The A-share market staged a V-shaped recovery on July 21st, with the semiconductor and computing hardware supply chains leading a powerful rally from earlier lows, triggering a wave of limit-up gains for individual stocks. In terms of sector performance, concepts such as holdings of the National Integrated Circuit Industry Investment Fund, memory chips, advanced packaging, and lithography machines were among the top gainers. At the close, the Shanghai Composite Index was up 1.79% at 3,864.37 points, the Shenzhen Component Index rose 4.81%, the ChiNext Index surged 7.05%, the STAR 50 Index jumped 10.73%, and the CSI A500 Index gained 3.86%. The total trading volume for A-shares for the day reached 2.97 trillion yuan, compared with 2.72 trillion yuan the previous session.
Key Market Drivers
1. Policy Support and Inflows Fuel Rally
Policy measures to stabilize the market, coupled with accelerating inflows of incremental capital and the significant rebound in major overseas markets like the US, Japan, and South Korea the previous day, contributed to a sharp reversal in A-shares, with the ChiNext and STAR 50 indices posting substantial gains. On the news front, China Reform Holdings and China Chengtong announced on the evening of July 19th their firm confidence in China's economy and capital market prospects, pledging to continue increasing their holdings of Chinese stock assets to support stable and healthy market operations. On July 20th, 2026, five trillion-yuan-level leading insurance institutions, including PICC, China Life Insurance Group, Ping An Insurance, China Pacific Insurance, and New China Life Insurance, collectively stated they would persistently boost their investments in the capital market.
2. Semiconductor Sector Leads the Charge
Benefiting from a concentrated release of pent-up demand for a rebound from oversold conditions, coupled with capacity expansions by leading firms and upward revisions to capital expenditure (CAPEX) guidance signaling improving industry trends, the semiconductor chain led today's gains. Regarding news, AI demand continues to be revised upwards. TSMC raised its 2026 US dollar revenue growth guidance to slightly above 40% and significantly increased its full-year capital expenditure from $52-56 billion to $60-64 billion. Concurrently, it announced an additional $100 billion investment in Arizona, further underscoring the accelerating demand for advanced processes and advanced packaging driven by AI.
3. Easing US Data and Geopolitical Tensions
US June inflation and employment data showed some cooling, while tensions in the Middle East showed signs of marginal easing. According to foreign media reports on July 20th citing a senior Iranian official, mediators for Iran-US negotiations have presented a proposal to Iran aimed at de-escalating the current situation. The proposal suggests a 10-day ceasefire to seek the resumption of the implementation of the memorandum of understanding reached between Iran and the US last month. Iranian Foreign Ministry spokesman Bagheri stated at a press conference that day that Iran had received the proposal from the US and the mediators, with specific details not yet available for disclosure.
Market Outlook and Positioning Strategy
Looking ahead, we believe the following points are noteworthy: 1) During this round of market adjustment, the balance of margin lending and securities lending has fallen by over 200 billion yuan from its peak. The extent of the volume contraction has already exceeded the levels seen during the tariff friction in April 2025 and the 'Wash Shock' in February 2026, indicating that the clearing of micro-level trading pressures has been relatively thorough. With broad-based ETFs continuing to see net inflows and the support of market-stabilizing forces, the negative impact from trading dynamics is gradually diminishing at the margin. 2) Historically, mega IPOs typically cause temporary disruptions around the subscription and listing dates. The disturbance from the subscription period has now passed, and the market has largely priced in the potential impact of the listing date. Furthermore, regulatory measures such as strategic placement clawbacks and enhanced expectation management are expected to smooth volatility, suggesting the actual impact may be limited. 3) The current correction in the primary AI technology theme has surpassed the average level of previous sentiment-driven corrections in tech bull markets, indicating that risk has been substantially released.
We assess that the digestion of this round's trading structure may be more than halfway complete. In our weekly report view yesterday, we also suggested that the coming week could present a suitable window for adding positions and rebalancing portfolios. However, given that global volatility remains elevated, investors may consider a phased approach to positioning. Areas we are monitoring include overseas computing power leaders, assets showing signs of a bottoming reversal (Hong Kong-listed internet stocks, innovative pharmaceuticals, chemicals), undervalued non-bank financials, and the export chain.
Risk Disclosure
Short-term index movements and historical performance are for analytical purposes only and do not indicate future results. The views expressed are for reference only and may change due to market factors; they do not constitute investment advice or a commitment. Funds carry risks, and investing requires caution.
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