On Monday, July 6th, the A-share market experienced volatile adjustments, with the ChiNext Index showing relative weakness. Trading volume across the two major exchanges shrank slightly to 3.09 trillion yuan. In contrast, the Hong Kong market closed higher against the trend, with the Hang Seng Index rising over 1%. On the board, high-position hard tech stocks in both A-shares and Hong Kong shares saw widespread pullbacks, while low-position sectors saw significant catch-up gains, indicating a clear market rotation.

The innovative drug sector continued its strong performance, with Hong Kong Stock Connect innovative drug stocks once again leading the rebound. The Huabao Hong Kong Stock Connect Innovative Drug ETF (520880), which targets 100% innovative drug R&D companies, surged up to 6.36% in the morning session, breaking through the 60-day moving average. Although it retreated in the afternoon following the broader market, it still closed up 2.73% in the secondary market, marking its fourth consecutive day of gains. The A-share pharmaceutical sector also surged in tandem. The only pharmaceutical sector ETF, Huabao Pharmaceutical ETF (562050), rose over 4% during the session, crossing its annual moving average, and closed up 1.12%.

The agriculture, livestock, and fisheries sector showed frequent strength. The first-ever Agriculture, Livestock & Fisheries ETF (159275) surged higher in the afternoon, gaining another 3.4% in the secondary market, with continued net capital inflows! The first brokerage interim report preview shook the market, drawing capital's attention to the layout opportunities in the high-performing brokerage sector. The top-tier Huabao Brokerage ETF (512000), with a scale exceeding 40 billion yuan, closed higher in the secondary market, attracting a weekly inflow of 1.574 billion yuan.

Technology stocks experienced significant intraday volatility, with the computing power chain, including optical modules and PCBs, pulling back. Hong Kong hard tech stocks saw larger declines. The largest same-index Huabao Hong Kong Stock Connect Information Technology ETF (159131) closed down 4% in the secondary market, attracting 20 million shares in net subscriptions on the decline. The high-tech ChiNext Artificial Intelligence ETF (159363) fell over 2% in the secondary market, despite net inflows of nearly 400 million yuan in the previous two days. The STAR Market chip sector, however, staged a deep 'V' recovery, with the Huabao STAR Market Chip ETF (589190) closing up 0.7% against the market trend.

Looking ahead, Industrial Securities stated that July marks the beginning of the US and China earnings season. The relative strength of industry performance and the relative changes in earnings remain the core clues for allocation. For sectors with strong market consensus on their outlook, such as AI computing power and upstream resource products (especially non-ferrous metals, chemicals, fiberglass, and other AI-related materials), after being significantly affected by overseas volatility earlier, they may gradually enter a re-allocation phase as domestic interim earnings previews are disclosed.

Specifically, for North American computing power chains represented by optical communications and PCBs, the earlier computing power theme had 'shrunk' to the memory industry chain, and recent overseas influences have caused significant declines. The valuation gap between A-share North American computing power chain leaders and domestic computing power chain leaders has accelerated its retreat to the level of June last year. The significance of the resulting allocation signal deserves attention. Furthermore, before the US earnings season arrives in mid-to-late July, the market may still seek out some domestic low-position, high-performing sectors for catch-up gains.

Key Trading and Fundamental Insights

Explosive Volume Breakout! Is the Super Sector Back?

The innovative drug sector continued its upward charge, lighting up the market! Hong Kong Stock Connect innovative drug stocks again led the rebound. The Huabao Hong Kong Stock Connect Innovative Drug ETF (520880), targeting 100% innovative drug R&D companies, surged up to 6.36% in the morning, breaking the 60-day moving average. Despite an afternoon pullback, its secondary market price still closed up 2.73%, marking its fourth consecutive positive day.

The heated rally drove a rapid surge in sector popularity. Trading in 520880 was exceptionally active, with a full-day turnover reaching 1.236 billion yuan, hitting a new high since August 2025! Last week, its secondary market price accumulated a gain of 16.4%, setting a record for its largest single-week increase in history!

The A-share pharmaceutical sector surged simultaneously. Gan & Lee Pharmaceuticals hit the limit-up, Huahai Pharmaceutical rose 9%, and the 370 billion yuan market cap Hengrui Pharmaceuticals surged 4.26%. The only pharmaceutical sector ETF, Huabao Pharmaceutical ETF (562050), rose over 4% during the session to cross its annual moving average, closing up 1.12% with a full-day amplitude of 6.39%.

Huabao Pharmaceutical ETF (562050) has an innovative drug concentration exceeding 75%. Last week, its secondary market price accumulated a 14.78% gain, also refreshing its record for the highest single-week increase.

