The four main stock exchanges in mainland China experienced a mixed closing, with some indices edging higher while others declined. A prominent investment firm highlighted that the recent market correction suggests excessive pessimism and suggested that a second buying opportunity of the year might be approaching.
Today, the Shanghai Composite Index increased by 0.9%, whereas the Shenzhen Component Index dropped by 0.7%, both remaining below their levels at the year’s start. The ChiNext Index advanced by 0.4%, but the Star Composite Index fell by 2.3%.
Following the recent pullback, Chinese asset valuations have become comparatively low relative to major global markets, making these assets appear increasingly appealing as the revaluation process intensifies, according to a research report from a leading investment bank.
Trading activity on the combined Shanghai and Shenzhen markets reached about CNY2.7 trillion (roughly USD399 billion), a rise of CNY47.2 billion (approximately USD7 billion) from the previous day. Over 3,700 of the more than 5,500 listed stocks declined in value, with more than 200 hitting their daily trading limit.
Stocks in the power and coal sectors led gains, with many reaching their daily maximum limits. Shares in liquor, oil and gas, banking, insurance, and brokerage sectors also outperformed. Conversely, the hardware supply chain sectors, including printed circuit boards, lithography equipment, and co-packaged optics, experienced heavy selling. Photovoltaics, robotics, aerospace, and lithium battery stocks also saw sharp declines.
The report attributed the recent market downturn to a mix of international and domestic factors. These include a decline in sentiment toward the global AI sector since late last month, a significant drop in South Korea’s stock market amid deleveraging efforts, renewed geopolitical tensions, and a correction in technology stocks.
The firm also noted that trading volumes for mainland-listed stocks surged between mid-May and late June, with turnover rates surpassing 5% of free-float market cap on several days, indicating overheated activity.
The decline intensified between July 15 and 17, with the Shanghai Composite reaching its lowest point of the year. On July 17, both the ChiNext and Star 50 indices fell more than 7% in a single day, marking their third-largest and largest monthly percentage drops on record, respectively.
In response, state-backed investment funds, often referred to as the “national team,” injected about CNY60 billion (approximately USD8.9 billion) into shares of state-owned enterprises to support the market. These entities, comprising China Reform Holdings, China Chengtong Holdings Group, and Central Huijin Investment, are known for stepping into the market during downturns to stabilize prices and maintain investor confidence.
Recently, China Reform and its affiliates invested over CNY50 billion through special credit facilities to repurchase shares and increase holdings, including matching capital. China Chengtong indicated that it and its associated investment vehicles spent nearly CNY10 billion and will continue to add to their holdings in central state-owned enterprises, tech firms, and ETFs. Several companies have also announced plans to buy back their own shares.
Looking forward, the firm anticipates that upcoming first-half earnings reports, due next month, will provide fundamental support to the market. In its mid-year outlook released in June, the firm projected a 6.3% profit growth for A-share companies and 9.9% for non-financial firms in 2026, marking the highest growth rates since 2022.