On August 1st, A-shares adjusted on reduced trading volume with micro-cap stocks rising again. Over 3,300 stocks closed in the green, with total daily trading volume reaching 1.6 trillion yuan, representing a decrease of 337.7 billion yuan from the previous trading session. At market close, the Shanghai Composite Index fell 0.37%, the Shenzhen Component Index dropped 0.17%, and the ChiNext Index declined 0.24%.

China Galaxy Securities believes that in August, the A-share market is expected to exhibit a pattern of index fluctuation with gradual upward movement but increased volatility, influenced by positive policy expectations, moderate economic recovery, and interim earnings verification. Market structure will continue to differentiate. August's main focus will be on policy developments and earnings performance. Given that A-shares are gradually transitioning to an incremental market, the most important task for investors is to continuously seek new directional opportunities that could form consensus expectations in the future.

On the market front, innovative drug sector momentum continued to spread, with undervalued traditional Chinese medicine stocks experiencing broad-based catch-up gains. Multiple stocks including Weikang Pharmaceutical hit the daily limit up. Solar power, paper manufacturing, and logistics sectors in the "anti-involution" theme remained repeatedly active, with stocks like Jiejia Weichuang reaching daily limits. AI applications rebounded in afternoon trading, with multimodal AI and intelligent agent sectors leading gains. Data element concepts showed unusual movement in the afternoon, with Shenzhen SED rising to the daily limit.

On the declining side, high-position momentum stocks showed significant differentiation, with high-profile Tibet Tourism hitting the daily limit down during trading. Recently strong AI computing hardware and entertainment sectors continued adjusting, while the military industry sector showed weak performance. Consumer staples, financials, and semiconductors led the declines.

Looking ahead, Orient Securities believes that China's stock market has entered a medium to long-term slow bull market phase, with reduced index volatility and healthy rotation of market hotspots. Any significant market pullbacks present good opportunities for bottom-fishing.

**Hot Sectors**

**1. Pharmaceutical Stocks Continue Strong Performance** Innovative drug and traditional Chinese medicine stocks maintained their strength, with multiple stocks including Weikang Pharmaceutical, Xintianyao, Fuyuan Pharmaceutical, and Hanshang Group hitting daily limits.

**Comment:** On the news front, on July 31st, Hisun Pharmaceutical announced that its innovative drug HSK3486 (Ciprofol Injection) received FDA marketing application acceptance. On the same day, multiple innovative drug companies including Huahai Pharmaceutical and Ascletis Pharma made new progress with their drug developments. Industrial Securities stated that the innovative drug sector's prosperity is sustainable, with the "innovation + internationalization" trend in the innovative drug industry unchanged, remaining the core direction of the pharmaceutical sector.

**2. Solar Power Sector Rebounds** The solar power sector showed fluctuating rebound momentum, with Jiejia Weichuang and Tsingda Ecotech hitting daily limits, followed by gains in Haiyou New Material, Meyer Burger Technology, Dier Laser, and Jingsheng Mechanical & Electrical.

**Comment:** On the news front, today the Ministry of Industry and Information Technology issued the "2025 Annual Polysilicon Industry Special Energy Conservation Supervision Task List," strengthening energy conservation supervision in the polysilicon industry and promoting energy efficiency improvement and green low-carbon development in the industrial sector. CITIC Securities research report pointed out that as an industry with prominent issues of homogeneous low-price competition and periodic overcapacity, solar power is a core battleground in this round of "anti-involution."

**3. Logistics Sector Surges** Express delivery and logistics stocks once surged higher, with STO Express and Yunda Holding briefly hitting daily limits, followed by gains in Huapengfei, Huaguang Yuanhai, YTO Express, and Deppon Logistics.

**Comment:** On the news front, the State Post Bureau recently held a symposium with express delivery companies to discuss legal and regulatory governance of "involutionary" competition in the industry, strengthen rectification of prominent issues such as illegal charges for package pickup in rural areas, and promote high-quality industry development. Sinolink Securities stated that overall competition intensity in the express delivery industry is expected to remain controllable, with price declines during off-peak seasons likely to stabilize. Current sector valuations have fallen to relatively low historical levels with sufficient safety margins, suggesting attention to investment opportunities in the sector.

**Institutional Views**

**1. Huaxi Securities: A-Shares May Challenge 2024 Highs in Second Half** Huaxi Securities believes that from a fundamental perspective, "anti-involution" policies are accelerating implementation from top to bottom, correcting some investors' expectations of long-term low inflation in the economy and boosting A-share corporate earnings. On the capital side, the A-share rally since the second quarter has formed positive feedback with "mutual funds and private funds raising positions and net buying by margin financing." Going forward, as stock market wealth effects become apparent, incremental retail capital inflows are worth anticipating. A-shares may challenge 2024 highs in the second half. "AI+" and other technology narratives continue, with technology growth remaining the medium to long-term main theme.

**2. Orient Securities: Stock Market Has Entered Medium to Long-Term Slow Bull Phase** Orient Securities believes that China's stock market has currently entered a medium to long-term slow bull market phase, with reduced index volatility and healthy rotation of market hotspots. Any significant market pullbacks present good bottom-fishing opportunities. Stock selection should be based on business prosperity, such as continued short-term focus on sectors with good prosperity including innovative drugs, military industry, and pan-technology sectors.