Chinese A-share markets experienced a collective decline during the morning session on Tuesday, with major indices closing lower by midday.
The Shanghai Composite Index fell 0.19%, the Shenzhen Component Index also dropped 0.19%, and the ChiNext Index declined 0.33%.
The STAR 50 Index saw a more significant drop of 4.09%.
Despite the overall index weakness, the broader market showed more gainers than losers, with over 3,200 stocks advancing.
The combined turnover for the Shanghai, Shenzhen, and Beijing markets during the morning session was 1.46 trillion yuan, a decrease of 323 billion yuan from the previous day.
Domestic institutional funds were net sellers of 24.32 billion yuan, and the median stock price change was an increase of 0.38%.
Market activity was characterized by rapid sector rotation without a clear, sustained leading theme.
Non-ferrous metals continued their upward trajectory, with stocks like Shengda Resources and CITIC Metal hitting the daily limit-up.
Concepts related to the lithium battery sector, including lithium resources, electrolytes, and salt lake lithium extraction, gained strength, with Shengxin Lithium Energy and Furi Shares among those reaching the limit-up.
The computing power leasing theme extended its recent strength, with Meili Cloud securing its fourth consecutive limit-up board, Zhengtong Electronics its third, and Hongbo Shares also hitting the limit-up.
The optical fiber concept staged a rebound, with Hangdian Shares hitting an intraday limit-up, followed by gains in Cheng Yitong, Tongding Interconnection, and Hengtong Optic-Electric.
On the downside, the semiconductor sector faced a broad sell-off, with Huahong Hongli plunging over 10% and SMIC falling more than 6%.
Concepts related to the Changxin industrial chain and memory chips continued to correct, with stocks including Tuo Jing Technology dropping over 5%.
The AI application concept remained under pressure, while the pharmaceutical sector continued to trend lower, with Jiuan Medical hitting the daily limit-down.
The computing hardware concept declined across the board, with Dongshan Precision and other stocks falling more than 5%.
Key Market Influences
Several factors are influencing the market.
The chairman of the China Securities Regulatory Commission recently met with the CEO of the Canada Pension Plan Investment Board, Graham.
The CSRC chairman reiterated the commission's commitment to maintaining stable and healthy capital market operations and continuously improving the convenience for foreign investment participation.
Graham expressed that CPPIB is highly attentive to and remains optimistic about the results of China's economic reform and development, and will continue to practice value investing and actively invest in China.
On Monday evening, several listed companies released preliminary reports forecasting profit growth for the first half of 2026.
Notably, the new A-share "stock king," Lianxun Instrument, projected its net profit to increase over eightfold.
On Monday, Beijing State-owned Capital Operation and Management Co., Ltd. issued a statement expressing firm confidence in the development prospects of China's capital markets.
To date, the company has allocated nearly 10 billion yuan of its own funds to invest in the stock market.
Major Asian markets, including Japan and South Korea, opened higher this morning, with the South Korean KOSPI and Japan's Nikkei index rising significantly at the open.
Two major memory chip giants, SK Hynix and Samsung Electronics, surged.
After the U.S. market close on Wednesday, Alphabet, Google's parent company, released its second-quarter earnings report.
Google raised its full-year capital expenditure forecast, expecting it to be between $195 billion and $205 billion, driven by strong demand for artificial intelligence.
Outlook and Analysis
Looking ahead, Founder Securities believes the current market movement is not merely a sentiment-driven rebound but a process of repricing by capital under the constraints of earnings reports.
The earlier rebound was more of an oversold recovery and did not completely resolve the divergence in high-level holdings.
Capital continues to avoid targets lacking earnings support and pure thematic speculation, actively migrating towards assets with fundamental earnings support and valuations that match their fundamentals.
Following the policy support level, the market may be forming a market bottom in the near term, with a potential banded rebound possibly imminent.
Focus on Key Sectors
The non-ferrous metals sector continued its upward move, with Shengda Resources and CITIC Metal hitting limit-up.
Analysts note that rising crude oil prices suggest a gradual bottoming of overseas energy prices, which in turn could help establish a price floor for commodities like electrolytic aluminum, a physical carrier of electrical energy.
Major electrolytic aluminum enterprises, having deleveraged since the beginning of the year, currently offer relatively high dividend yields.
