On Monday, Chinese A-shares experienced a volatile session, initially rising before giving up gains to close the morning lower. The three major indices all ended in negative territory, despite over 3,600 stocks advancing. Half-day turnover reached 1.7 trillion yuan, an increase of 89.84 billion yuan from the previous session. At the midday break, the Shanghai Composite Index was down 0.08%, the Shenzhen Component Index fell 0.38%, and the ChiNext Index declined 0.36%. The STAR 50 Index saw a more significant drop of 3.67%.
Key Market Influencers
Analysts point to several factors shaping today's market action. First, incremental capital inflows are providing underlying support, with improved liquidity expectations attracting funds and helping to cushion potential downside for major indices. Second, profit-taking from recent gains is exerting pressure. Following substantial rallies in some popular sectors, investors are selling into strength, which is dampening the market's upward momentum. Third, expectations for mid-year financial reports are accelerating a performance divergence. As the earnings disclosure window approaches, capital is increasingly focusing on companies with more certain prospects. Sectors with strong earnings forecasts are showing relative resilience, while stocks with high valuations or questionable fundamentals are under pressure. Fourth, sector rotation has noticeably accelerated. Frequent shifts between technology, resources, financials, and defensive sectors, in the absence of a sustained market theme, are contributing to heightened intraday volatility.
Sector Performance Highlights
Market hotspots rotated rapidly. The pharmaceutical sector saw a strong rally, with over ten constituent stocks hitting their daily limit-up. Innovative drug and CXO segments led the gains. Borui Pharmaceutical, Dizhe Pharmaceutical, and Rui Zhi Pharmaceutical surged by the 20% limit. Harbin Pharmaceutical Group secured its fourth consecutive limit-up board. The baijiu (Chinese liquor) concept also rebounded, with Jinzhongzi Liquor hitting the limit-up. The retail sector experienced a sudden upward move, with Xinhua Department Store and Ningbo Zhongbai also reaching limit-up.
On the downside, the semiconductor industry chain underwent a collective adjustment. Computing power chips, memory chips, and semiconductor equipment sectors were among the worst performers. Demingli opened limit-down and stayed there, while Huafeng Test & Control and Baiwei Storage fell over 11%.
Focus on Key Sectors
Innovative Drug Concept Gains Momentum
The innovative drug sector moved higher, with Harbin Pharmaceutical Group achieving four consecutive limit-ups and Dizhe Pharmaceutical securing two 20% limit-ups. Zhaoyan Xinyao touched the limit-up, followed by gains in Yinuosi, Shiyao Innovation, Rui Zhi Pharmaceutical, and Borui Pharmaceutical.
The rally is supported by recent data from the National Medical Products Administration. From January to June this year, China's innovative drug sector completed 81 out-licensing deals with a total transaction value of approximately $110 billion, reaching 80% of the full-year 2025 target and setting a new historical record. Furthermore, the agency revealed that 38 Class 1 innovative drugs were approved for marketing in the first half of the year, 11 of which feature novel targets and mechanisms, all being independently developed domestic products.
Film and Cinema Sector Rises
The film and cinema concept fluctuated higher, with Ruyi Films hitting the limit-up. Xingfu Lanhai led the gains, followed by Enlight Media, Shanghai Film, Hengdian Film, and Bona Film Group.
Analysts note that market expectations for the film sector are currently low, with institutional holdings remaining subdued in the first quarter, suggesting room for a positive expectation reset. Box office demand is driven by high-quality content supply, and the extended word-of-mouth cycle for top-tier films during the summer season provides potential for flexible box office ceilings.
Retail Concept Shows Activity
The retail sector performed actively, with Ningbo Zhongbai reaching limit-up. Xinhua Department Store, China Tourism Group Duty Free, Yonghui Superstores, Wangfujing Group, and Shanghai Jiubai also advanced.
This movement follows the State Council's approval of the "15th Five-Year Plan for Expanding Consumption," which outlines development goals, key tasks, and policy measures for the consumption sector during the 2026-2030 period. The plan targets sustained expansion of the overall consumer market size, aiming for total retail sales of consumer goods to reach around 60 trillion yuan by 2030, further enhancing consumption's role in driving economic growth.
Institutional Perspectives
Huaan Securities: Structural Theme Pattern Expected to Persist
Huaan Securities believes that after the recent rapid market adjustment, sentiment release is largely complete, and further downside is limited. As tech stocks continue to validate high growth in their earnings and expectations for large-scale IPOs materialize, a market rebound is anticipated. The primary theme should remain focused on the upstream and midstream segments of the AI industry chain, a structural pattern expected to last until year-end. Investors are advised to focus on two core investment lines: first, the AI industry chain, particularly upstream and midstream computing power hardware; second, sectors potentially catalyzed or diffused by the AI chain, often extensions of the AI industry's upstream and midstream links.
Huatai Securities: Current Adjustment Reflects Crowding Unwind and Earnings Focus Shift
Huatai Securities views the recent A-share consolidation and divergence as a combination of crowding reduction and a shift in pricing focus towards mid-year reports, not a discrediting of the underlying industry logic. Global AI capital is rebalancing from high-priced hardware to lower-priced applications and Chinese assets, with A-shares seeing a simultaneous rotation from high to low valuations and a defensive tilt. Subsequent pressure may arise from semiconductor subscription windows and the密集 disclosure of mid-year earnings previews. While short-term volatility in the tech theme may remain high, it should not be simplistically interpreted as the end of the industry trend.
China Merchants Securities: July is a Critical Window for Policy and Earnings
China Merchants Securities notes that July represents a window where important domestic and international policy meetings overlap with the mid-year reporting season, leading to potential revisions and fluctuations in market expectations. Short-term market volatility has increased, accompanied by a phase of style rebalancing. However, a full switch from growth to value stocks is not yet imminent. After this period of volatility, growth stocks are expected to regain dominance. Key points include: 1) During the mid-year earnings window, AI-led tech sectors are expected to show strong growth, but high trading expectations and crowded positioning may increase volatility as the market assesses whether strong performance can outweigh lofty expectations. 2) Strong export performance, with the new export orders PMI sub-index rising above 50 in June, suggests exports may continue exceeding expectations. Consequently, July policy meetings are likely to focus on accelerating the implementation of existing policies, potentially keeping domestic demand-oriented sectors subdued. 3) Weaker-than-expected U.S. June non-farm payrolls and falling oil prices suggest future inflation data may cool, creating room for a recalibration of Fed rate hike expectations. The Fed is likely to hold rates steady in July, with attention shifting to mid-month U.S. inflation data and Fed Chair Powell's testimony, which will influence future expectations for interest rate adjustments.
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