After two consecutive days of broad-based gains, the A-share market saw a slight increase in both volume and price today. Major indices closed mostly higher, with the Shanghai Composite Index achieving a remarkable 14-day winning streak, although 3,190 individual stocks ended the day in negative territory. Sector performance was clearly divergent, with Communications and Electronics leading the gains, while concepts like Aerospace retreated.
Market analysts described today's A-share performance as a rational consolidation following a period of sustained strong gains, noting that short-term volatility pressures are accumulating. The 14-day rally in the Shanghai Composite is attributed to a confluence of supportive policies, ample liquidity, improving fundamentals, and a favorable global environment, showcasing a structurally strong market driven by both "policy and capital." In the near term, the market is highly likely to experience high-level volatility, with the Shanghai Composite potentially seesawing between 4050 and 4100 points. Investors are advised to remain cautious of pullback risks stemming from profit-taking activities. Daily turnover increased to 2.88 trillion yuan. On January 7, A-shares experienced narrow-range fluctuations with significant sector rotation and divergence. While the broader indices closed in positive territory—the Shanghai Composite edged up 0.05% to close at 4085.77 points, the ChiNext Index rose 0.31% to 3329.69 points, the Shenzhen Component Index and the Beijing Stock Exchange 50 Index saw minor gains, the STAR 50 Index climbed nearly 1%, and the CSI 300 and SSE 50 indices registered slight declines—the underlying market dynamics told a different story.
Trading activity remained brisk, with the total turnover increasing slightly by 49.2 billion yuan from the previous session to reach 2.88 trillion yuan. Regarding leveraged funds, as of January 6, the balance of margin trading and securities lending across the Shanghai, Shenzhen, and Beijing Stock Exchanges grew to 2.58 trillion yuan.
In terms of market sectors, SMIC-related concepts, memory chips, HBM, photoresists, rare earth permanent magnets, coal, and rare metals posted significant gains. Conversely, consumer electronics equipment, precious metals, aerospace equipment, virtual robots, natural gas, and shale gas all declined.
Sector performance was split, with 17 primary Shenwan industries closing higher. The Conglomerates and Coal sectors led the advancers, witnessing stocks like Dongyangguang, Dayou Energy, Shaanxi Heimao, and Antai Group hitting the daily upside limit. The Electronics, Communications, Power Equipment, and Pharmaceuticals sectors also performed well.
Nine electronics stocks surged by the 10% daily limit, with Nanda Optoelectronics, Fuxin Technology, Kingsemi, Guanggang Gas, and Hengkun New Materials soaring by the 20% limit applicable to some boards. Anji Technology, Xingfu Electronics, Helin Weina, Nanjiguang, Pioneer Jingke, and Changchuan Technology all saw gains exceeding 10%.
The Communications sector, which had retreated yesterday, staged a strong comeback today. Seven communications stocks, including Datang Telecom, Nanjing Panda, Tongyu Communication, and Zhongci Electronic, jumped by the 10% limit. DecaWave closed up 14.23%.
Eight pharmaceutical and biological stocks rose by the 10% limit, with Jiashitang, Panlong Pharmaceutical, Luyan Pharma, and Innovation Medical all hitting the ceiling.
Fourteen machinery and equipment stocks surged by the limit. Shaoyang Hydraulic and Annda Intelligent leapt by the 20% limit, while China First Heavy Industries, Hongxun Technology, and Snowman Group all rose by the 10% limit.
Ten basic chemicals stocks hit the 10% limit. Gaomeng New Material and Huarong Chemical soared by the 20% limit, while Primet, Topsun New Material, and Guofeng New Material all rose by the 10% limit.
The Petroleum & Petrochemicals, Non-Bank Financials, and Beauty & Personal Care sectors fell more than 1% each. The Computer, Banking, Textiles & Apparel, Home Appliances, Transportation, and Food & Beverage sectors also weakened.
While the major indices closed higher, the majority of individual stocks declined: 3,190 stocks closed lower, with 7 hitting the downside limit; meanwhile, 2,173 stocks advanced, with 97 reaching the daily upside limit. Sanhua Intelligent Control fell nearly 2%, while Aerosun Corporation rose nearly 8%. Goldwind Technology hit the 10% limit. CPO concept stocks like Zhongji Innolight and Xinyisheng closed slightly higher. China Satellite declined over 6%, and Aerospace Electronics fell nearly 1%. Zijin Mining, Shenghong Technology, and East Money Information all dropped more than 2%. BlueFocus, GigaDevice, and Northern Rare Earth each gained nearly 5%.
A Pattern of "Strong Indices, Weak Stocks" Liu Youhua, Research Director at Paipai Network Wealth, believes that today's slight increase in A-share volume and price, coupled with more declining stocks, reflects normal differentiation amid fund repositioning. Following the broad-based gains of the previous two days, profit-taking has begun. Capital is concentrating towards sectors with fundamental support, such as Coal, Electronics, and Communications, while high-flying thematic stocks and some heavyweight shares are correcting. This has created a "strong indices, weak stocks" pattern, indicating a rational market shift from indiscriminate buying to a focus on core themes. "Today's mild market divergence is not unexpected but rather a rational adjustment after a period of consecutive strong gains, primarily stemming from two factors," said Jiao Bing, a researcher at Geshang Funds. On one hand, pressure from concentrated profit-taking by earlier investors is emerging. On the other hand, the market is in a transition phase from valuation-driven to earnings-driven dynamics, with styles gradually evolving towards balance, causing sector divergence as funds adjust their positions.