The lithium mining concept showed sustained strength during the session, with related lithium battery themes gaining.
This was supported by the Guangzhou Futures Exchange's lithium carbonate main contract rising over 4% intraday, surpassing 147,000 yuan per ton.
The computing power leasing concept maintained its strength, with Meili Cloud securing its fourth consecutive limit-up board, Zhengtong Electronics its third, and Hongbo Shares hitting limit-up.
The recent temporary suspension of new consumer membership subscriptions for the AI assistant Kimi, developed by Moonshot AI, due to rapid user growth, highlights the surging demand for flexible and efficient computing resources as large-scale model applications expand.
Institutions point out that computing power leasing providers may enter a phase of simultaneous volume and price increases.
The optical fiber concept staged a rebound, with Hangdian Shares hitting limit-up.
This follows comments from the executive director and president of Changfei Optical Fiber at the WAIC conference, who stated that data communications currently account for less than 10% of global optical fiber and cable demand, but this share is expected to exceed 50% by 2030.
Brokerage Perspectives
Founder Securities suggests that following the policy support level, the market may be forming a market bottom in the near term, with a potential banded rebound possibly imminent.
The firm observes a current market pattern of index resilience coexisting with significant stock divergence.
While the Shanghai index fluctuated and closed slightly positive, the Shenzhen market weakened, with accelerated sector rotation and a lack of a sustained leading theme throughout the day.
Individual stock performance was highly polarized, increasing the difficulty for short-term speculative capital.
An overnight rebound in overseas technology stocks led to a higher open on sentiment, but intraday buying momentum gradually waned, with strong profit-taking intentions among rebound participants.
It is difficult for the market to form a unified upward momentum in the short term, and the pattern of volatile differentiation is likely to continue.
The core short-term market contradiction remains concentrated in the intensive verification window for mid-year earnings reports.
Currently in the phase of concentrated semi-annual report pre-disclosures, coupled with institutional end-of-month portfolio adjustments and semi-annual performance reviews leading to capital rebalancing, differentiation within sectors and the rotation between high and low valuation styles are expected to persist.
Soochow Securities believes the market may gradually stabilize amid sustained buying from large funds, with a short-term rebound and recovery possible at any time.
The firm notes that the subscription volume for broad-based ETFs like the CSI 300 ETF shifted from persistent outflows to significant inflows this week, indicating that the market's continued adjustment has attracted attention from large capital.
Subsequently, the market may gradually stabilize as these large funds continue their purchases.
Therefore, although volatility in overseas markets remains high, the A-share market still exhibits resilience from a capital flow perspective.
If no further black swan events occur in overseas markets, A-shares could also see a rebound and recovery in the short term.
Based on this market assessment, a short-term rebound and recovery is possible at any time, but the medium-term outlook is more significantly affected by overseas volatility and may still require some time to gradually stabilize.
Caixin Securities states that the probability of a short-term volatile rebound for A-shares remains relatively high, with a potentially favorable window for renewed bullish positioning emerging in the medium term.
The firm notes that the main board consolidated on Wednesday, but the short-term rebound trend remains intact.
The market opened lower, then rallied before retreating, showing a volatile pattern throughout the day.
At the sector level, rotation was evident, with technology stocks diverging—server-related sectors strengthening while copper-clad laminate sectors led declines—and cyclical and high-dividend sectors active.
Overall, the failure to extend the rebound was attributed to two main factors: the impact of a sharp midday pullback in the South Korean market on broader Asia-Pacific sentiment, and profit-taking by funds that entered the technology sector at lower levels the previous day.
These factors weighed on the technology segment, dragging down the indices.
Looking forward, the short-term rebound structure has not been significantly damaged.
On one hand, the market's turnover shrank by 300 billion yuan on the day despite increased selling pressure from profit-taking, reflecting relatively limited downward momentum at current levels.
On the other hand, sector rotation has been healthy, with cyclical, consumer, and technology sectors taking turns to support the index.
The hard technology sector did not exhibit significant negative feedback, suggesting a relatively high probability of a short-term volatile rebound for A-shares.
From a medium-term perspective, driven by factors such as the completion of mid-year report disclosures by the end of August and the approaching U.S. mid-term elections in early November, a potentially favorable window for renewed bullish positioning in the A-share market indices may emerge from late August to the end of October, at which point risk appetite and positioning could be increased.
Comments