To The Moon

A-shares staged a significant afternoon comeback on July 29, with all three major indices closing higher. The Shanghai Composite Index rose 0.40%, the Shenzhen Component Index gained 1.10%, and the ChiNext Index climbed 1.55%, recovering from an intraday decline of over 2%. The STAR 50 Index, however, fell by 0.87%. Market breadth was notably positive, with more than 4,200 stocks posting gains. Total turnover across the Shanghai, Shenzhen, and Beijing exchanges reached 2.30 trillion yuan, representing a surge of 270.8 billion yuan compared to the previous session. Main force capital saw net outflows of 11.95 billion yuan, while the median stock price change across the market stood at 1.58%.

Market sentiment improved markedly in the afternoon, easing selling pressure on tech stocks as most thematic sectors strengthened. The broader financial sector, including securities IT, internet finance, and brokerages, rallied broadly, with stocks like Hualin Securities Co., Ltd. and Tianrongxin Information Technology Co., Ltd. hitting their daily upper price limits. Consumer staples sectors, including dairy, food and beverage, baijiu, and retail, saw a broad-based breakout, with multiple stocks such as Huanlejia Co., Ltd., Li Zi Yuan Co., Ltd., and Sunshine Dairy Co., Ltd. also reaching their upper limits. Lithium battery-related sectors, including electrolyte VC, lithium iron phosphate, and lithium resources, rebounded, with stocks like Lingpai Technology Co., Ltd. and Yongshan Lithium Industry Co., Ltd. joining the rally.

On the downside, AI-related technology sectors, despite some afternoon recovery, remained the weakest areas of the market. Memory chip concepts were among the top decliners, with Tongfu Microelectronics Co., Ltd. hitting its daily lower limit, and stocks like GigaDevice Semiconductor Co., Ltd. and Yake Technology Co., Ltd. falling more than 6%. Memory leader CXMT (ChangXin Memory Technologies) bucked the trend, surging over 12%. The semiconductor supply chain continued its downward trajectory, with Weiduan Nano Technology Co., Ltd. and Xinlai Yingcai Co., Ltd. dropping more than 10%. Computing hardware concepts declined, with Suqian Liansheng Co., Ltd. and Fujing Technology Co., Ltd. hitting their lower limits. PCB upstream concepts also fell, with Honghe Technology Co., Ltd. and Zhongcai Technology Co., Ltd. losing over 6%.

Several factors contributed to the A-share rebound, according to market analysis. First, on July 29, trading volume in several broad-based ETFs surged again. Data showed that during the market's adjustment on July 28, stock ETFs saw net inflows exceeding 27 billion yuan in a single day. Since the start of July, significant capital has continued to flow into the market via ETFs, with monthly net inflows into stock ETFs already surpassing 410 billion yuan. Second, CXMT topped the A-share market capitalization rankings and is set to be included in the MSCI China All Shares Index. The MSCI China Index is nested within the MSCI Global Standard Index series, meaning inclusion typically leads to tracking and allocation by more passive funds. Third, on the evening of July 28, many A-share companies released positive signals. Several firms published semi-annual performance forecasts, reports, or preliminary results for the 2026 fiscal year, with companies in sectors like AI, energy storage, healthcare, and chips reporting significant profit growth. Concurrently, multiple companies announced substantial share buyback and increase plans, using their own capital to demonstrate long-term confidence.

Outlook

Looking ahead, Guotai Asset Management believes the market's funding bottom may have been confirmed. Market stabilization forces and corporate buybacks are sending positive signals, and the extreme trading structure is gradually being digested, making the end of July a potentially opportune time for repositioning.

Hot Sectors

1. Financial Sector Rallies to Support the Market

The broader financial sector, including securities IT, internet finance, and brokerages, strengthened broadly. Hualin Securities and Tianrongxin hit their daily upper limits. Commentary: Soochow Securities research suggests that valuations for Chinese brokerages are currently at reasonably low levels. Innovation in sci-tech investment and international business are expected to drive an upward shift in the industry's ROE, leaving significant room for future growth. Given the positive policy development environment and a trend towards increasing industry concentration, large brokerages are seen as having significant advantages.

2. Consumer Staples Sector Shows Notable Activity

Consumer staples concepts, including dairy, food and beverage, baijiu, and retail, saw a broad-based breakout. Stocks like Huanlejia, Li Zi Yuan, and Sunshine Dairy hit their daily upper limits. Commentary: On the news front, CITIC Securities research reports that dairy cow inventory in June was 5.772 million head, a sequential decrease of 22,000 head, maintaining a relatively fast pace of reduction. Recently, prices for bulk raw milk have risen in multiple regions, and the concurrent rise in meat and milk prices is driving a positive cycle for raw milk, benefiting the improvement of the competitive landscape for leading liquid milk companies.

