market adjustment is primarily an emotional reaction triggered by external input shocks. The underlying fundamentals, policy environment, and industrial growth logic domestically have not fundamentally reversed. The medium-to-long-term resilience of the market remains sufficient. We advise investors to view short-term fluctuations rationally, avoid chasing rallies and selling on dips, and make rational decisions based on their own risk tolerance.
Risk Disclosure
Short-term index movements and historical performance are for analytical reference only and do not indicate future performance. Views are for reference only and may change due to market factors; they do not constitute investment advice or a promise. Funds carry risks; investment requires caution.
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