To The Moon

China's three major A-share indices all closed lower on Wednesday. At the close, the Shanghai Composite Index fell 0.3%, the Shenzhen Component Index dropped 0.79%, the ChiNext Index declined 0.78%, the Beijing Stock Exchange 50 Index slipped 0.1%, and the STAR 50 Index tumbled 2.1%. Total market turnover reached 2.051 trillion yuan, up 270.8 billion yuan from the previous session, with more than 2,900 stocks declining across the market.

In terms of sector performance, pork, chicken farming, China Shipbuilding, liquor, and crop farming sectors led the gains. On the flip side, electronic chemicals, lithography equipment, storage chips, semiconductors, components, and CPO sectors led the declines. The pork sector remained strong throughout the day, with Luoniushan Co Ltd, Xin Wufeng, Zhenghong Science and Technology, and New Hope Group hitting the daily limit up. Tangrenshen Group, Dayu Bio, Tecon Biology, Shennong Group, and Grand Farm also posted significant gains. The liquor sector opened higher and continued to climb, with Luzhou Laojiao, Shunxin Agriculture, and Shanxi Xinghuacun Fen Wine leading the advance. The crop farming sector opened lower but staged a rebound, with Yasheng Group, Dunhuang Seed, and Pingtan Development jumping to their daily limit.

The electronic chemicals sector opened higher but then steadily declined, with Honghe Technology hitting the daily limit down, while Siquan New Materials, Sinocera, and Tongyu New Materials fell sharply. The semiconductor sector also showed weakness, with Qiangyi Co Ltd, Guoke Micro, and Huahong Hongli leading the declines.

From an index perspective, driven by overnight positive external factors and a strong performance on Wall Street, all three major indices opened higher in the morning session and pushed upward led by non-bank financials and AI application sectors. However, the session took a dramatic turn in the afternoon. Without any obvious negative news or significant pullbacks in external markets, the three indices gradually slid lower under increasing selling pressure and turned negative. AI hardware and semiconductor sectors again became the leading losers.

Looking at the current trend, the Shanghai Composite Index is relatively strong, while the Shenzhen Component Index, ChiNext Index, and STAR 50 Index remain relatively weak. Given the market's prevailing pattern of "shrinking volume rallies and expanding volume declines," overall trading difficulty is extremely high. To stabilize and push higher, market turnover needs to consistently expand and stay around 2.5 trillion yuan with a "volume-price co-movement" profile; otherwise, the broader market may continue to test lower levels.

Notably, today's afternoon plunge in A-shares stood in sharp contrast to the collective gains in Japanese and South Korean markets. The Nikkei 225 rose 1.26%, Korea's KOSPI gained 1.64%, and Hong Kong's Hang Seng Index at one point climbed over 2%. So why is the A-share market under such independent pressure? Several factors may explain this divergence.

The immediate trigger appears to be profit-taking ahead of tonight's US non-farm payroll data. As the most critical indicator ahead of the September Federal Reserve meeting, the uncertainty surrounding the data prompted significant capital to exit early, with concentrated profit-taking in the afternoon overwhelming the market. More importantly, the "negative feedback loop" in quantitative models amplified the decline. Some analysts suggest that quantitative strategies in China's tech sector have typically anchored to US and Korean stock factors, but the divergence on this day—overseas tech stocks surging while similar A-share counterparts fell sharply—caused quant signals to malfunction, triggering a wave of programmatic stop-loss selling that created a vicious cycle of "decline → stop-loss → further decline." The STAR 50 Index, which swung from a 1.5% morning gain to a 2.1% afternoon plunge, serves as the clearest evidence.

Meanwhile, internal structural fragility was also fully exposed. High-flying theme stocks experienced a broad retreat, with the liquid-cooled server concept further pressured by Jindi's announcement that its core project is "not yet in mass production with no formal orders." Previously popular sectors like AI hardware suffered sharp profit-taking due to crowded positioning and substantial gains. In contrast, Japanese and Korean markets managed to hold up, each supported by independent industrial logic. South Korea's semiconductor duo—SK Hynix and Samsung Electronics—surged over 4% and 3% respectively, directly lifting the KOSPI. Japan benefited from a stronger yen and improving domestic economic expectations. Hong Kong's morning gains were driven by agriculture, real estate, and consumer sectors collectively surging to provide sufficient upward momentum.

Looking ahead, A-shares will remain significantly constrained by the external environment in the short term. If geopolitical tensions in the Middle East escalate, high oil prices will compress manufacturing profits. Tightening expectations from the US and Japanese central banks, combined with elevated US Treasury yields, mean foreign capital inflows will remain limited—or even face phased outflows—creating headwinds for heavyweight stocks.

However, investors should not be overly pessimistic. On one hand, overall A-share valuations remain at historical mid-to-low levels, providing ample margin of safety. On the other hand, China's domestic policy stance contrasts sharply with overseas tightening—if external shocks intensify, expectations for domestic reserve requirement ratio cuts and interest rate reductions rise, which could partially offset overseas panic. The upcoming US August CPI data will be a key inflection point. If inflation exceeds expectations, global risk assets will face renewed pressure and A-shares may continue to test support levels. If inflation comes in moderate, the market could gain a breather.

Overall, the near-term outlook calls for "range-bound trading with cautious bias." Investors are advised to observe more and trade less, focusing on sectors less exposed to external disruptions such as domestic demand and import substitution, while also watching for bargain-hunting opportunities in dividend-paying stocks. In the medium term, as domestic steady-growth policies continue to take effect, A-shares retain room for recovery after digesting external shocks.

Note: Market risk exists, so invest with caution. Under no circumstances should the information or opinions expressed in this subscription constitute investment advice to anyone. Research data supporting this article is provided by Flush iFinD unless otherwise noted.