The A-share market experienced a volatile decline throughout the trading session on July 13th, with over 4,600 stocks closing lower and more than a hundred hitting their daily downside limit. The total turnover for the day reached 2.8 trillion yuan, a decrease of approximately 570.8 billion yuan from the previous session.

At the close, the Shanghai Composite Index fell by 2.06%, the Shenzhen Component Index dropped by 3.48%, and the ChiNext Index declined by 3.1%. The market witnessed a broad-based sell-off today, led by technology stocks, accompanied by a significant contraction in trading volume.

Analyzing the reasons behind the market decline, several key factors have been identified. First, a sharp downturn in global markets impacted sentiment; for instance, South Korea's KOSPI closed down 9%, accumulating a nearly 20% loss for the month and triggering circuit breakers seven times this year. Second, ongoing tensions between the US and Iran continued to unsettle markets, with the U.S. Central Command announcing new strikes against Iran, pushing WTI crude oil prices up over 5%. Third, profit-taking emerged in AI hardware sectors, as concepts like CPO, memory, and PCB had seen substantial gains, prompting capital to lock in profits. Fourth, the increased scale of quantitative trading has amplified market volatility. Data shows that the scale of quantitative long-only equity strategies reached 1.83 trillion yuan by the end of June, an increase of 1.1 trillion yuan since the start of the year.

Looking at specific sectors, optical fiber concepts were severely hit, with stocks like Hengtong Optic-Electric Co., Ltd. (SHSE: 600487), Changyingtong (SZSE: 300447), FiberHome Telecommunication Technologies Co., Ltd. (SHSE: 600498), and Tefa Information (SZSE: 000070) falling by the daily limit. Memory chip concepts also plunged collectively, with GigaDevice Semiconductor (Beijing) Inc. (SHSE: 603986), Demingli (SZSE: 001309), and Shannon Core Creation (SZSE: 300475) hitting the limit down. MLCC concepts declined, with Fenghua Advanced Technology (Group) Co., Ltd. (SZSE: 000636) also limit down.

In contrast, some sectors showed resilience. The pharmaceutical sector bucked the downtrend, led by traditional Chinese medicine (TCM) stocks. Longshen Rongfa (SZSE: 300534) surged by the 20% daily limit, and Tianmu Pharmaceutical Co., Ltd. (SHSE: 600671) rose by the 10% limit. The banking sector also saw a pull-up during the session, with Bank of Suzhou Co., Ltd. (SZSE: 002966) gaining over 6%. The electronic special gases concept was active, with Jiufeng Energy (SHSE: 605090) securing its second consecutive limit-up and Shuifa Gas (SHSE: 603318) gapping up to a limit-up.

Regarding notable individual stocks, GPU giant Muxi Co., Ltd. (SHSE: 688256) saw its share price strengthen after opening, briefly rising over 13% intraday to touch a record high of 1,033 yuan per share, bringing its market capitalization to around 400 billion yuan. Its strength also lifted shares of Moore Threads and Cambricon Technologies Corporation Limited (SHSE: 688256).

Market Outlook and Key Themes

Looking ahead, Guosen Securities maintains that the underlying trend for A-shares to seek upward opportunities remains unchanged, with July being a crucial observation period. Structurally, growth within the technology sector is expected to diffuse towards lower-priced segments, while attention should also be paid to pharmaceuticals, finance, and resource-related stocks.

Notable Sector Performances

Traditional Chinese Medicine Concepts Show Strength

Traditional Chinese Medicine concepts were active, led by Longshen Rongfa (SZSE: 300534), with Jiuzhitang Co., Ltd. (SZSE: 000989), Shengwugu (BJSE: 833266), Guangyuyuan (SHSE: 600771), Yiling Pharmaceutical (SZSE: 002603), and Datang Pharmaceutical (BJSE: 836433) following the upward move. The positive sentiment is attributed to the State Council's approval in principle of the "15th Five-Year Plan" for the revitalization and development of traditional Chinese medicine, emphasizing equal importance for Chinese and Western medicine, innovation rooted in tradition, and promoting modernization and global reach of TCM.

Banking Stocks Provide Support

The banking sector staged a counter-trend rally during the session, led by Bank of Suzhou Co., Ltd. (SZSE: 002966), with China Construction Bank Corporation (SHSE: 601939) and Bank of Ningbo Co., Ltd. (SZSE: 002142) also rising. This comes as several banks have implemented or received shareholder approval for their 2025 dividend plans. Data indicates that the total dividends from six major state-owned banks for 2025 exceed 420 billion yuan, an increase from the previous year, accounting for about two-thirds of total dividends from A-share listed banks, with payout ratios consistently above 30%.

Gas Sector Advances

The gas sector moved higher, with Jiufeng Energy (SHSE: 605090) securing two consecutive limit-ups, Shuifa Gas (SHSE: 603318) hitting the limit-up, and Kaitian Gas (BJSE: 831010) and Tianhao Energy (SZSE: 300332) following suit. Analysis from Orient Securities suggests that global demand for gas-fired power generation is accelerating, leading to a severe supply-demand imbalance for overseas gas turbine equipment, extended delivery cycles, and continuous price increases from leading foreign manufacturers. Domestic gas turbine component manufacturers, leveraging cost and delivery efficiency advantages, are benefiting from both import substitution and export growth, entering a cycle of volume and price increases. The traditional city gas sector also benefits from declining gas source costs and pricing policies, offering defensive value with stable cash flows.

Institutional Perspectives

Guosen Securities: Upward Trend Intact, Growth Diffusion Expected

Guosen Securities believes the market has entered the mid-year reporting season. Whether this earnings season will follow patterns seen in the latter stages of the 2021 bull market requires further analysis considering the current environment. Structural differentiation in A-shares intensified in the first half, with rotations within hot sectors potentially already underway, as seen in the optical communication sector in Q1 2026 where large-cap stocks gave way to smaller ones. Overall, while short-term rebalancing is occurring, a complete style reversal is unlikely. The underlying trend for seeking upward movement remains, with July as a key window. Growth within technology may diffuse to lower-priced areas, with attention also on pharmaceuticals, finance, and resources.

CITIC Securities: Focus on Recovery in Non-AI Sectors

CITIC Securities notes that domestic AI stocks have outperformed their global peers since June, forming the strongest "K-shaped" divergence. This is driven by both industry narratives and potential quantitative strategy repositioning. Core quantitative strategies, facing pressure on excess returns and fund flows, may need to adjust portfolios, possibly increasing exposure to factors like the "ChiNext and STAR Market factor" to alleviate negative alpha. Active funds hold stronger pricing power and allocation in core ChiNext stocks compared to STAR Market stocks, which are more ETF-driven. This difference in holder structure means quantitative strategies' increased exposure to the "dual-innovation factor" has a more pronounced effect on boosting the STAR Market. The current K-shaped divergence in the domestic market involves excessive short-term narratives and fund flows. As speculative activity cools, attention should turn to the recovery potential in some non-AI sectors.

Guotai Haitong Securities: Bullish on Commercial Aerospace Theme Sustainability

Guotai Haitong Securities anticipates increased rotation and volatility within the technology sector. Near-term focus should be on upward revisions to expectations for large model vendors' Annual Recurring Revenue (ARR) and cloud provider investments. The firm remains optimistic about the sustainability of the commercial aerospace theme. Within commercial aerospace, three directions are recommended: first, successful recovery missions could accelerate low-earth orbit satellite constellation deployment, favoring satellite payloads/communication components/satellite assembly; second, rising launch demand drives infrastructure investment needs like launch sites and special propellants/gases; third, new technologies in reusable and heavy-lift liquid rockets.