〈China A-Share Market Close〉Both Markets Rally in Afternoon, Gains Expand; Three Major Indices Rise Together

China's three major A-share indices opened higher on August 4 (Tuesday). The morning session saw a divergence, with Shanghai weak and Shenzhen strong. In the afternoon, both markets rallied together, expanding their gains.

The Shanghai Composite Index closed up 0.33% at 3,822.28 points. The Shenzhen Component Index rose 3.25% to 13,885.71 points. The ChiNext Index surged 5.64% to close at 3,488.97 points.

Total trading volume on the Shanghai and Shenzhen markets reached RMB 2.2136 trillion, an increase of RMB 216.2 billion from the previous trading day.

A research report from CICC stated that since late July, indices have been consolidating with volatility, and the A-share market in August may enter a recovery phase following a significant correction. In light of the market's rapid adjustment in July, the report recommends focusing on two main themes recently:

1) Selective investment in high-growth sectors:

After a sharp correction in the technology sector, crowded trades have significantly eased. Industries with strong fundamentals can achieve high earnings growth (numerator) that offsets headwinds from valuation pressures (denominator). AI infrastructure-related segments, such as PCBs, are expected to maintain high景気 (strong momentum) this year. However, for many companies in semiconductors and computing power, it remains crucial to monitor the alignment between fundamentals and valuations. Technology growth stocks may show divergent performance going forward. Many innovative drug developers are entering clinical data validation stages, warranting bottom-up analysis.

2) Cyclical improvement:

Fundamentals in an increasing number of sectors are recovering from cyclical lows. The report recommends focusing on industries with improving earnings and supply-demand dynamics, considering geopolitical situations and capacity cycles. Sectors include power grid equipment, petrochemicals and chemicals, construction machinery, and non-bank financials benefiting from capital market improvements. The precious metals sector, after significant adjustments, is also worth watching. Recovery in purely domestic-demand industries remains relatively slow and requires further observation.

August overweight sectors: Basic chemicals, communications equipment, electrical and power equipment, machinery, and securities.

August underweight sectors: Construction and engineering, textiles and apparel, education, light industry and home furnishings, retail.