Last week, the A-share market displayed a mixed picture: indices showed relative strength, market structure narrowed, and growth stocks pulled back from elevated levels. The Shanghai Composite Index rose 1.20% for the week to 3,952 points, once again approaching the 4,000-point psychological barrier. The Wind Micro-cap Index and the Dividend Index led the gains, advancing 3.14% and 2.17% respectively. Conversely, the ChiNext 50 and ChiNext Growth indices lagged behind, falling 3.94% and 3.84% respectively. Average daily turnover contracted to 1.98 trillion yuan for the week, suggesting the market remains in a process of volatile recovery.
Looking closer, the index level appears to have formed a three-tier structure rather than a single style rotation. First, the Shanghai Composite and CSI 300 indices were underpinned by financials, resources, and optimistic mid-year earnings expectations, with the CSI Financial index rising 1.71% and the CSI Consumer index gaining 1.58%. Second, small and mid-cap stocks saw a degree of recovery. Third, high-beta, high-turnover sectors like the ChiNext and STAR 50 experienced significant profit-taking on Friday. The coexistence of these three layers implies that the market has yet to establish a clear new main theme. Instead, it reflects a "chaotic" state where blue-chip weights stabilize the broader index, themes provide upside elasticity, but crowded tracks face valuation pressure.
From a capital flow perspective, the average daily trading volume in A-shares last week dipped below the 2 trillion yuan mark, though recent daily turnover has shown a modest uptick. In this stock-dominated market environment, sector rotation continues at a rapid pace, but current volume levels are insufficient to support sustained, broad-based buying from incremental capital. Simultaneously, while the AI industry trend remains intact, investors are shifting their focus toward orders, profit margins, and cash flow evidence. Pure concept-driven rally across the board is proving unsustainable.
As mid-year earnings reporting draws to a close, preliminary data indicates that profitability among A-share listed companies continues to accelerate, although the improvement has not yet fully translated into cash flow. According to incomplete data, A-share companies that have released interim results reported a 13.1% year-on-year increase in Q2 2026 revenue and a 34.7% surge in net profit attributable to shareholders. Profit growth accelerated by 17.4 percentage points compared to Q1. However, operating cash flow declined by 9.4% year-on-year during the same period, painting a picture of rapid revenue growth, exceptionally fast profit gains, but significantly lagging cash generation.
From a structural standpoint, sectors showing notable earnings elasticity without a corresponding deterioration in cash flow are concentrated in resources (coal, petroleum and petrochemicals, basic chemicals, non-ferrous metals), technology (electronics), manufacturing (machinery and equipment), consumer sectors (pharmaceuticals and biotechnology, light manufacturing), and non-bank financials. Additionally, hundreds of companies have announced plans for interim dividends, including several large A-share firms with payouts exceeding 10 billion yuan.
Over the weekend, significant developments both overseas and domestically occurred, which could directly influence the direction of the A-share market this week. First, foreign exchange policy signals from the Federal Reserve: On the evening of August 28th Beijing time, Fed Chair Warsh delivered a keynote speech at the Jackson Hole global central bank symposium, reiterating that the 2% inflation target is "firm and fixed," and stating that if underlying inflation does not fall "clearly and quickly enough," "there is more work to do"—the clearest acknowledgment yet from him that rate hikes may be necessary. Markets quickly repriced the rate path: the probability of a 25-basis-point rate hike in September jumped from roughly 30%-35% the previous day to 57%-60%, while the probability for December rose to nearly 90%. The 10-year Treasury yield rose to 4.71% intraday, the dollar index gained about 0.6%, COMEX gold plunged 3.4% that day, and all three major US stock indices closed lower, with the Nasdaq suffering the sharpest decline. However, Warsh also explicitly refused to view this speech as "forward guidance." Goldman Sachs maintains its no-hike forecast, making the August non-farm payroll data and CPI critical for future validation.
