The stock market saw continued consolidation last week, with sector divergence widening further from the previous week. The Shanghai Composite Index edged up 0.47%, supported by policy backing and sustained net inflows into ETF funds, showing relative resilience in large-cap blue chips. In contrast, tech and growth stocks experienced a deeper correction, with the ChiNext Index and the STAR 50 index falling 3.93% and 8.46% respectively for the week, as the selling pressure from overheated positions continues to unwind.
Based on catalysts and timing, thematic enthusiasm for AI inflation, micro-cap crossovers, brokerages, and lithium batteries is expected to heat up. Considering the market environment, catalytic factors, and comprehensive quantitative indicators, it is recommended to focus on these four thematic directions. According to simulations of previously recommended targets, since the launch of the thematic bi-weekly portfolio column on January 13, 2025, as of July 31, 2026, the composite return of the bi-weekly portfolio index during the back-testing period reached 173%.
Where to focus
Market liquidity continued to decline, with the average daily turnover shrinking to approximately 2.26 trillion yuan for the week, dipping below 2.1 trillion yuan on the first two days, indicating a significant increase in wait-and-see sentiment. Externally, the U.S. core PCE for June rose only 0.13% month-over-month, and headline PCE fell 0.1% month-over-month (both below expectations), coupled with a core CPI year-over-year increase of 2.6%. These multi-dimensional inflation indicators collectively point to a cooling trend. Domestically, the Politburo meeting on July 30 upgraded the positioning of incremental policies from "reserve" to "promptly plan and introduce practical and effective incremental policies," explicitly calling for "increasing counter-cyclical adjustment efforts." This suggests that the pace of fiscal spending in the second half of the year is likely to accelerate significantly, opening up room for monetary easing.
Key event: Politburo Meeting
On July 30, the Politburo of the Communist Party of China held a meeting to analyze the current economic situation and deploy work for the second half of the year. This is the third top-level economic deployment of the year, following the government work report in March and the Politburo meeting in April. The most significant incremental signal from the meeting was the escalation in the level of policy tone. Macro policy shifted from the previous "reserve incremental policies" to explicitly "promptly plan and introduce practical and effective incremental policies," and re-emphasized "increasing counter-cyclical adjustment efforts." Combined with the fiscal deployment to "accelerate the progress of spending and bond fund usage," the overall tone is characterized by a banner of "strengthening and enhancing efficiency." On the industrial policy front, the directive to "deeply implement the 'AI+' action, develop new forms of the intelligent economy, and cultivate emerging pillar industries" was for the first time explicitly implemented at the level of a Politburo meeting, representing the most substantive statement from this meeting. The tone for the capital market was also upgraded from the previous "stabilizing confidence" to "deepening the comprehensive reform of capital market investment and financing, enhancing resilience and confidence," indicating a more proactive direction for reform.
Catalytic factors
A new version of the A-share trading rules was officially implemented on July 6. This institutional optimization includes three core adjustments. First, the daily price fluctuation limits for ST and *ST stocks on the main boards of Shanghai and Shenzhen have been widened from 5% to 10%, aligning with the rules for regular main board stocks, while price limits for ST stocks on the ChiNext and STAR boards remain unchanged, increasing the volatility elasticity of these stocks. Second, the after-hours fixed-price trading mechanism has been expanded from the STAR market to all A-shares and Shanghai and Shenzhen ETFs, allowing orders to be placed at the day's closing price between 15:05 and 15:30 daily. Third, the closing auction for Shanghai-listed ETFs, REITs, and other funds from 14:57 to 15:00 has been changed to a non-cancellable closing call auction, aimed at stabilizing end-of-day volatility.
Key focus
The market is in a phase of capital rotation among active sectors and thematic trading. The focus should be on themes with high narrative, event, and earnings certainty. This issue recommends themes of AI inflation, micro-cap crossovers, brokerages, and lithium batteries.
Risk factors
Risks include further intensification of Sino-US friction, unexpected changes in geopolitical conflict situations, expanded net capital outflows from the market, slower-than-expected implementation of domestic policies, and slower-than-expected progress in AI technology iteration. This information is a reproduction from a partner media source. The inclusion of this article is for information dissemination purposes only and does not imply endorsement of its views or verification of its content. The article is for reference only and does not constitute investment advice. Investors act on this information at their own risk.
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