Huang Yi, Investment Director at Hongfeng Asset Management, pointed out that the Shanghai Composite's 14-day winning streak results from the resonance of supportive policies, ample funds, improving fundamentals, and a friendly global environment. It reflects a significant improvement in market risk appetite, showcasing a structurally strong market driven by "policy and capital," rather than a broad-based bull market. Today's market activity indicates that short-term volatility pressure is accumulating. Current positive factors are concentrated in four areas: policy support, abundant liquidity, economic and industrial improvements, and a benign external environment.
Beware of Profit-Taking Risks On the third trading day of the new year, the market's upward momentum encountered resistance. Although the Shanghai Composite has impressively strung together 14 positive sessions, signs of short-term volatility are becoming increasingly evident. Where will A-shares head next, and what risks should investors be wary of? "Currently, China's margin financing balance has reached a historical high of 2.54 trillion yuan. The fragility of highly leveraged funds could exacerbate market fluctuations. In the short term, the market is highly likely to undergo consolidation and digestion around the 4000-point level. Only after absorbing the pressure from profit-taking might it have the potential to advance further," Jiao Bing cautioned. He highlighted several risks: first, the risk of short-term profit-taking; second, the risk of high valuations not being supported by earnings—if subsequent earnings from relevant sectors fail to justify high valuation expectations, it could trigger a correction; and third, the risk of volatility in external markets—factors such as global liquidity easing expectations and the pace of Fed rate cuts could still impact the A-share market, particularly foreign capital flows.
"In the short term, the market is highly likely to experience high-level volatility, with the Shanghai Composite seesawing between 4050 and 4100 points, while maintaining a medium-term bias towards strength amid fluctuations," Liu Youhua advised. He reminded investors to be vigilant about the following risks: first, a pullback triggered by short-term profit-taking, as the area above 4080 points is dense with筹码 (chips, referring to holdings), creating a technical need for a retracement; second, potential disappointments during the annual report preview season, where some high-valuation stocks might face pressure if their earnings fail to meet expectations.
Wang Zheng, General Manager of Shangyi Fund, noted that this market rally is driven by the "twin engines" of policy and industrial trends, coupled with inflows of overseas capital. However, the risk of a sharp decline is accumulating after the rapid ascent. Particularly after the Spring Festival in February, as listed companies begin disclosing their annual reports, the risk should not be underestimated if the earnings of small and micro-cap stocks fall short of expectations.
"An upward trend has been established. The gains over the past three trading days have been driven by incremental funds. While there is a technical need to digest floating筹码 in the short term, looking at the broader 'Spring Offensive,' we are still in the initial stages," said Liu Yan, Trading Director at Honghan Investment. With risk appetite improving and trading activity lively, any pullback could present a buying opportunity. Both sectors related to 'new productive forces' and traditional cyclical sectors are expected to have opportunities for rotational upward movement in the future.
Sectors Worth Considering for Allocation How should investors position their portfolios under the current circumstances?
Huang Yi believes the market is likely to trend upwards with fluctuations. Allocations should focus on technology growth sectors (such as AI computing power, semiconductor equipment), pro-cyclical sectors (resource products benefiting from price increases), and large financials (brokers, insurance). Special attention should be paid to the innovative drug sector, which is just starting to rebound from its lows.
Wang Zheng recommends adhering to a core asset allocation strategy of "more commodities, more equities, fewer bonds": continue betting on technology growth tracks like brain-computer interfaces and AI computing power, while simultaneously paying attention to upstream raw materials like copper and aluminum and cyclical industry chains. Use low-valuation blue chips and high-dividend sectors to solidify the portfolio's foundation.
Mo Xiaocheng, General Manager of Huanruitianze, stated that the A-share market is currently in a confirmation phase for what could be its largest bull market ever. In terms of specific directions, the focus should be on the two major tracks of pharmaceuticals and consumption, especially leading companies with excellent business models that meet consumers' long-term, stable needs and desires. The essence of this bull market is the systematic revaluation of high-quality assets, not a broad-based speculative bubble.
Jiao Bing suggests closely following three main themes: First, resolutely allocate to the technology主线 (main line), focusing on core tracks like Electronics and Communications. Technology stocks remain the core theme for the 2026 market, with the ongoing global AI wave providing clear opportunities for related sectors. Second, pay attention to阶段性 (stage-specific) opportunities in the resource sector, such as coal and non-ferrous metals. Domestic policies aimed at expanding domestic demand are expected to be gradually intensified and implemented in 2026, which will drive up demand for resources as industrial activity recovers. Furthermore, against the backdrop of global supply chain restructuring, the strategic value of resource products is further enhanced. Third, allocate to low-valuation defensive sectors to balance portfolio risk. During phases of market consolidation, defensive sectors characterized by low valuations and high dividends offer strong safety margins.
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