Major A-share indices opened higher this morning before quickly retreating. At the close, the Shanghai Composite Index edged down 0.06% to 4041.24 points, while the Shenzhen Component Index fell 1.16% to 15416.80 points. The ChiNext Index dropped 1.77%, whereas the STAR 50 Index bucked the trend to rise 1.04%. The combined turnover for the two markets was 3.11 trillion yuan, showing a moderate contraction compared to the previous trading day. Market sentiment was weak, with over 3,500 stocks declining, indicating significant structural divergence.
In terms of sector performance, heavyweight blue-chips and defensive sectors held relative advantages. Banking and coal sectors saw intraday gains, while innovative drug concepts like chemical pharmaceuticals and biological products performed actively. In contrast, growth-oriented technology sectors weakened noticeably, with PCB, minor metals, motors, and metal new materials among the biggest decliners. Overall, capital rotation favored sectors with low valuations, high dividends, and strong earnings certainty, while speculative theme popularity cooled.
Looking ahead, the market is expected to remain in a relatively wide-ranging consolidation phase in the near term. An investment framework balancing offense and defense is recommended to navigate the structural market. Defensive strategies can rely on high-dividend assets like banking and coal for value and stability. Offensive strategies could focus on technology growth sectors with strong earnings certainty and previous oversold conditions, as well as recovery opportunities in main themes like semiconductors and innovative drugs, aligning with the interim earnings forecast window. After recent adjustments, popular tech sectors have seen reduced trading congestion. With the AI outlook still favorable, they remain suitable for accumulation on dips as part of an offensive portfolio, and investors may continue to monitor them.
Initiating the Analysis
The farming sector has shown clear signs of recovery since July. On July 6th, the Farming ETF (159865) rose 3.88%, bringing its cumulative gain for the month to 9.84%. Constituent stocks like Muyuan Foods, Tianbang Food, and Julong Animal Husbandry collectively strengthened. This rebound is driven by the market repricing expectations for hog production capacity reduction and a potential cycle reversal. Recent rapid price increases in live hogs are attributed to factors including a widening price gap between fat and standard hogs, rising sentiment for secondary fattening, and short-term supply contraction.
From a fundamental perspective, the current hog cycle is in a critical phase of capacity clearance. According to Ministry of Agriculture and Rural Affairs monitoring, the national live hog price for the fourth week of June 2026 was 10.06 yuan/kg, down 31.4% year-on-year, while piglet prices fell 40.4% year-on-year. The industry continues to experience deep losses, with synchronized declines in piglet and culled sow prices indicating capacity reduction has entered a deep stage. National Bureau of Statistics data shows that at the end of Q1, the national breeding sow inventory was 39.04 million head, down 1.35 million head or 3.3% year-on-year. Policy support is intensifying, with the Ministry of Agriculture and Rural Affairs collaborating with multiple departments to urge large pig enterprises to implement capacity control measures. Regions like Shanghai have already introduced breeding sow inventory control plans. As capacity clearance continues, the supply-side contraction trend appears clear, suggesting the sector may be near the cyclical bottom.
In terms of valuation, the current investment case is noteworthy. As of July 6th, the CSI Livestock Farming Index's price-to-book (PB) ratio was 2.26 times, sitting at an extremely low level within the 2.35th percentile of its historical range over the past five years, reflecting that market pessimism is already quite priced in. The farming industry's profitability is cyclical, and investing during periods of industry losses and valuation compression often corresponds to left-side opportunities before a cycle reversal.
Regarding the investment vehicle, the Farming ETF (159865) has a latest size of approximately 60 billion yuan, with a recent one-month average daily turnover of about 1.79 billion yuan, ranking high in liquidity among peers. Its share size grew over 40% in Q2 2026, indicating rising capital attention. The product tracks the CSI Livestock Farming Index (930707), covering core segments of the industry chain like hog farming, feed, and animal health. It is suitable for investors seeking to capture the overall hog cycle opportunity while avoiding excessive single-stock volatility. For investors optimistic about the sector's cyclical recovery logic, and given the current historically low valuations and clear capacity reduction trend, this product holds certain medium-to-long-term allocation value, which investors may consider based on their own risk preferences.
Focus on Key Sectors
The innovative drug sector continued its recent upward trend today, with the Innovative Drug ETF (517110) and the Hang Seng Biotech ETF (520930) both rising over 2%.
On the policy front, the sector has received positive catalysts, with a marginal improvement in the policy environment. A National Healthcare Security Administration announcement on June 29th showed 54 drugs passed the preliminary formal review for the commercial insurance innovative drug directory, indicating smoother access to the payment system for innovative drugs. On June 22nd, the Ministry of Commerce and other departments jointly issued the "Action Plan for Stabilizing and Optimizing Foreign Investment Utilization," marking a substantive breakthrough in opening up the pharmaceutical field. This policy sends a positive signal of national support for domestic and overseas capital investment in China's innovative drug assets and the continued smooth flow of business development (BD) logic.
Valuation-wise, the pharmaceutical sector has undergone a prolonged adjustment and is in a state of low valuation, low positioning, and low expectations. The valuation bottom is gradually solidifying, potentially paving the way for a valuation recovery after emotional overselling.