Currently, the innovative drug industry benefits from multiple tailwinds, possessing ample repair momentum, and signals of a market inflection point may have emerged.

• Policy Support Intensifies: Following substantive optimization on the payment side, the National Medical Products Administration's General Office issued a draft announcement on optimizing the review and approval of cell and gene therapy drugs on July 3rd. It mentioned incorporating eligible cell and gene therapy drugs into the 30-day channel for innovative drug clinical trial review and approval.

• BD Deals Continue to Surge: According to industry data, the total value of overseas licensing deals for Chinese innovative drugs in the first half of 2026 reached $99.7 billion, already 73% of the full-year 2025 figure. Chinese pharmaceutical companies occupied 8 of the top 10 global deals, with the single highest licensing amount reaching $18.5 billion.

• New Drug Approvals Dense: Recently, Baili Heng's global first EGFR×HER3 bispecific ADC was approved for marketing, and CARsgen Therapeutics' global first CAR-T for solid tumors was approved. Innovative drugs may be accelerating into the 'clinical validation - regulatory approval - commercialization realization' closed loop.

On the capital front, the Fed's 'no hurry to raise rates' combined with relatively low valuations may be driving a shift of funds from AI to low-position innovative drugs. Guotai Haitong Securities explicitly stated that Chinese innovative drugs, possessing both strong domestic demand growth and BD overseas realization, are one of the optimal choices to absorb the spillover of AI funds.

To follow the innovative drug rebound, focus on two key investment tools:

For pure innovative drug exposure, target the Huabao Hong Kong Stock Connect Innovative Drug ETF (520880), which invests 100% in innovative drug R&D companies. Its top ten holdings account for over 70%, highlighting its leading attributes. The underlying assets are Hong Kong stocks, offering high elasticity and T+0 trading.

For A-share innovative drug exposure, choose the only pharmaceutical sector ETF, Huabao Pharmaceutical ETF (562050), with its exclusive '75% innovative drugs + 25% traditional Chinese medicine' allocation, a scarce market-wide target combining the high growth of innovative drugs with the high dividends of TCM.

Pig Price Rebound Ignites Farming Sector

The agriculture, livestock, and fisheries sector was firing on all cylinders today! The first-ever Agriculture, Livestock & Fisheries ETF (159275) showed strength throughout the day, with its secondary market price reaching a maximum intraday gain of 3.65%. By the close, it was up 3.4%.

In terms of constituent stocks, livestock farming stocks collectively surged. By the close, Julong Animal Husbandry hit the limit-up, New Hope rose 7.52%, Tianbang Foodstuff gained 6.61%, with Wens Foodstuff Group, Muyuan Foods, and Zhengbang Technology also among the top gainers.

On the news front, pig prices rebounded last week, narrowing farming losses. Data shows that as of July 3rd, the average price of ternary pigs in Sichuan/Guangdong/Henan was 9.9/12.11/10.38 yuan/kg, up 12.5%/14.68%/9.49% week-on-week respectively. The average pork price was 14.68 yuan/kg, up 1.38% week-on-week. Self-breeding profits were -305.12 yuan/head, an improvement of 40.92 yuan/head week-on-week; profits for purchasing piglets for fattening were -297.67 yuan/head, an improvement of 41.77 yuan/head week-on-week.

Shanxi Securities pointed out that the hog industry has been under sustained pressure recently, and the period of industry losses is a favorable window for capacity reduction. As the industry's overall task of reducing debt and repairing balance sheets is not yet complete, if the industry continues to incur losses, it may accelerate the pace of market-driven capacity reduction. Guided by hog industry policies, policy-driven capacity reduction may also proceed simultaneously.

From a valuation perspective, the agriculture, livestock, and fisheries sector remains at relatively low levels, presenting a potentially good allocation timing. Data shows that as of the previous trading day's close (July 3rd), the price-to-book ratio of the CSI All Share Agriculture, Livestock & Fisheries Index, tracked by the first-ever Agriculture, Livestock & Fisheries ETF (159275), was 2.09 times, at the 0.79% percentile over the past five years, highlighting its medium-to-long-term allocation value.

Looking ahead, Guosheng Securities stated that policies are requiring accelerated capacity reduction, with the process quietly advancing without market expectations. Both policy and losses are expected to accelerate capacity reduction. Subsequent attention should be paid to pig price trends. At this juncture, the cyclical logic of the agriculture, livestock, and fisheries sector remains clear, its valuation can withstand rigorous scrutiny, and catalysts exceeding expectations are likely to persist, suggesting a focus on the sector.

