To The Moon

Chinese stocks opened higher and maintained gains on August 4, with the ChiNext Index leading the rally. The computing hardware supply chain saw a broad-based surge. By the close, the Shanghai Composite Index rose 0.33% to 3,822.28 points, the Shenzhen Component Index jumped 3.25% to 13,885.71 points, the ChiNext Index soared 5.64% to 3,488.97 points, the STAR 50 Index gained 4.09% to 1,616.36 points, and the Beijing Stock Exchange 50 Index added 1.62% to 1,093.49 points.

Total trading volume on the Shanghai and Shenzhen exchanges reached 2.2136 trillion yuan, expanding by 216.206 billion yuan from the previous session. Across the market, 3,642 stocks advanced, 1,747 declined, with 141 hitting the daily upper limit and just 1 hitting the lower limit, resulting in a profit-taking ratio of approximately 65%.

Leading sector gains included Communication Equipment (+10.74%), Optical Chips (+10.26%), Electronic Components (+8.47%), Medical Services (+7.44%), CPO Concept (+6.90%), and PCB Concept (+5.92%). The biggest laggards were State-owned Large Banks (-3.49%), Insurance (-2.82%), Passenger Vehicles (-3.09%), and Baijiu (-1.97%).

Key drivers

A strong rebound in US tech stocks overnight provided a significant catalyst. The Nasdaq Composite rose 2.13%, and the index tracking the seven major tech giants climbed 3.6%, marking its best single-day performance since March 31. Meta surged over 6%, Microsoft gained nearly 5%, Google and Amazon both added over 4%, and Nvidia rose nearly 3%, pushing its market cap back above the $5 trillion mark. Capital expenditure (capex) by North American cloud providers continued to grow at a rapid pace in the second quarter. Google raised its 2026 capex guidance from $180-190 billion to $195-205 billion, Amazon increased its forecast from approximately $200 billion to $220 billion, and Meta adjusted its target to $130-145 billion.

A research report from CITIC Securities highlighted that Amazon's CEO had positively addressed the return on AI investments, stating that the break-even point for server and networking equipment investments is "less than three years." This suggests a virtuous cycle of AI spending and returns is forming, significantly alleviating market concerns about the sustainability of AI capex.

On August 3, the State Council released a revised version of the "Regulations on the Protection of Integrated Circuit Layout Designs," the first systematic update in over 20 years. The new rules expand protection to include layout designs for integrated photonic and quantum circuits, and also increase penalties for infringement.

WuXi AppTec announced on the evening of August 3 that it had significantly raised its full-year 2026 performance guidance. The company now expects total revenue of RMB 58.5 billion to RMB 60.5 billion, up from its previous forecast of RMB 51.3 billion to RMB 53 billion. Revenue growth from continuing operations is now projected at 35%-39% year-over-year, a sharp increase from the prior range of 18%-22%.

Hot sectors in focus

1. CPO / Optical Communication

The Communication Equipment sector led all sectors with a 10.74% gain. Stocks hitting the 20% daily limit included Lianyi Instruments (closing at 1,948.80 yuan) and Guangku Technology. Tianfu Communication rose 17.45%, Xinyisheng added 13.68%, Zhongji InnoLight gained 13.24%, while Dongshan Precision, Cambridge Technology, Yongding Co., HuiLv Ecological, and Huasheng Chang all hit the 10% daily limit. The catalyst was a senior vice president at Nvidia announcing the mass production of co-packaged optics (CPO). Combined with strong earnings and capex guidance from North American cloud providers, a CITIC Securities report pointed to a positive medium-to-long-term outlook for the optical communication sector.

2. Semiconductor / PCB

The Semiconductor sector rose 5.39%, the Electronic Components sector gained 8.47%, and the PCB concept added 5.92%. Stocks hitting the daily limit included WUS Printed Circuit, Shennan Circuits, Hongban Technology, Pegatron, and Shengyi Technology. Jinhaitong also hit the upper limit, while Tongfu Microelectronics rose 8.30% and JCET Group added 7.23%. JialiChuang (001232.SZ), a one-stop PCB platform, surged 146.28% on its debut day to close at 208.01 yuan, briefly soaring over 177% during the session and pushing its market cap past the 100 billion yuan mark. Sentiment in the semiconductor supply chain improved significantly following the State Council's announcement revising the integrated circuit layout design protection rules to include photonic and quantum chip designs, coupled with the strong earnings and capex outlook from US tech giants overnight.

3. CRO / Innovative Drugs

The Medical Services sector rose 7.44%. WuXi AppTec hit the daily limit, along with Asymchem and Baihua Pharmaceutical. Pharmaron Beijing also gained. WuXi AppTec's announcement on the evening of August 3, raising its full-year 2026 performance guidance substantially, boosted sentiment across the sector.

Sectors in adjustment

The State-owned Large Banks sector fell 3.49% and the Insurance sector dropped 2.82%, with Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank all declining over 3%. The Baijiu sector slipped 1.97%. These sectors had shown relative resilience during the previous correction in tech stocks, but fell out of favour on this day as the market exhibited internal structural rotation within the indices.