Stocks experienced a broad-based pullback on September 2nd, with the ChiNext index sliding more than 2% as the market's recent repair momentum showed signs of fatigue. By the close of trading, the Shanghai Composite Index had fallen 0.97%, the Shenzhen Component Index dropped 1.88%, and the ChiNext Index declined 2.39%.
Defense and military sectors bucked the broader downtrend, moving higher against the market tide, while power grid equipment stocks staged a rebound, and the PCB concept generated notable activity. Internet finance stocks recovered during the session, fiber optic concepts saw sporadic lifting, and underground pipeline infrastructure ideas experienced sudden upward movement. On the downside, the agricultural sector underwent significant adjustment, with more than 3,900 stocks across the broader market closing in negative territory.
Total trading volume on the Shanghai and Shenzhen exchanges reached 1.79 trillion yuan, contracting by 246.5 billion yuan compared to the previous session. Compared to Monday's (August 31st) robust gap-up opening and strong rally, today's market demonstrated clearly weakened repair capability, which corresponds with trading volume hitting a new low for the second half of the year. Consequently, the Shanghai Composite Index failed to hold above its annual moving average for the second time since August 18th, suggesting further consolidation is needed before another attempt.
Meanwhile, the ChiNext Index has once again entered a critical defense of its annual moving average, with actual price levels approaching the bottom established in late July. As an index deeply intertwined with the technology sector, while also being influenced by new energy heavyweights, we believe the ChiNext needs to demonstrate recovery action here to protect what remains of market expectations for technology stocks, which have already been discounted once before. Conversely, if the ChiNext continues to lose ground below its annual moving average, the Shanghai Composite might become the only index among the three major benchmarks maintaining a healthy trend, which leads to an important question: would this shift capital flows toward non-technology, defensive sectors, potentially fueling more momentum-chasing behavior?
Shifting focus from indices to sector performance, the current market remains characterized by rotation, though several hot sectors appear to be transitioning from peak enthusiasm into cooling phases. The innovative drug sector, for instance, has lost some of its edge as several high-profile leading stocks have shown weakening momentum.
The most dramatic movement today came from the agricultural sector, which had surged 7.5% during Tuesday's session (using Tonghuashun's "Planting and Forestry" category as reference), only to close 4.37% lower today. A single additional down candle would confirm the sector's retreat from its recent surge. Interestingly, during Tuesday's trading, an open letter circulated online that appeared to be agricultural interests "calling on" the technology sector to surrender, with content roughly stating: "What has technological development brought us? Nothing more than robots that steal your jobs and artificial intelligence that creates disordered entropy... People will always need to eat. El Niño will eventually make the world hungry. If we don't support agricultural development now, are we waiting until we're starving to offer support?" The letter further argued: "Technology friends, hear our advice: you use silicon to make chips, while we use silicon, carbon, water, and sunlight to grow food. Your chips double in performance every 18 months; our crops only grow one season per year. But one thing you must remember - when all the chips lose power, people around the world will still need to eat."
In China's A-share market, the appearance of such "surrender letters" typically coincides with sector enthusiasm reaching its peak and often serves as a contrarian sentiment indicator. The lesson for investors is clear: short-term trading requires avoiding the trap of buying when market sentiment becomes excessively aligned. As it turned out, the defense sector stepped in to take over leadership from agriculture, representing a natural breakout following a period of steady incremental gains.
From a fundamental perspective, data shows that 80 companies covered by the CSI Military Index generated combined first-half revenue of 377.494 billion yuan, up 18.89% year-on-year, with attributable net profits reaching 24.772 billion yuan, a robust 32.92% increase. Core military-listed companies are delivering solid results overall, confirming the industry's upward trajectory. According to AVIC Securities analysis, after the deep consolidation in July and valuation recovery in August, the military sector remains in a transitional window between "valuation compression" and "awaiting catalysts and fundamental verification." Pessimistic assumptions regarding order delays, delivery pace, and gross margin pressures have been largely priced into share prices during the earlier decline. Furthermore, various segments including commercial aerospace recovery loops, domestic large aircraft industrialization and internationalization, military trade prosperity, and mid-year earnings stratification are all showing marginal improvements.
On a fair assessment, today's ChiNext weakness wasn't solely attributable to the optical module giant. Wind data indicates that new energy battery leader Contemporary Amperex Technology Co Ltd (CATL) actually contributed more significantly to the ChiNext's decline. Additionally, declines in East Money Information Co Ltd and Sungrow Power Supply Co Ltd also exerted pressure on the index. However, Zhongji Innolight Co Ltd shows a closer correlation with the ChiNext's medium-term trajectory - for instance, both staged their previous bottom-rebound moves on July 30th. Therefore, discussion of ChiNext recovery ultimately requires attention to the repair progress of key technology heavyweights.
Regarding Zhongji Innolight, we conducted a backtest of its recent price movements using maximum drawdown metrics. The conclusion: based purely on price action, the "optical module leader" is currently experiencing its third-largest drawdown since 2023, with a decline of approximately 44%. Compared to the two previous deeper drawdowns of 63.8% and 50%, the current decline is shallower in percentage terms but has compressed far fewer trading days between peak and trough, indicating more intense volatility. Since today's session saw a retreat to near previous lows, any actual repair progress would essentially need to start anew from scratch.
Today's session saw the recently red-hot agricultural stocks lead the decline, while precious metals, lithium batteries, computing hardware, and other popular tracks also entered consolidation phases. For short-term positioning, investors should maintain caution and await clear signals of risk release and subsequent recovery before re-entering. However, with mid-year earnings reporting now concluded, market style is expected to become more balanced, and several directional rotation opportunities deserve attention going forward.
First, technology growth sectors - prioritizing computing hardware, storage, semiconductor equipment, and AI applications with strong competitive positions and high entry barriers. Second, cyclical sectors - seizing physical asset revaluation opportunities amid geopolitical and dollar expectation shifts, focusing on precious metals, minor metals, and basic chemicals. Third, value and domestic demand sectors - positioning in high-dividend yield plays, as well as brokerage and consumer blue chips with fundamentally improving prospects. Additionally, in the current zero-sum market environment, speculative trading in small-cap theme stocks may continue to attract increased capital flows.
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