Second, a "super policy package" for the property sector was unveiled domestically on Friday. On August 28th, five ministries, including the Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources, and the National Financial Regulatory Administration, jointly issued a series of new policies covering sales systems, credit financing, and developer funding—a level of density and intensity rarely seen in recent years. Going forward, the combination of supply contraction and demand-side stimulus is expected to drive the evolution of a new normal in China's real estate industry.
Third, renewed trade friction between China and the US has emerged. Washington plans to impose an additional 7.5% tariff on Chinese goods, citing "overcapacity" concerns. The Ministry of Commerce responded on August 27th, calling the move a politicization of economic and trade issues and expressing firm opposition. From a market consensus perspective, similar to many historical episodes, this situation is more likely part of another round of negotiation ahead of a possible leaders' summit. The broader picture of a relatively eased major-power relationship this year remains unchanged.
As September approaches, our baseline scenario suggests that the Shanghai Composite Index may fluctuate within the 3,900–4,000 point range early in the month, providing further confirmation of the sustainability of the ongoing recovery that began when the market hit its year-to-date low of 3,741 points on July 20th. Based on our assessment of key factors that could influence stock market trends, opportunities in September may still outweigh risks, and structural market plays could outperform the broader index. On the upside, crucial drivers include the realization of mid-year earnings, sustained expansion in trading volumes, the implementation of the new property policies, a potential decline in US Treasury yields, and easing geopolitical tensions. Downside risks primarily stem from persistently rising external interest rates, renewed geopolitical escalation, and domestic fundamentals falling short of expectations, which could collectively weigh on the market.
Additionally, a possible meeting between the leaders of major powers in late September will be an important event and a key window to monitor during the month.
From a calendar perspective, roughly two-thirds of the year has passed. Let's briefly review the market's trajectory so far this year. It can be divided into four phases. The first phase spans January to February, moving from thematic investment to value rotation. The rally that began in late last year continued into early January, with the market climbing unilaterally to new cyclical highs, driven by commercial spaceflight and AI themes fueling risk appetite. However, a style shift emerged in mid-to-late January, as regulators curbed speculative trading in themes, ETF flows turned temporarily negative, and capital rotated from crowded growth stocks into inflation-sensitive cyclical sectors.
The second phase occurred in March, a broad decline period. Geopolitical conflict severely impacted global markets. The outbreak of the US-Iran conflict, sharp oil price volatility, and a global decline in risk appetite led to a significant A-share correction, with small-cap stocks bearing the brunt of the pressure. The third phase ran from April to June, transitioning from broad-based gains to differentiation. Starting in April, a confluence of factors—easing external conflicts, improved policy expectations, clearer earnings signals, and the first leaders' summit of the year—propelled the index into a rapid upswing in Q2, reaching this year's high of 4,258 points. Technology stocks rose notably during this period, drawing capital away from value sectors.
The fourth phase has been underway since July, characterized by bottoming out and volatile recovery. In July, concerns over the AI industry trend intensified, triggering a global tech correction. Deleveraging amplified the market's pullback, while dividend sectors strengthened. Since August, as leverage risks have been gradually absorbed, the market has stabilized. Capital has flowed out of technology stocks, and market style has shifted toward a more balanced approach. The transition from extreme concentration in tech to a multi-month rebalancing process, viewed from a higher perspective, may make the A-share market's future long-term development healthier, more balanced, and more stable.
In the short term, the impact of several significant domestic and international events over the past weekend could amplify market volatility early this week. However, we maintain a cautiously optimistic outlook for the overall market direction in September and the medium-term prospects for A-shares.
Risk Disclosure: The data used in this material is for reference only. The viewpoints and analytical forecasts represent only the analysis and judgments of the investment research personnel under specific current market conditions and based on certain assumptions. They do not imply suitability for all future market conditions and do not constitute investment advice to readers. Investing involves risk. Investors should exercise caution. Before making any investment decisions, please carefully review the fund contract, fund prospectus, fund product summary, and other product legal documents, as well as this risk disclosure statement. Fully understand the fund's risk-return characteristics and product features, carefully consider the various risk factors, and make rational judgments and cautious investment decisions based on your own investment objectives, time horizon, experience, and financial situation.
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