From a capital flow perspective, the style shift from high to low may see the innovative drug sector attract funds rotating out of high-flying tech stocks. The pharmaceutical sector is benefiting from some capital rotation as tech stocks experience high-level volatility. Recently, especially last week, the concentrated crowding in AI hardware plays by both domestic and foreign A-share capital showed signs of loosening. High-risk-preference capital has motivation to switch into sectors with solid long-term fundamentals that have underperformed persistently.
Fundamentally, according to Galaxy Securities, the total value of innovative drug BD transactions in Q1 2026 reached $61.4 billion, already exceeding the full-year 2024 total and approaching half of the 2025 level. This suggests China's innovative drug sector is gradually gaining global pipeline transaction value. As the interim earnings season approaches, within the innovative drug industry chain, CXO (Contract Research, Development, and Manufacturing Organization) is a segment with relatively strong earnings certainty and low valuation. The core CDMO (Contract Development and Manufacturing Organization) business for external demand has extremely strong interim earnings certainty, supported by two long-term growth drivers: peptide GLP-1 and ADC (Antibody-Drug Conjugate).
Looking forward, multiple factors are driving valuation recovery, with attention on the earnings verification window. The market is gradually returning to the innovative drug sector's technological attributes and overseas pricing logic. As the interim earnings season nears, policy, fundamentals, and valuation recovery are forming multiple resonances, potentially allowing the sector to recover from oversold conditions under solid earnings guidance. Further upward momentum will require observation of new performance and fundamental anchors. Due to high-risk capital preferences, the rebound's elasticity and intraday volatility can be significant. After short-term surges, the market is prone to some consolidation. Interested investors may continue to monitor allocation opportunities in products like the STAR Innovative Drug ETF (589720), Innovative Drug ETF (517110), Hang Seng Biotech ETF (520930), Biopharmaceutical ETF (512290), and ChiNext Pharmaceutical ETF (159377).
Examining the Market Leaders
The coal sector staged a strong rebound today, with the Coal ETF (515220) surging over 4%.
While the previous correction had fundamental basis, the decline may have overshot. On one hand, easing US-Iran tensions led to gradual normalization of shipping through the Strait of Hormuz and a rapid oil price drop, essentially ending the previous logic of trading coal as an energy alternative play. On the other hand, market rumors suggested Indonesia might consider adding new coal RKAB quotas in July, coupled with Shaanxi's requirement for compliant capacity to produce at full capacity, raising doubts about the strong supply constraint narrative. Simultaneously, the southern plum rain season suppressed electricity demand, and high temperatures haven't fully spread, leading to lower-than-expected daily coal consumption at power plants. However, these negative factors are now largely priced in, and the summer demand story is expected to unfold.
From a supply perspective, the supply side faces dual constraints of structural tightening and event shocks. Domestic supply constraints persist and show a trend of further tightening and spillover, with expectations for the elimination of illegal and non-compliant capacity. Starting July 1st, the new "Standards for Determining Major Hidden Hazards in Coal Mines" took effect. Large-scale shutdowns for inspections at Shanxi coking coal mines have affected approximately 150 million tons of capacity, with resumption progress far slower than expected. Furthermore, against the backdrop of the El Niño climate pattern, Europe is experiencing persistent high temperatures and heatwaves. Combined with energy supply disruptions following the Russia-Ukraine and US-Iran conflicts, global energy supply and demand this summer may be tight, providing support for international coal prices.
On the demand side, the plum rain season is about to end, and daily power plant coal consumption is set to climb, marking the true arrival of the domestic coal consumption peak season.
From an asset allocation perspective, the coal sector offers both defensive dividend characteristics and pro-cyclical elasticity, making it a balanced choice at the current juncture. In an environment of increasing market volatility, coal companies' high cash flow and high dividend attributes provide a solid valuation floor for their share prices.
Looking ahead, the sector may continue to benefit from a triple logic of supply contraction, peak season catalysts, and defensive dividends. The extent of the subsequent rally will still depend on the duration and intensity of the summer heat. Close attention should be paid to temperature changes, daily power plant coal consumption, and port inventory dynamics. As the only dedicated coal ETF in the current market, investors may continue to monitor it.
Investment Considerations
Investors should fully understand the differences between regular fund investment plans and savings methods like lump-sum deposits. Regular investment plans are a simple way to guide long-term investing and average cost, but they do not eliminate the inherent risks of fund investing, guarantee returns, or serve as an equivalent substitute for savings.
Whether equity ETFs, LOFs, or structured funds, they are all securities investment fund varieties characterized by relatively high expected risk and expected return levels. Their expected returns and risk levels are higher than those of hybrid funds, bond funds, and money market funds.
Fund assets invested in stocks listed on the STAR Market and ChiNext Board will face specific risks arising from differences in investment targets, market systems, and trading rules. Investors are advised to take note.
The presentation of short-term gains or losses for sectors/funds is for illustrative purposes only as supplementary material for article analysis and does not constitute a guarantee of fund performance. Mention of individual stocks' short-term performance is for reference only and does not constitute stock recommendations or predictions/guarantees of fund performance.
The above views are for reference only and do not constitute investment advice or promises. If you wish to purchase related fund products, please pay attention to relevant investor suitability management regulations, complete a risk assessment in advance, and purchase fund products with a risk level matching your own risk tolerance based on the assessment results. Funds carry risks, and investment requires caution.
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