On June 29, the three major A-share indices experienced wide fluctuations. The ChiNext Index and the Shenzhen Component Index surged before retreating, while the STAR 50 Index saw its gains significantly narrow. By the midday close, the Shanghai Composite Index was up 0.17%, the Shenzhen Component Index was down 1.21%, and the ChiNext Index had fallen 1.28%. The combined half-day turnover for the Shanghai and Shenzhen markets reached 2.5 trillion yuan, an increase of 76.1 billion yuan from the previous trading day.
In terms of sector performance, the innovative drug concept saw volatile gains. 3SBio, Wanbang Pharmaceutical, and GST surged by the 20% daily limit, while TaiLong Pharmaceutical and Jimin Health also hit the limit-up. The baijiu (white liquor) sector rebounded during the session, with Jiugui Liquor briefly touching the limit-up and Kweichow Moutai posting significant gains. The memory chip concept remained active, with Shikong Technology hitting the limit-up to reach a new all-time high.
On the downside, the computing hardware concept continued to decline. Optical fiber, cable, and optical module concepts were under sustained pressure, with Changyingtong and Tongding Interconnection falling by the daily limit. The PCB and copper foil concepts also trended lower, with Baoding Technology and Guanghua Sci-Tech hitting limit-down. The diamond heat dissipation concept entered a period of adjustment. Additionally, commercial aerospace, rare earths, port shipping, and other sectors performed poorly.
Key Market Dynamics
The morning session once again featured a classic "high-to-low switch" in capital flows. Funds moved out of previously surging tech hardware sectors (optical fiber, PCB, CPO) and sought refuge in defensive sectors like pharmaceuticals and consumer staples. Although the STAR 50 Index was still rising, its gains were narrowing. The increase in turnover without a corresponding rise in the indices indicates significant divergence between bullish and bearish forces. Whether the market can stabilize in the afternoon depends on whether the decline in the tech sector can be halted.
Market Outlook and Analysis
Looking ahead, some analysts believe that the current market has reached a stage of extreme K-shaped divergence, where performance varies drastically between sectors. Even within overseas tech sectors, the focus is narrowing. Pricing across stocks, bonds, commodities, and currencies is showing early signs of recessionary trading. If subsequent tightening materializes, it could further damage demand in the traditional economy. Conversely, the K-shaped divergence may see a temporary convergence. Compared to the volatile overseas markets, A-shares have shown greater resilience. There are signs that some non-AI sectors are attracting early-stage capital, with a few undervalued sectors having a foundation for recovery, awaiting only a catalyst.
Focus on Key Sectors
Innovative Drug Concept Sees Volatile Gains
The innovative drug concept experienced volatile upward movement. 3SBio, Wanbang Pharmaceutical, and GST surged by the 20% daily limit, while TaiLong Pharmaceutical and Jimin Health also hit the limit-up. The catalyst was news that the National Healthcare Security Administration published a preliminary list of drugs that passed the initial review for the 2026 national reimbursement drug list, with 557 drugs passing the basic medical insurance list review and 54 passing the commercial insurance innovative drug list preliminary formal review.
Baijiu Sector Rebounds During Session
The baijiu sector saw a rebound during trading. Jiugui Liquor briefly touched the limit-up, and Kweichow Moutai posted significant gains. Institutional research reports noted that the stable wholesale price of Feitian Moutai reflects effective inventory adjustments by distributors. Companies, by tilting towards direct-to-consumer sales and coordinated price management, are expected to see improved financial performance starting from the second quarter. Data from the 618 online shopping festival showed a 25% year-on-year increase in alcohol sales on JD.com, with leading brands like Moutai and Wuliangye achieving growth between 15% and 45%, with prices maintained in a reasonable range without the sharp declines seen in previous years.
Memory Chip Concept Remains Active
The memory chip concept continued to show activity. Shikong Technology hit the limit-up, reaching a new all-time high. According to a senior semiconductor analyst, the memory industry is undergoing a fundamental structural change driven by artificial intelligence. The latest quarterly results from Micron Technology indicate that the production capacity required to manufacture AI-optimized memory chips is three to four times that needed for traditional computing products.
Institutional Perspectives
Resilience in A-Shares and Early Signs in Non-AI Sectors
One major securities firm's view is that the strengthening of the US dollar and rising interest rate expectations in early May coincided with an acceleration in the global K-shaped market divergence, with the core issue being the damage to demand in non-AI sectors from tightening expectations. The market has now reached a point of extreme K-shaped divergence, even within overseas tech sectors, with early signs of recessionary trading appearing in asset pricing. If further tightening occurs, it could further harm demand in the traditional economy; otherwise, the divergence may temporarily converge. Compared to the volatile overseas markets, A-shares have shown more resilience, with signs of early-stage capital entering some non-AI sectors. A few undervalued sectors have a foundation for recovery, awaiting only a catalyst.
Caution Against Premature Major Style Rotation
Another securities firm argues that, at least for now, high-quality pillar tech companies have not shown typical late-stage bubble characteristics. The industry trend has not been disproven, profit expectations still have room for verification, and periodic adjustments are still occurring; it is not a long-term, uninterrupted one-way frenzy. Tech stocks are currently closer to a "phase of digestion under high valuations" rather than a "systemic rupture after bubble formation." For traditional value sectors, low valuation alone is not a signal for an inflection point. Being cheap only improves the risk-reward ratio; it does not indicate a trend reversal. The current issue with value stocks is that while valuations are already low, the signals driving a repricing remain insufficient. Therefore, the current market should not be simplistically interpreted as a "switch from high to low" or a "style change." The real structure is: expensive assets have not yet seen a bubble burst, and cheap assets have not yet formed an inflection point. Making premature judgments about major style rotations when signals are insufficient can easily lead to trading traps.
Three Factors to Determine Third-Quarter Market Trends
A third securities firm highlights three key factors. First, on the fundamental side, AI computing power maintains high growth momentum, and its half-year results and overseas financial reports are worth watching. Simultaneously, given the macroeconomic pressure since April, the economic stimulus measures expected from an important meeting in July are crucial. Second, regarding liquidity, external disturbances are increasing while domestic conditions remain neutral. Additionally, for risk appetite, geopolitical events and major IPOs can cause short-term market volatility. Considering the interconnectedness of global tech stocks, it is also necessary to continuously track the performance of major overseas computing power markets like Japan, South Korea, and the US.
Upside Potential Outweighs Downside Risk in Q3
A financial information platform's view is that short-term external changes primarily involve rising concerns about the US AI industry chain and increased expectations for interest rate hikes and liquidity tightening. Although A-share valuations may be temporarily disturbed, the overall environment does not pose systemic risks. The upside potential for A-share indices in the third quarter is greater than the downside risk. Short-term internal market structure shows crowding, with valuation divergence at historically high levels, possibly due to excessively pessimistic expectations for the traditional economy. This could see marginal improvement in the third quarter, suggesting consideration for gradual structural rebalancing. Recently, many traditional industry companies have announced share buybacks and increased holdings. Historically, such announcements have shown some correlation with stock price bottoms. These companies could also be considered for the next phase of rebalancing.
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