Chinese equities underwent a period of adjustment and volatility on Monday, with over 3,300 stocks managing to close in positive territory. The total trading volume for the day reached 2.6 trillion yuan, representing a contraction of 132.8 billion yuan compared to the previous session. At the close, the Shanghai Composite Index declined by 0.29%, the Shenzhen Component Index fell by 0.97%, the ChiNext Index dropped 1.21%, and the STAR 50 Index saw a significant decline of 4.25%.
Key Market Influences
Analysts point to several factors impacting today's market performance. The technology and growth sectors continued their adjustment phase, exerting notable downward pressure on the major indices. Previously active segments such as semiconductors, PCBs, and passive components extended their retreat, weighing on key components of the STAR Market and ChiNext board. The approaching window for mid-year financial report verification has heightened market sensitivity towards the alignment of earnings with elevated valuations in growth sectors. As listed companies begin to disclose their interim performance forecasts and official reports, capital is reassessing the profit realization capabilities of certain popular investment themes, leading to increased pressure for valuation digestion. A rotation of market funds into more defensive sectors like pharmaceuticals, consumer staples, and financials has further intensified structural divergence. While some low-valuation and defensive industries showed activity, their ability to drive the broader market indices was limited, resulting in a market characterized by rapid sector rotation and overall index weakness.
Sector Performance Overview
The pharmaceutical sector stood out with notable activity against the broader market trend. Bioray Pharmaceutical, Dizal Pharmaceutical, and Genewiz surged by the 20% daily limit. Harbin Pharmaceutical Group achieved its fourth consecutive daily limit-up, while Hainan Haiyao and Anglikang also hit the limit-up. The baijiu concept also saw a volatile rise, with Gujing Gong Jiu and Jinzhongzi Liquor reaching the daily limit. The retail concept experienced a sudden upward movement, with Xinhua Department Store and Ningbo Zhongbai hitting limit-up. The gaming concept performed actively, with Giant Network Group and Kaiying Network reaching the daily limit.
On the downside, the semiconductor industry chain saw a collective adjustment. Storage chips, computing chips, and semiconductor equipment were among the biggest decliners. Demingli opened and remained at the daily limit-down, while Qiangyi Co., Ltd., Huafeng Test & Control, and Biwin Storage were among the top losers.
Market Outlook and Institutional Views
Looking ahead, 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.
Innovative Drug Concept Gains Momentum
The innovative drug concept moved higher, with Harbin Pharmaceutical Group securing its fourth consecutive limit-up and Dizal Pharmaceutical its second consecutive 20% limit-up. Zhaoyan New Drug touched the limit-up, followed by gains in InnoStar, Shiyao Innovation, Genewiz, and Bioray Pharmaceutical.
Commentary: Recent data from the National Medical Products Administration shows that 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 2023 total and setting a new historical record. Concurrently, the NMPA revealed that 38 Class 1 innovative drugs were approved for marketing in the first half of the year, 11 of which feature novel targets or mechanisms and are all domestically developed.
Consumer Sector Shows Strength
The broader consumption sector expanded its gains, led by food and beverage, retail, beauty and personal care, and media. Gujing Gong Jiu and Weizhixiang hit the daily limit, following earlier limit-ups for Jinzhongzi Liquor, Zhongchong Inc., Ruoyuchen, and Anzheng Fashion. Jinbo Biological, Yizhi Konjac, Haoxiangni, Wanchen Group, and New Dairy were among the top gainers.
Commentary: According to data from the National Bureau of Statistics, total retail sales of consumer goods in the first half of the year reached 24.87 trillion yuan, a year-on-year increase of 1.3%. Excluding automobiles, retail sales of consumer goods amounted to 22.9 trillion yuan, up 2.8%. Online retail sales of physical goods and services nationwide totaled 10.07 trillion yuan, rising 5.2% year-on-year.
Institutional Perspectives
Huaan Securities: Structural Leadership Pattern Expected to Persist
Huaan Securities believes that following the recent rapid market adjustment, emotional selling has largely been exhausted, leaving limited room for further downside. As technology stocks continue to validate high growth through their earnings and expectations for large-scale IPOs materialize, the market is poised for a potential rebound. The market's primary focus should remain on the upstream and midstream segments of the AI industry chain, a structural leadership pattern expected to last until year-end. Overall, two key investment themes and their timing warrant attention: The first core theme is the AI industry chain, particularly focusing on upstream and midstream computing hardware. The medium-term opportunity in electronics remains intact, but the short-term risk-reward profile for communications appears more favorable. The second theme involves sectors potentially catalyzed or diffused by the AI chain, which often represent extensions of the current AI industry's upstream and midstream segments.
Huatai Securities: Current Adjustment Reflects Congestion Unwinding and Mid-Year Report Repricing
Huatai Securities views the recent A-share market's low-volume divergence and the global rebalancing of AI-related funds from high-priced hardware to lower-priced applications and Chinese assets as a simultaneous rotation towards defensive and lower-valuation plays. Subsequent attention should be paid to the pressure from the semiconductor subscription window and the密集 disclosure of mid-year performance previews. While short-term volatility in the technology主线 may remain elevated, it should not be simplistically interpreted as the end of the underlying industrial trend.
China Merchants Securities: July Presents a Window of Policy Meetings and Earnings Reports
China Merchants Securities reiterates that July is 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 is increasing, accompanied by a phase of style rebalancing. However, the current juncture does not yet signal a definitive switch from growth to value stocks. Following this period of volatility, growth-oriented sectors are expected to regain their leadership. Specifically: 1. During the mid-year earnings window, the technology sector led by AI is anticipated to report strong growth. However, due to透支 expectations and high positioning at the trading level, it remains to be seen whether strong actual results can continue to outweigh strong expectations, which will increase volatility in the tech growth sector. 2. Current export performance remains robust, with the new export orders sub-index of the June PMI rising further above 50, suggesting exports may continue to exceed expectations. In this context, the July policy meetings are likely to focus on accelerating the implementation of existing policies, potentially keeping domestic demand-oriented sectors relatively weak. 3. The weaker-than-expected US June non-farm payrolls data and falling oil prices suggest future inflation data may decline, creating room for a recalibration of market expectations regarding Federal Reserve rate hikes. The Fed is highly likely to hold rates steady in July. Short-term focus should be on the mid-month release of US June inflation data and comments from Fed Chair Powell during the Senate testimony, as these factors will shape future adjustments to rate hike expectations.
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