On the second trading day of July, the three major A-share indices experienced significant volatility following a strong start to the month that saw the Shanghai Composite Index surpass the 4100-point mark. The STAR 50 Index recorded its largest single-day drop of the year.
Despite the overall market decline, individual stocks showed notable resilience. The number of advancing stocks exceeded 2,200 for the day, and the count of stocks hitting the daily upper price limit (156) far surpassed those hitting the lower limit (41). In this context, institutional investors are focusing on potential valuation recovery opportunities after the short-term correction, while also sharpening their focus on the 'earnings supremacy' theme as the half-year earnings preview window approaches.
Key Indices Register Collective Declines
At the close on July 2nd, the Shanghai Composite Index stood at 4028.90 points, down 2.03%. The Shenzhen Component Index fell 3.85% to 15498.81 points, and the ChiNext Index dropped 5.71% to 4017.27 points. Additionally, the STAR 50 Index plunged 7.70% to 1987.29 points, marking its steepest single-day decline this year.
Total trading volume for the Shanghai, Shenzhen, and Beijing exchanges reached 3.4739 trillion yuan, a decrease of 208.9 billion yuan from the previous session.
Sector performance was mixed. Precious metals, construction machinery, textiles & apparel, and forestry sectors led the gains. Conversely, semiconductors, communication equipment, computer hardware, and trade sectors were among the biggest decliners.
On an individual stock basis, over 2,200 stocks closed higher, with more than 150 reaching the daily upper limit. Notable gainers included Zhaojin Gold and Chifeng Gold in the precious metals sector, Huanghe Whirlwind in the lab-grown diamond sector, and multiple stocks in the innovative drug sector such as Hainan Haiyao, Meinuohua, and Shiyao Jingfeng.
In contrast, several stocks in the semiconductor and communication equipment sectors fell sharply. Fuchuang Precision, Zhongke Feice, Huafeng Test & Control, Changxin Boke, Tianfu Communication, and Xinyisheng all dropped over 10%. Stocks like Northern Huachuang, Jinhaitong, Dongshan Precision, Zhaoyi Innovation, and Guangxun Technology hit the daily lower price limit.
On the international front, Federal Reserve Chair Kevin Warsh, speaking at a European Central Bank conference in Portugal on July 1st, stated that US inflation remains too high and reiterated the Fed's priority of ensuring price stability. On the same day, the three major US stock indices closed lower, with the Dow Jones Industrial Average down 0.03%, the Nasdaq Composite falling 0.66%, and the S&P 500 declining 0.22%.
Domestically, new A-share trading rules are set to take effect on July 6th, 2026. The rules optimize the fund closing price mechanism, expand the scope of after-hours fixed-price trading, and adjust the daily price fluctuation limits for ST and *ST stocks on the main board from 5% to 10%.
Furthermore, July 2nd marked the debut of China Resources New Energy (N China Resources, 001248) on the Shenzhen Stock Exchange, the largest IPO in the exchange's history. It closed at 23.95 yuan, surging 136.89%, with a market capitalization reaching 311.5 billion yuan.
Institutional Focus on Earnings Preview Window
Looking ahead, some market observers suggest the subsequent market trend may unfold in two phases. The current short-term adjustment is seen as a consolidation phase where valuations are digested by earnings. As industrial expansion deepens and profitability improves across sectors, the A-share market could transition from a structural rally to a broader upward trend.
Shenwan Hongyuan Securities posits that the medium-to-long-term A-share market will evolve from a singular focus on technology to a more diversified landscape. Within the tech sector, themes like self-sufficiency, robotics, and commercial aerospace are expected to gain traction. Supply-side adjustments are anticipated to drive fundamental recovery in industries such as chemicals, new energy, and advanced manufacturing.
In terms of allocation, priority should be given to sectors where earnings are verifiable and can support high valuations, including AI computing power segments like optical communication and energy storage. Simultaneously, opportunities exist in export-benefiting sectors like basic chemicals, new energy, and strategic resources. New consumption sectors, benefiting from overseas expansion and supply innovation, also have room for recovery, while non-bank financials with low price-to-book and high return on equity ratios present cyclical opportunities.
Central China Securities analysis suggests that for the July market, amid mixed positive and negative factors, the A-share market may maintain a wide-range consolidation overall, with capital likely continuing to concentrate on tech sub-sectors where half-year earnings are expected to be solid.
Indeed, on July 2nd itself, several stocks that had pre-announced strong earnings growth attracted investor interest against the market downtrend.
Stocks like Sanrui Intelligent rose over 14%, while Youcai Resources, Yisheng Shares, Leisai Intelligent, and Shaoneng Shares hit the upper limit. Among them, Yisheng Shares pre-announced a net profit increase exceeding 4000%, Youcai Resources and Shaoneng Shares forecasted net profit to potentially double, and Leisai Intelligent projected net profit growth exceeding 55%.
Institutions note that as the market enters the half-year earnings preview disclosure window in July, mid-year results are expected to gradually become the primary investment theme. China International Capital Corporation (CICC) indicated that the market began a correction in mid-May, showing signs of recovery after early June but still below previous highs. Externally, while easing crude oil supply disruptions have reduced global inflationary pressures, Fed Chair Warsh's monetary policy stance continues to influence expectations. Internally, as the A-share market approaches the mid-year reporting season, solid earnings reports in July-August are expected to provide some support for indices. The recent period of consolidation and rapid style rotation may be nearing its end, making mid-year earnings a key focus.
Looking to the second half of the year, China Post Securities expects the A-share market to continue a pattern of seeking progress while ensuring stability, with structural opportunities dominating. A broad-based, across-the-board rally is unlikely, and structural differentiation will remain the main theme. Against a backdrop of a gradual economic recovery and a market characterized by存量博弈 (stock game), index volatility is expected to be limited with controllable downside risks. Market drivers are shifting from broad liquidity easing to earnings certainty, sector turnarounds, and the implementation of new productive forces. Market pricing will increasingly concentrate on genuine profitability and the dividends of industrial iteration.
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