On June 29th, the three major A-share indices closed in the green. The ChiNext Index rebounded from its lows, while the STAR 50 Index surged 4.61%. At the close, the Shanghai Composite Index was up 1.16%, the Shenzhen Component Index rose 0.19%, and the ChiNext Index gained 0.54%. The combined turnover for the Shanghai and Shenzhen markets was 3.52 trillion yuan, a decrease of 34.7 billion yuan from the previous trading session.
Key Market Moves
On the positive side, the semiconductor equipment sector strengthened, with Jinhaitong, Huaya Zhineng, Baicheng Co., Ltd., and Huahai Qingke hitting the daily limit-up. The pharmaceutical sector saw a significant breakout, with over twenty constituent stocks reaching the limit-up, including Hainan Haiyao (three limit-ups in five days), Wanbang Pharmaceutical, Tailong Pharmaceutical, and Teyi Pharmaceutical. Consumer staples stocks continued their rebound, with Dongpeng Beverage, Bairun Co., Ltd., and Zhongbai Group among those hitting the limit-up.
On the downside, the computing power hardware concept extended its adjustment, with previously popular sectors collectively declining. Fiber optic cables and optical modules experienced downward volatility. The PCB and copper foil concepts continued to weaken. The diamond heat dissipation concept entered a correction phase. Consumer electronics and Apple-related concepts also trended lower. Additionally, sectors such as rare earths, port shipping, and computing power leasing performed poorly.
Market Outlook
Looking ahead, analysis suggests that while short-term external factors like rising concerns over the US AI supply chain and expectations for interest rate hikes and liquidity tightening may cause some disturbance to A-share valuations, systemic risks are not seen as a major threat overall. The potential for A-share index gains in the third quarter is viewed as outweighing downside risks. The internal market structure is currently seen as crowded, with valuation dispersion at historically high levels, possibly due to overly pessimistic expectations for traditional or "carbon-based" industries. Marginal improvement is anticipated in Q3, suggesting a gradual structural rebalancing may be considered.
Focus on Leading Sectors
Semiconductor Equipment Sector Gains Strength
The semiconductor equipment sector showed strength, with Jinhaitong, Huaya Zhineng, Baicheng Co., Ltd., and Huahai Qingke reaching the daily limit-up. This move follows reports that Samsung and SK Hynix plan to build two chip factories each as part of an 800 trillion won investment project.
Innovative Drug Concept Sees Volatile Uptick
The pharmaceutical sector experienced a significant rally, with over twenty constituent stocks, including Hainan Haiyao, Wanbang Pharmaceutical, Tailong Pharmaceutical, and Teyi Pharmaceutical, hitting the limit-up. This surge is linked to the National Healthcare Security Administration's announcement on June 29th of a preliminary review list for the 2026 drug catalog, with 557 drugs passing the initial formal review for the basic medical insurance catalog and 54 for the commercial innovative drug insurance catalog.
Consumer Staples Stocks Continue Rebound
Consumer staples stocks maintained their upward momentum, with Dongpeng Beverage, Bairun Co., Ltd., and Zhongbai Group among the gainers hitting the limit-up. Institutional research notes that the stable wholesale price of Feitian Moutai reflects effective channel inventory adjustments. Companies, by shifting focus to the consumer end and implementing 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 remaining in a reasonable range without the sharp declines seen in previous years.
Institutional Perspectives
Market Resilience and Early Signs of Non-AI Interest
One major securities firm observes that A-shares have shown greater resilience compared to more volatile overseas markets. There are early signs of capital moving into some non-AI sectors on a contrarian basis, with a few undervalued sectors possessing a foundation for recovery, awaiting only a catalyst.
Caution on Premature Major Style Rotation
Another securities firm cautions against making premature calls for a major style shift, which could lead to trading pitfalls. It argues that leading tech companies do not yet exhibit typical late-bubble characteristics, as the industry trend remains unrefuted and earnings expectations still have room for validation, with periodic corrections still occurring. Tech stocks are seen as undergoing a "phase of digestion at high valuations" rather than a "systemic rupture after bubble formation." For traditional value sectors, low valuation alone is not a turning point signal; it improves the risk-reward ratio but does not indicate a trend reversal. The issue for value stocks is that while valuations are low, signals driving a repricing remain insufficient. The current market structure is thus characterized by expensive assets not yet in a bubble burst and cheap assets not yet at an inflection point.
Key Factors for the Third Quarter
A third securities firm highlights three factors that will determine the Q3 market trend. First, fundamentally, AI computing power maintains high景气度, with its half-year results and overseas earnings reports warranting attention. Additionally, given macroeconomic pressures since April, policy measures from the important July meeting to stimulate the economy are crucial. Second, regarding liquidity, external disturbances are increasing while domestic policy remains neutral. Third, on risk appetite, geopolitical events and major IPOs could cause short-term market volatility. Considering the interconnectedness of global tech stocks, the performance of major overseas computing power markets like Japan, South Korea, and the US also needs continuous monitoring.
Upside Potential Outweighs Downside Risk in Q3
Further analysis reiterates that while short-term external headwinds like US AI supply chain concerns and tightening expectations may disturb A-share valuations, systemic risk is not perceived. The upside potential for A-share indices in Q3 is seen as greater than the downside risk. The crowded internal structure and high valuation dispersion, potentially stemming from excessive pessimism towards traditional industries, are expected to see marginal improvement in Q3, making a gradual structural rebalancing advisable. Notably, many traditional industry companies have recently engaged in密集 share buybacks and增持. Historically, announcements of buyback plans have shown some correlation with stock price bottoms. Such companies could be considered for the next phase of portfolio rebalancing.
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