The stock market provided quite a scare today with a sudden, pulse-like plunge, but fortunately, a significant intraday reversal occurred, with the three major indices ultimately closing in positive territory. Let's examine what transpired.
The A-share market experienced a deep "V" shaped recovery on December 26th. After an initial surge, the indices retreated, yet still managed to close with modest gains. The Shanghai Composite Index recorded its eighth consecutive positive close, rising 0.1%, while the Shenzhen Component Index gained 0.54%, and the ChiNext Index edged up 0.14%.
Market breadth showed 1,866 advancing stocks, with 92 hitting the upper price limit, while 3,414 stocks declined.
The commercial aerospace sector continued its strong performance, with Shenjian Shares (神剑股份) securing its seventh consecutive daily limit-up. Stocks like China Satellite (中国卫星) and China Satellite Communications Co., Ltd. (中国卫通) also surged to the limit.
The Hainan Free Trade Port concept was repeatedly active, with Hainan Mining Co (海南矿业) and Hainan Strait Transportation Co (海汽集团) among those hitting the涨停板.
The lithium battery sector saw a midday rally, leading to limit-up gains for stocks such as Fengyuan Co.,Ltd (丰元股份) and Yongxing Special Materials Technology Co.,Ltd (永兴材料). This movement followed the publication of an article by the National Development and Reform Commission's Industrial Development Department, titled "Vigorously Promoting the Optimization and Upgrading of Traditional Industries." The article emphasized that for the "new three" industries—new energy vehicles, lithium batteries, and photovoltaics—the key lies in standardizing order and fostering innovation. It noted these sectors face challenges like disorderly market competition and an incomplete solidification of core advantages. For the "16th Five-Year Plan" period, the article called for comprehensive measures to curb "internal-roll" competition, maintain a fair competitive environment, increase industry concentration, and build globally leading technological highlands.
Non-ferrous metal stocks collectively strengthened, with Jiangxi Copper (江西铜业) and Guocheng Mining (国城矿业) rising by the daily limit.
On the downside, computing power hardware stocks adjusted, with Changguang Huaxin (长光华芯) falling over 10%.
The SDIC Silver LOF resumed trading at 10:30 AM today and plunged to the跌停板, with its premium rate retreating from a high of over 60% to below 30%. The fund announced last night that, starting December 29th, it would restrict the fixed-amount investment quota for its Class A fund shares to 100.00 yuan.
Why did the sudden plunge occur around 11 AM? Market feedback suggests two potential reasons.
First, developments related to the exchange rate. On December 26th, the central parity rate of the renminbi against the US dollar was set at 7.0358, a 34-basis-point increase from the previous day's 7.0392. This rate was set significantly lower than market expectations, with the deviation magnitude hitting a record. Analysts suggested this might be an effort to moderate the pace of the renminbi's appreciation. Huatai Research indicated a focus on potential positive factors for early 2026, such as a strong start and a further easing of Sino-US trade relations. Regarding the market impact, the current renminbi appreciation is expected to heighten foreign capital's attention and risk appetite for renminbi-denominated assets, creating a "positive cycle" with capital inflows that could boost asset valuations and interbank liquidity, thereby easing financial conditions. Industrial Securities analyzed that the renminbi's appreciation might just be beginning. Looking ahead, as the forces pulling and pushing the renminbi higher intensify, the currency is expected to continue its active appreciation. Against this backdrop, speculative funds that had been "stranded" overseas in recent years, along with capital outflows, may return, potentially further driving a recovery in equity market risk appetite.
Second, a piece of market chatter concerning an A500 ETF circulated, causing some market disturbance.
That concludes today's analysis. Have a pleasant weekend!
