Chinese equities experienced a significant surge on heavy trading volume following the Dragon Boat Festival holiday.
By the close of trading on June 22nd, the Shanghai Composite Index had risen by 1.78%, the Shenzhen Component Index by 2.13%, and the ChiNext Index by 2.52%, setting a new historical high. The total trading volume for the A-share market reached 3.76 trillion yuan, marking the second-highest daily volume on record. In terms of sectors, non-bank financials, non-ferrous metals, and chemicals were among the top performers.
Several industry professionals noted that multiple factors contributed to the strong rally. A moderation in geopolitical risks, combined with an upward revision in expectations for the technology sector, is expected to support a continued recovery in short-term market risk appetite. The indices are likely to maintain a pattern of volatile upward movement, though caution is advised regarding ongoing uncertainties in external negotiations and shifts in trading activity within the tech sector. Key areas of focus include AI hardware, new energy, industrial metals, and chemicals.
Key Drivers Behind the Market Surge
Regarding the significant market advance, one major fund manager identified several primary reasons. First, geopolitical risks have notably eased. The formal signing of a memorandum of understanding between the US and Iran on June 18th represents a breakthrough that has substantially reduced the tail risk of a global energy supply disruption. The subsequent decline in oil prices has effectively alleviated concerns over imported inflation, leading to a recovery in risk appetite for global assets.
Second, a series of favorable policies have been introduced. The Lujiazui Forum, which commenced on June 17th, signaled multiple financial reforms, including the central bank's efforts to improve short-term interest rate mechanisms and the securities regulator's expansion of listing standards for tech-focused boards to include the artificial intelligence sector, alongside support for Hong Kong-listed companies seeking domestic listings. The clear policy focus on "hard technology" has further solidified the medium- to long-term investment thesis for the tech and growth sectors.
Third, there is a global synchronized rally in technology stocks. The continued strength in the US Nasdaq index, the sustained high levels of the Philadelphia Semiconductor Index, and the ongoing gains in Japanese and South Korean markets all contribute. The ongoing AI industry trend, coupled with sustained high capital expenditure from overseas tech giants and robust order books for server, optical module, and semiconductor component supply chains, is attracting global capital to high-growth tech sectors, providing strong support for A-share tech stocks through overseas market correlations.
The approaching interim earnings season is also a factor. With the intensive disclosure period for interim performance forecasts set for July, market pricing logic is shifting from sentiment-driven moves back to fundamentals, leading to early positioning in sectors with stronger earnings visibility.
Another prominent fund manager observed that the strong performance across the three major A-share indices was primarily driven by a dual boost from a temporary cooling of geopolitical tensions and a package of capital market reform policies. Following approximately 18 hours of intensive negotiations, the US and Iran agreed to proceed with technical-level discussions, establishing certain communication channels regarding navigation in the Strait of Hormuz and the situation in Lebanon. This positive development has boosted global risk appetite, contributed to a pullback in international oil prices, and led to broad gains across Asia-Pacific equity markets.
Domestically, the series of policy benefits released during the Lujiazui Forum last week continue to have a positive effect, with clearer expectations for capital market reforms serving as a core internal driver for the A-share market's upward movement.
Focus Areas: AI Hardware, New Energy, and More
Several sectors delivered particularly strong performances.
The brokerage sector surged significantly, with many individual stocks hitting their daily limit-up, making it a core theme of the day's trading. The sector index rose by 7.52%.
One asset management firm stated that the rally was driven by the continued positive impact of long-term capital market reform benefits signaled at the Lujiazui Forum, converging with three other factors: sustained sector fundamentals, historically low valuations, and a rebalancing of market capital allocation. The brokerage sector's fundamentals are improving, yet valuations remain severely depressed, with the sector's price-to-earnings ratio near its lowest levels in a decade. Leading brokerages trade at significant discounts, and institutional holdings in the sector are low. As market capital, previously concentrated in high-growth sectors like AI and semiconductors, begins to rebalance, the undervalued brokerage sector has ample room for a catch-up rally.
The chemicals sector also performed well, opening lower but climbing higher throughout the session. A key chemicals index rose over 5% at one point, with sub-sectors like phosphorus chemicals, fluorine chemicals, chemical fibers, and titanium dioxide leading the gains.
A fund manager at a major financial group explained that previous Middle East conflicts had pushed oil prices higher, sharply increasing upstream costs for chemical products. However, downstream demand remained relatively subdued, leading to cautious inventory replenishment and potential difficulties in passing on costs, which squeezed profit margins for chemical companies. After nearly three months of geopolitical tensions, chemical product inventories have fallen to historically low levels. Combined with expectations of a marginal easing in tensions leading to a moderate pullback in oil prices, the sector may be at a critical juncture—near the end of a destocking phase and on the cusp of proactive restocking. With low inventories, the initiation of a positive cycle—where marginal demand recovery leads to restocking, price increases, and profit recovery—could exhibit significant elasticity.
Regarding specific sectors, one fund company anticipates that clues for strong performance in the upcoming interim reports may be concentrated in three main areas: the AI hardware supply chain, upstream cyclical commodities, and midstream manufacturing with advantages in overseas expansion. Key focuses include AI hardware, new energy, industrial metals, and chemicals.
Another fund manager pointed out that in terms of investment direction, they are optimistic about emerging technologies (such as integrated circuits, communication equipment, high-end equipment, and minor metals), advantaged manufacturing (like power equipment, new energy, and engineering machinery), and traditional sectors undergoing repair (such as brokerages and banks, where micro-structures have cleared and valuation advantages are prominent).
Market Outlook: Volatile Uptrend with Short-Term Risks
Looking ahead, market participants suggest that while the short-term recovery in risk appetite is likely to continue, attention must be paid to uncertainties in external negotiations and changes in trading activity within the tech sector. Although US-Iran talks have made some progress, significant differences remain on core issues like navigation in the Strait of Hormuz and Iran's nuclear program. Hardline statements from the US side previously led to a pause in talks, and the direction of subsequent technical-level consultations still requires observation.
Domestically, the policy benefits released at the Lujiazui Forum provide an institutional foundation for the medium- to long-term development of the capital market, helping to stabilize market expectations. The tech and growth sectors still hold allocation value under the combined influence of industry trends and supportive policies. However, after recent gains, trading concentration in some areas has increased, warranting caution regarding short-term volatility risks.
One analysis indicates that with geopolitical risks easing and expectations for the tech industry being revised upward, the indices are expected to continue a pattern of volatile upward movement. Structurally, the focus should remain on sub-sectors with improving fundamentals and clear earnings expectations, such as those benefiting from AI and overseas expansion trends, as well as equipment and materials with tight supply-demand dynamics. Additionally, sectors like non-ferrous metals and midstream manufacturing, which benefit from lower oil prices and improved liquidity expectations, are also poised for a rebound.
In terms of market style, the growth style is expected to maintain its advantage in the short term. Against a backdrop of easing external risks, ample domestic liquidity, and clear industry trends, tech and growth sectors, represented by AI, remain the consensus and primary source of market momentum. It is important to note that as related sectors experience significant short-term gains, future performance will depend more heavily on actual earnings delivery, which could lead to increased volatility.
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