The major broad-based A-share indices collectively strengthened today.
At the close, the Shanghai Composite Index and the Shenzhen Component Index rose by 1.36% and 2.77%, respectively. The ChiNext Index and the STAR 50 Index gained 3.43% and 0.77%, respectively. The total market turnover was 2.72 trillion yuan, a decrease of over 100 billion yuan from yesterday's volume.
The number of advancing stocks exceeded 4,200. The median stock price change was an increase of 1.55%, and the average stock price index rose by 2.07%.
Several factors contributed to today's market gains.
First, the South Korean stock market received positive news and staged a sharp V-shaped recovery, which had a positive impact on the strength of the A-share market.
On the news front, four South Korean government departments will hold a meeting this Thursday to study countermeasures against the impact of single-stock leveraged ETFs on the stock market. Additionally, the Bank of Korea explicitly dismissed market concerns that the semiconductor boom has peaked, stating that the global semiconductor market expansion cycle is expected to continue for a considerable period.
As mentioned yesterday, it was important to monitor the movements of the U.S. and South Korean stock markets. The chart below compares today's intraday charts of the KOSPI and the Shanghai Composite Index, showing a high degree of similarity in their upward moves during the morning and afternoon sessions.
Second, broad-based ETFs saw significant net inflows. According to Wind data, on July 13th, equity ETFs had a net inflow of 59.704 billion yuan. Today, some broad-based ETFs also attracted buying from institutional funds.
Third, some core stocks have stopped following the broader market decline and are showing clear initiative. Examples include Zhongji Innolight, Dongshan Precision, and New Easun. In particular, the limit-up gain for Dongshan Precision provided a strong boost to the AI hardware sector and the overall market.
Finally, AI hardware stocks that reported better-than-expected Q2 results posted strong gains today, significantly driving their sector. Examples include Shengyi Technology, Shengyi Electronics, and Wus Printed Circuit.
Furthermore, it was rare to see a company in a leading sector release earnings during the midday break. Nan Ya New Material disclosed an earnings forecast during the break, projecting a net profit of 420 million to 500 million yuan for the first half of the year, representing a year-on-year increase of 381.71% to 473.46%.
Nan Ya New Material is a copper-clad laminate company upstream in the PCB industry chain. Its significant earnings growth provided a positive sentiment boost to the PCB sector. Today, several stocks in the PCB industry chain hit their daily limit-up or gained over 10%.
Today, the Shanghai Composite Index closed with a bullish candlestick that engulfed yesterday's bearish real body and featured a long lower shadow. Does this signal that the decline has stabilized?
Looking at the price action, the Shanghai Composite Index broke below its annual moving average and the low from June 8th yesterday. At its intraday low, it was some distance away from both the annual moving average and the 5-day moving average. In my view, today's rebound is more of a correction following the recent sharp decline.
In the short term, there is still momentum for a rebound tomorrow, with resistance near the upper edge of yesterday's gap at around 3,995 points.
To some extent, the strength of the market rebound is closely tied to the rebound strength of the leading sectors.
The semiconductor sector index just broke below its wave low from July 6th yesterday, and today's intraday low was far from that level. This suggests that even if a rebound occurs, its short-term height may be limited, especially with the resistance posed by the 5-day, 10-day, and 20-day moving averages above.
Since its gap-down on July 2nd, the communication equipment sector index has been moving within a small trading range with a declining center of gravity. The high-open, low-close candlestick from July 10th presents clear resistance.
Overall, today's market rebound appears more corrective in nature. In my opinion, the duration and magnitude of this adjustment phase remain insufficient. Regarding trading strategy, it is not advisable to be overly aggressive. For investors with limited trading skills who prioritize stability, patience is required to wait for the adjustment to complete in terms of time or price.
Beyond the market rebound, a positive and important signal emerged today: stocks with better-than-expected earnings received a positive market response, which was notably different from the situation a few days ago. Examples include the aforementioned Shengyi Technology, Shengyi Electronics, and Wus Printed Circuit.
In mid-July last year, New Easun's better-than-expected earnings triggered a major upward wave for AI hardware stocks. In March this year, Bewinner Storage's earnings surprise led to a significant rally in the memory sector.
Now, with tech stocks exceeding earnings expectations receiving positive feedback, I believe that after the recent substantial market correction, capital will increasingly focus on companies that have outperformed earnings estimates.
In terms of sectors, building materials, electronic components, communication equipment, and non-ferrous metals (represented by computing power metals) led the gains. Tech stocks, represented by AI hardware, remain highly correlated with the indices. For the indices to strengthen further, the performance of tech stocks will be crucial.
On the macroeconomic front, the U.S. will release its June CPI data tonight, followed by the June PPI data tomorrow night. Additionally, Federal Reserve Chair Jerome Powell is scheduled to attend a Congressional monetary policy hearing on July 14-15.
On Monday, Fed Governor Christopher Waller clearly outlined the conditions for a rate hike, stating that if this week's core inflation data comes in "hot again," the FOMC will need to consider tightening monetary policy in the near term.
Let's look at some of the earnings announcements released by listed companies after the market closed today.
China Life Insurance expects a first-half net profit of approximately 128.9 billion to 137.1 billion yuan, a year-on-year increase of 215% to 235%. Its second-quarter net profit is estimated between 109.428 billion and 117.614 billion yuan, representing a massive profit.
Dongshan Precision expects a first-half net profit of 2.9 billion to 3.0 billion yuan, a year-on-year increase of 283% to 296%. Its second-quarter net profit is projected to grow 61% to 70% quarter-on-quarter.
In conclusion: Today's market rebound primarily served to correct the recent sharp decline and alleviate concerns. The market still has momentum for a rebound tomorrow, but attention should be paid to the resistance near the upper edge of yesterday's gap on the Shanghai Composite Index. As the adjustment period and price decline are somewhat insufficient, investors with limited trading skills who seek stability should patiently wait for the adjustment to complete in terms of time or price.
Stocks with better-than-expected earnings are receiving positive market feedback, and some of these core stocks are driving market momentum. Therefore, these outperformers deserve attention. For investors with strong or stable trading capabilities, it may be time to consider taking action on stocks that have exceeded earnings expectations.
It is important to emphasize a key point: The core of an earnings beat lies in achieving high year-on-year and quarter-on-quarter growth in net profit for a single quarter (note: single quarter, not the first half). For stocks with explosive earnings growth, the year-on-year and quarter-on-quarter growth rates should ideally be around 100% or higher. If a single quarter's net profit declines sequentially, it is prone to trigger profit-taking by existing investors.
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