3. Lithium Battery Concepts Rebound

Lithium battery concepts, including electrolyte VC, lithium iron phosphate, and lithium resources, rebounded, with stocks like Lingpai Technology and Yongshan Lithium Industry hitting their daily upper limits. Commentary: On the news front, on July 21, 2026, the Guoxuan High-Tech Group project to produce 20,000 tons of key solid-state battery materials was officially launched in Anqing, Anhui Province. This project is the industry's first mass production line for high-purity lithium sulfide on a 10,000-ton scale, with plans to complete pilot construction by the end of December 2026 and achieve full production by 2027.

Institutional Views

Guotai Asset Management: Market Funding Bottom May Be Confirmed, End of July an Opportune Time for Repositioning

Guotai Asset Management believes the market's funding bottom may have been confirmed. Market stabilization forces and corporate buybacks are sending positive signals. The extreme trading structure is being gradually digested, making the end of July a potentially suitable time for repositioning. In terms of allocation, they continue the "style rebalancing" approach from late June, maintaining the AI hardware theme as the primary focus while favoring leaders with strong demand certainty. They also suggest a measured tilt towards sectors that were previously under-allocated or reduced by institutions but have shown fundamental improvements, such as lithium batteries, innovative drugs, non-bank finance, and the export chain.

Jinxin Fund's Tan Zhimi: AI Industry Chain at a Critical Transition Window

Tan Zhimi from Jinxin Fund stated that recent overseas concerns about "circular financing" in AI have sparked demand worries. The market is highly concerned that the mega-scale AI infrastructure deals being pushed by giants like NVIDIA might involve circular financing, leading investors to question whether current AI computing demand is driven by real business applications or merely artificial demand created by an investment-financing cycle. Looking ahead, the market is closely watching the US Federal Reserve's upcoming policy meeting and the batch of tech giant earnings reports. The AI industry chain is in a critical transition window from "extreme differentiation" to "structural rebalancing." As upstream hardware and materials become overvalued and crowded, capital is seeking higher-value allocation directions.

CITIC Securities: AI Drives Semiconductor Capital Expenditure Upcycle, Equipment Sector Enters New Growth Phase

CITIC Securities believes that AI is becoming the core driver of the current global semiconductor cycle, pushing global wafer fab capital expenditure into a new upswing. The expansion of advanced logic and advanced memory is forming a co-upcycle, moving the semiconductor equipment industry's景气度 from a cyclical recovery to a phase of structural growth. They estimate the global semiconductor equipment market could surpass $290 billion by 2028, while China's semiconductor industry is expected to benefit from a dual catalyst of AI and domestic substitution, potentially approaching a market size of nearly $100 billion by 2028. In this context, they recommend focusing on two key investment themes: leading domestic equipment companies with global competitiveness that benefit from advanced process and advanced packaging expansion; and domestic component enterprises that are steadily advancing domestic substitution, perfecting their product matrix, and continuously breaking through in advanced process verification.

China Merchants Securities: Korea's Leverage Unwinding Continues, Policy Bottom for A-shares Has Appeared

China Merchants Securities notes that externally, the deleveraging process in the Korean stock market is still ongoing, which is transmitting pressure to A-share market sentiment. However, the recent intensive release of market stabilization signals indicates that the policy bottom for A-shares has appeared. On one hand, the China Securities Regulatory Commission (CSRC) is firmly maintaining the stable and healthy operation of the capital market. On the other hand, multiple state-owned enterprises and listed companies, including Beijing State-owned Capital Operation and Management Center and Beijing Enterprises Holdings Limited, have collectively followed suit, intensively announcing arrangements for share increases, buybacks, and higher dividends, demonstrating confidence in market development. Regarding recent ETF net inflows, broad-based ETFs saw significant inflows last week, with cumulative net inflows exceeding 50 billion yuan for the week. Looking ahead, with the convening of market stabilization symposiums, regulators are expected to increase their market stabilization efforts. If the market declines more than expected in the future, stabilization measures could potentially match the intensity seen in April last year, further stabilizing the capital market and boosting investor confidence through multiple channels including capital support, central enterprise buybacks, and financial institution increases and buybacks.