A-shares Market Continues to Decline

The sectors leading the rise include IP economy, fentanyl, logistics, food processing, community group buying, film and television, dairy, corn, liquor, prepared dishes, and poultry farming. Notably, the IP economy surged by ten points, leading the two markets, with concept stocks igniting a flurry of limit-up trades. Leading stocks like Chuangyuan and Deyi saw a 20% increase. However, it’s important to note that there are only 14 listed companies in the IP economy sector, with the industry leader, Morning Light, having a market value of merely 30 billion. Clearly, there are no large-cap blue-chip stocks within this hot topic, and its upward movement cannot ignite widespread investor enthusiasm, nor can it drive indices higher. In the prevailing weak market, the A-share market continues to adhere to the principles of favoring speculative and small-cap stocks; thus, chasing current hot topics may not be advisable, as they often exhibit brief spikes in interest.

Yesterday's leading battery sector and the recently surging Huawei sector faced significant declines today; concepts related to batteries, solid-state batteries, Huawei smartphones, and Huawei Pangu all witnessed drops of around three points. The sharp retreat of short-term hot topics indicates that the current A-share market has entered a weak phase, with rapid rotations of hot topics and fleeting spikes serving as clear evidence. Personally, I believe that hot topics that surged one day are not worth chasing, but those that experience substantial corrections after large rises deserve our serious study. For example, sectors such as batteries, Huawei concepts, and consumer electronics merit continued attention, as they may present better entry opportunities following recent declines.

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All four major indices closed lower, with the Beizheng 50 index dropping over two points.

Today, the A-share market continued its sluggish adjustment. During the trading session, the Shanghai Composite briefly turned positive, while the other four major indices all finished in the red, particularly the Beizheng 50, which previously doubled, marking a decline exceeding two points. From a minute chart perspective, the Shanghai Composite exhibited a positive trend in the morning, but after the afternoon opening, it demonstrated a trend of fluctuating decline; although it did not set new lows in the afternoon, the upward pullback trend indicates that the weak market persists. On Tuesday, the trading volume in the Shanghai market fell below 600 billion, decreasing by about 50 billion from yesterday, with the low-volume adjustment acting as a potential stop-loss signal, yet it also suggests that the Shanghai index lacks the momentum for sustained upward movement.

In a strong market, sectors that rise the most carry a higher risk of falling back in a weak market. The doubling Beizheng and the soaring 60% ChiNext Index represent the highest adjustment risk in this week’s A-share market. In the short term, I do not recommend blindly bottom-fishing in the Beizheng or the Sci-Tech Innovation Board; however, I suggest paying close attention to the lagging main board market, particularly the undervalued blue-chip stocks within it, which warrant serious investigation.

Be mindful of the direction.

1. Undervalued consumer sectors are poised for a rebound. Although the A-share market showed poor performance on Tuesday, the consumer sectors demonstrated a decent upward momentum, with food, dairy, beverages, liquor, and aquaculture all rising over one point. We know that the consumer sector has faced prolonged declines over the past three years, with industry leaders like Moutai, Yili, Haitian, and Muyuan all suffering significant price reductions. In a weak market, there will not be a general rise; thus, individual oversold sectors may experience contrary upward movements. The protective rise during a downward trend requires the involvement of blue-chip stocks, and the oversold consumer sector is home to many blue chips, making it likely that this sector will initiate a mid-term rebound. Since 2021, stocks in this category have seen cumulative declines of over 50%, yet the companies report stable growth, with annual dividend yields exceeding 2%, suggesting significant growth potential for consumption blue chips in the future.

2. High-dividend weighted stocks are adopting a protective mode. On Tuesday, the A-share market continued its downward adjustment; aside from signs of recovery in the Shanghai Composite, the other four indices all closed lower, with the doubling Beizheng leading the declines with a drop exceeding two points. The information from the market suggests that undervalued, high-dividend weighted stocks have once again entered a protective mode, with the four major banks, China Mobile, and Moutai—all with market capitalizations exceeding a trillion—recording gains of around one point. The behavior of weighted stocks rising to protect in a weak market is a fundamental characteristic; during the bear market of the past three years, high-dividend weighted stocks experienced contrary rises and even doubled. Now as the A-share market weakens again, undervalued, high-dividend weighted stocks may initiate protective rallies once more, making those with dividend yields above 3% and price-to-earnings ratios below 20 times—especially first and second-tier blue chips—worthy of our long-term attention.