The A-share market has recently completed its mid-year review, much like students receiving their exam results.

Let's analyze the narrative behind the first-half trading data and explore how to seize opportunities in the second half, learning from what might have been missed earlier.

This was simultaneously the best and the worst first half of the year.

Looking at major market indices, the first half was predominantly bullish. Among ten major indices, nine posted gains. The STAR 50 Index surged over 60%, the ChiNext Index rose more than 30%, the CSI 500 Index climbed over 20%, and the Shenzhen Component Index and CSI 1000 Index both gained over 10%. Eight indices reached 10-year highs during the period, with five hitting all-time highs.

The STAR 50 and CSI 500 indices recorded their strongest first-half performances in a decade. In contrast, the micro-cap stock index experienced a rollercoaster ride, rising over 20% before May 11th only to enter a sustained correction, with its latest closing price down 23.3% from its yearly peak, making it the sole decliner among the ten major indices.

From a broad index perspective, the first half was filled with a bull market atmosphere. However, the disparity in experience became evident at the sector and individual stock levels.

From a sector perspective, less than one-third of industries advanced in the first half of the year. Sectors like Electronics (up over 80%), Communications (up over 70%), and Building Materials (up over 40%) had their best first-half performance in ten years.

Conversely, seven sectors—Consumer Services, Diversified Financials, Retail, Food & Beverage, Automobiles, Steel, and Transportation—declined between 10% and 30%, marking their worst first-half showings in a decade.

Regarding individual stocks, the number of stocks that doubled exceeded 300, accounting for over 6% of the total, setting a decade-high for both count and proportion in a first half. This highlights the rewarding side of stock picking.

However, only 31.02% of individual stocks rose, with the median return at -15.44%, starkly revealing the harsh, divergent reality of stock investment.

This was the best first half, showcasing the enduring appeal of capital markets, with clear and defined thematic trends and no shortage of profit opportunities. The accelerated upgrade of lifestyles, work, and business models driven by AI fuels immense imagination.

This was also the worst first half, characterized by extreme and highly divergent market movements, posing stringent challenges to investors' capabilities. The anxiety induced by AI-driven change seems to compel everyone to step out of their comfort zones and rethink their approaches.

The greatest lesson from this paradoxical first half may be that for ordinary investors, the most prudent yet proactive response is to embrace change, find an anchor, follow the major trend, and stay invested.

For the second half, the key is to anchor on corporate earnings.

Investors should pay attention to the interim report-driven market activity. Since June, all companies that have released preliminary earnings reports have issued positive guidance, and their stock prices have generally performed well.

On the first trading day following an earnings announcement (T), these stocks outperformed the Shanghai Composite Index by an average of 9.98 percentage points. This outperformance continued to grow, reaching an average of 18.36 percentage points by the fifth trading day (T+4).

This suggests that an earnings-driven rally may already be underway.

Historically, July is the peak period for listed companies to disclose interim earnings forecasts. Mainboard companies in Shanghai and Shenzhen are required to issue mandatory forecasts by July 15th if they anticipate scenarios like net losses, turning a profit from a loss, or year-on-year profit changes exceeding ±50%.

A clear pattern emerges post-disclosure: generally, the higher the forecasted earnings growth, the better the subsequent stock price performance.

Taking 2025 interim report forecast data as an example, among companies forecasting growth, those with higher projected growth rates tended to generate greater short-term excess returns relative to the Shanghai Composite Index. Conversely, companies forecasting earnings declines, particularly those with projected lower-bound growth rates below -50%, generally underperformed the market in the ten days following their announcements.

More objectively, stock price movements result from the interplay between expectations and reality. The more earnings surpass expectations, the stronger the potential stock performance, and vice versa.

Therefore, the intensive earnings forecast period in July provides a window to reassess industries and stock prices: Can the soaring AI sector's earnings exceed expectations? Are the earnings of underperforming sectors truly as weak as feared?

To aid this analysis, institutional consensus growth forecasts for all sectors in 2026 can serve as a useful reference.

In a market of extreme divergence, finding suitable investment tools to follow the major trend is crucial. The highly polarized conditions test every investor's psychology.

Investors heavily allocated to AI have enjoyed profits but now face significantly increased volatility, causing anxiety about whether to take profits or hold on.

Those not heavily invested in AI face a tougher dilemma, grappling with the fear of missing out, concerns about buying at a peak, and the risk of their original holdings rallying just as they switch into a potentially falling AI sector.

While no one can pinpoint exact market tops or bottoms, it's certain that rallies eventually peak and declines eventually find a floor.

The best aspects of the first half teach us that during periods of global transition, choice is more critical than stubborn persistence. Finding suitable tools, maintaining psychological stability, and keeping pace with the major trend hold greater value.

Current mainstream broad-market indices not only provide diversified exposure across nearly all sectors but also maintain significant exposure to technology. This approach can help mitigate fears about AI valuations while potentially capturing catch-up rallies in non-AI sectors.

Taking the CSI 500 Index as an example, it currently covers all primary sectors and has continuously evolved. Its weighting in the technology track (Communications, Electronics, Computers) now stands at 38.68%, a substantial increase from just 16.5% a decade ago.

Successful investing requires navigating cycles, protecting capital, staying invested, and avoiding the pursuit of perfection.

An obsession with chasing the absolute best often leads straight into the worst traps.

The goal is for every investor to select appropriate tools, maintain an optimistic yet rational outlook on the future, and thereby share in the dividends of the era's development.