On September 21st, the Shanghai Composite Index opened higher and maintained its upward trajectory throughout the session, while the ChiNext Index saw a late-afternoon surge. By the close, the Shanghai Composite had risen 0.97%, the Shenzhen Component Index gained 0.65%, and the ChiNext Index advanced 0.8%.

Sector rotation was rapid, with the pharmaceutical sector staging a strong breakout, while major financial and real estate stocks also gained momentum during the day. On the downside, precious metals-related concepts remained weak. More than 4,500 stocks across the market finished in positive territory. The combined trading volume on the Shanghai and Shenzhen exchanges reached 2.03 trillion yuan, reflecting a contraction of 45.6 billion yuan from the previous session.

Trading has now officially entered what is being called the "pre-holiday gaming period," given the limited number of remaining trading days in September and the approaching Mid-Autumn Festival and National Day holidays, which are prompting some capital to step to the sidelines. This likely explains the market's subtle imbalance: over 4,500 stocks closed higher and 105 hit their daily limit, pointing to robust short-term sentiment. However, a closer look reveals that the rally was largely driven by micro-cap and small-cap stocks, with the Micro-Cap Index surging more than 3% and the CSI 2000 Index climbing over 2%.

So, which stocks lagged behind or even suffered declines? In a word: high-priced stocks, tech stocks, and institutional favorites. For instance, Lianxin Instrument, often dubbed the "King of A-Shares" for its high price, plunged more than 7% intraday before closing down over 5%. Among the top 10 stocks by fund holdings, gains and losses were evenly split, with many gainers showing a pattern of opening high and then selling off. Among broad-based indices, the STAR 50 Index turned red multiple times in the afternoon, and the ChiNext Index also hovered near the flatline, while the Shanghai Composite remained steady throughout the day.

The divergence was even more pronounced at the sector level. According to iFinD data, the pharmaceutical sector led the industry gains—spanning medical services, biologics, and chemical pharmaceuticals—followed by real estate, with retail, tourism, agriculture, and baijiu stocks also posting strong gains.

What's driving this pattern? On one hand, certain sectors do have genuine catalysts and tailwinds. For example, the pharmaceutical sector received policy support when the Ministry of Industry and Information Technology, along with nine other departments, issued the "15th Five-Year Plan for Pharmaceutical Industry Development" on September 18th. The plan calls for accelerating the application of new technologies such as artificial intelligence, quantum computing, supercomputing, and computational medicine in drug R&D, and exploring novel production models including super-limited manufacturing, space-based pharmaceuticals, and biomanufacturing. On September 20th, the National Medical Products Administration also stated at a State Council Information Office press conference that it would support the large-scale, intensive, and high-end development of the pharmaceutical industry, encouraging foreign companies to bring original drugs and high-end medical equipment into domestic production, while also encouraging Chinese enterprises to expand overseas to bring Chinese drugs and devices to the world.

CITIC Securities noted that China's innovative drugs are entering a phase of global value realization, with leading internationalized innovative drug companies poised to reap the benefits of global product value. Additionally, the product ramp-up of top innovative drug companies is entering a new growth phase, and the internationalization of pipeline assets with global potential is expected to accelerate. Meanwhile, consumer and tourism sectors typically attract speculative capital ahead of the holidays.

On the other hand, the "pre-holiday effect" deserves attention. Based on Wind data analysis, treating the week before National Day as the "window period" and the 3 to 6 weeks prior as the "baseline period," A-share markets over the past five years show the following patterns: First, "pre-holiday volume contraction" is a common rule, occurring in four of the past five years, with reductions ranging from -10% to -27%. In 2025, absolute daily turnover remained high at 2.3 trillion yuan, but it still contracted 11.2% compared to the baseline period. Second, regarding sector performance, before 2024, consumer and pharmaceutical sectors had a convention of being active before the holidays. In recent years, however, the "pre-holiday effect" has manifested more as a moderation of gains or slight pullbacks in leading sectors, rather than necessarily triggering dramatic sector rotation.

Huatai Securities research suggests that while tech stocks recovered following the Fed's rate hike last week, weak domestic economic and credit data, a narrowing breadth of earnings recovery, and cautious pre-National Day sentiment all remain headwinds. The upward flexibility of the market may be limited, and the firm maintains its view of a rebound rather than a trend reversal. Medium-term structural opportunities remain, but with narrowing recovery breadth, the tone tilts toward neutrality. In terms of positioning, Huatai recommends allocating to sectors where pressures are easing, including technology, innovative drugs, and chemical chains with valuation gaps, while maintaining dividend-yielding stocks as a core holding to reduce volatility.

CITIC Securities, meanwhile, argues that in the later stages of an industrial super-cycle, institutional favorites typically top out before a round of new highs in non-institutional stocks. Given the high-interest-rate environment, during the final offensive window of the year, market differentiation may widen again, with AI regaining dominance. In the technology sector, CITIC advises focusing on two directions: first, new optical communication technologies, PCB, and advanced packaging that benefit from increased manufacturing complexity; and second, wafer fabrication and gas turbines with clear volume-growth logic. Among these, non-institutional heavyweight stocks may offer greater upward elasticity, with the North American supply chain potentially outperforming for some time. Outside of technology, the firm continues to focus on energy chemicals and leading brokerages with overseas expansion potential.