To gain one-click exposure to the entire agriculture, livestock, and fisheries industry chain, focus on the first-ever Agriculture, Livestock & Fisheries ETF (159275). According to China Securities Index Co., Ltd., the ETF passively tracks the CSI All Share Agriculture, Livestock & Fisheries Index. Its top holdings include industry leaders like Muyuan Foods and Wens Foodstuff Group, and it also covers major sub-sectors of the industry chain such as feed, grain planting, and animal health. Off-exchange investors can also access the sector through the ETF's feeder funds (Class A 013471, Class C 013472).

Brokerage Sector: A Leading Contender in Style Rebalancing?

The first brokerage interim report preview shook the market. Leading broker Guotai Haitong verified market expectations for strong first-half performance in the brokerage sector with record-breaking semi-annual profits, both for the company and the industry, sparking market focus on sector valuation repair.

The announcement showed that Guotai Haitong expects to achieve a net profit attributable to shareholders of 20.003 billion to 20.511 billion yuan for the first half, setting a new historical high for the company's semi-annual performance and simultaneously refreshing the industry's semi-annual profit record. For the second quarter, Guotai Haitong expects to achieve adjusted net profit of 13.538 billion to 14.046 billion yuan, a quarter-on-quarter increase of 137% to 146% compared to Q1 2026, also setting a new historical high for the company's quarterly performance.

Currently, the brokerage sector is driven by at least a triple logic:

1. Bull Market Bellwether with Steady Earnings Recovery: Continued active A-share trading, high average daily turnover and margin financing balances, and improving fundamentals for brokerages. The market liquidity environment remains reasonably ample, investor sentiment is stabilizing, and household funds continue flowing into the capital market, creating a favorable operating environment for brokerages and strengthening earnings recovery momentum.

2. Tech Captor with Sustained Gains from Equity Holdings: With the full implementation of the registration-based IPO system and the normalization of mandatory follow-on investment mechanisms for the STAR Market, the capitalization of domestic hard tech companies is accelerating. Brokerages, relying on their investment banking sponsorship, strategic follow-on investments in STAR Market listings, and Pre-IPO direct investments, are building a full lifecycle return closed-loop for tech companies. The industry's underlying profit logic is being reshaped, formally initiating a systematic value re-rating from cyclical intermediaries to hard tech captors.

3. High Cost-Effectiveness with Valuations at Decade Lows: The brokerage sector was in a downtrend overall in the first half of the year, with the Securities Companies Index declining 7.87% cumulatively. Its price-to-book (LF) valuation is only 1.32 times, at the 22.94% percentile over the past decade. Its trailing P/E ratio is 15.29 times, at an even lower 4.12% percentile over the past decade. This low valuation diverges from the improving fundamental trend of the sector.

Returning to today's session, the brokerage sector opened higher but then consolidated. The top-tier Huabao Brokerage ETF (512000), with a scale exceeding 40 billion yuan, closed up 0.18% in the secondary market, approaching its annual moving average, with a weekly capital inflow of 1.574 billion yuan. Most individual stocks gained, with China Everbright Securities rising over 3%, China International Capital Corporation, Guotai Haitong, and Shenwan Hongyuan rising over 2%, and Huaxi Securities, Guosen Securities among the top gainers.

Taking a longer view, since June, the brokerage sector has shown periodic strength. On a weekly basis, as of July 3rd, Huabao Brokerage ETF (512000) posted four consecutive weekly gains. The Securities Companies Index accumulated a monthly gain of 8.27%, significantly outperforming the broader market, contrasting with its performance earlier in the year. Institutions describe this as a relatively certain mean reversion after two years of valuation mismatch.

Notably, entering the second half of the year, signs of market style rebalancing are relatively clear, further enhancing the attractiveness of the brokerage sector for allocation. Guotai Haitong Securities stated that historically, during bull markets, the brokerage sector typically experiences two waves of logic: one driven by liquidity exceeding expectations, and the second driven by earnings realization and style rebalancing. The current market is in a style rebalancing phase. As a sector with certain earnings growth and low valuation, brokerages are poised to take over as a leading sector in the second wave.

For exposure to the high-growth, low-valuation brokerage recovery theme, focus on Brokerage ETF (512000) and its feeder funds (Class A 006098, Class C 007531). It passively tracks the CSI All Share Securities Companies Index, providing one-click access to 49 listed brokerages, an efficient tool for concentrating on leading brokers while also covering mid and small-sized ones. Brokerage ETF (512000) has a latest fund size exceeding 40 billion yuan, with an average daily turnover over 1.2 billion yuan this year, making it a top-tier industry ETF in terms of A-share scale and liquidity.