Eliza Wong
The Chinese A-share market witnessed significant volatility today, with major indices closing lower amid pronounced sector rotation. The Shanghai Composite fell 0.12%, the Shenzhen Component declined 0.43%, and the ChiNext Index dropped 1.09%. Despite the broad index weakness, trading volume expanded to 2.5483 trillion yuan, indicating active participation despite the pullback. Nearly 2,000 stocks advanced while over 3,300 declined, painting a picture of selective rather than broad-based selling. The day’s action revealed fascinating dynamics beneath the surface, particularly in the technology and materials sectors where dramatic divergences emerged. This rotational pattern represents both opportunity and challenge for investors trying to navigate the current market environment.
Market Performance Overview
Today’s session demonstrated classic rotational behavior as money moved between sectors rather than exiting the market entirely. The expanded trading volume suggests institutional activity and repositioning rather than panic selling.
Index Performance and Market Breadth
The three major A-share indices showed modest declines, but the performance beneath the surface told a more complex story. The North Exchange 50 Index fell 2.11%, underperforming the main boards. Market breadth showed nearly 40% of stocks advancing against 60% declining, indicating selective rather than broad-based weakness. The expanded trading volume of 83.7 billion yuan from the previous session confirms active repositioning rather than outright liquidation. This type of action often occurs during healthy market corrections within broader uptrends.
Sector Performance Divergence
The sector performance revealed clear rotational patterns. Outperformers included nonferrous metals, storage chips, film and cinema, real estate, and steel sectors. Lagging sectors included insurance, baijiu (Chinese liquor), banking, securities, and PEEK material concept stocks. This rotation from defensive sectors like banking and insurance toward more cyclical plays suggests growing risk appetite despite the index weakness. The materials sector strength, particularly in metals, indicates expectations of economic recovery and potential infrastructure stimulus.
Technology Sector: Extreme Divergence
The technology sector displayed what market participants call ‘ice and fire’ dynamics—extreme divergence between winners and losers. This sector rotation within technology highlights how investors are becoming more selective after the massive AI-driven rally earlier this year.
Standout Performers: Cambricon and VeriSilicon
Cambricon Holdings surged 7.28%, continuing its remarkable run and challenging Kweichow Moutai’s status as the A-share market’s highest-priced stock. The AI chip designer has been a major beneficiary of the artificial intelligence investment theme. VeriSilicon Microelectronics resumed trading with a 20% limit-up gain after announcing plans to acquire 97.0070% of Nuclei System Technology through share issuance and cash payment. The company also revealed record-high order backlog of 3.025 billion yuan as of Q2 2025, with new orders of 1.205 billion yuan from July 1 to September 11, representing 85.88% year-over-year growth. Guosheng Securities noted that VeriSilicon already possesses rich processor IP reserves for heterogeneous computing, and the transaction will complement its high-quality CPU IP with strong development prospects and broad application space, building a full-stack heterogeneous computing IP platform.
Underperformers: The ‘Yizhongtian’ Trio
The so-called ‘Yizhongtian’ stocks—Sunshine Technologies, Zhongji Innolight, and TFC Optical—all experienced significant declines. These optical module makers suffered from Morgan Stanley’s rating downgrades following months of substantial gains. In a recent research report, Morgan Stanley suggested that optical module industry fundamentals had largely been priced in after the massive rally, recommending investors take some profits while market sentiment remains elevated. The specific rating changes were: – Sunshine Technologies: Double-downgraded to Underweight with 255 yuan target price – Zhongji Innolight: Maintained Overweight with 435 yuan target price – TFC Optical: Downgraded to Underweight with 142 yuan target price Additionally, Oracle’s 6% decline in U.S. trading after hitting record highs Wednesday contributed to cooling sentiment in A-share technology stocks. Analysts expressed concerns about Oracle’s massive orders coming predominantly from a single client: OpenAI.
Materials Sector Rotation
The materials sector also displayed rotational characteristics, with money moving between sub-sectors rather than uniform performance.
Copper Outshines Rare Earths
While rare earth stocks maintained decent performance, copper-related shares clearly outperformed. Northern Copper Industries hit the limit-up涨停, reaching historical新高 highs, while Jiangxi Copper also posted significant gains. This rotation within materials suggests investors are betting on different aspects of the economic recovery story. Copper’s widespread industrial applications make it a pure play on global manufacturing and construction activity, while rare earths have more specialized technology applications.
Precious Metals Strength
Precious metals stocks joined the rally, with Hunan Silver, Northern Copper Industries, and Shengda Resources all reaching limit-up涨停 levels. Gold and silver often perform well during periods of monetary uncertainty or inflation concerns, suggesting some defensive positioning within the cyclical materials trade.
Emerging Themes and Concepts
Beyond the established sectors, new investment themes continue to emerge, demonstrating the market’s ability to ‘brew new wine in old bottles’—finding fresh narratives within broader categories.
CPC Concept Gains Traction
The computing power sector recently developed a new hotspot—the CPC (Co-Packaged Copper Interconnect) concept. Catalyzed by this theme, leader Luxshare Precision hit limit-up涨停 yesterday and gained over 5% this morning before pulling back. CPC technology involves integrating high-speed connectors directly with chip substrates, designed specifically for ultra-high density and ultra-high-speed data transmission requirements. This co-packaging approach significantly shortens signal transmission paths, thereby substantially reducing signal transmission loss and improving data transmission performance. Fundamentally, Luxshare Precision provides customers with integrated ‘copper, optical, electrical, and thermal’ solutions from high-speed copper cable connections and high-speed backplane connectors to high-speed optical modules and server power and thermal management systems. Multiple high-speed, high-value-added products have achieved mass delivery. The company reported H1 2025 revenue of 124.503 billion yuan, up 20.18% year-over-year, with net profit of 6.644 billion yuan, increasing 23.13% year-over-year. However, Luxshare gave back some gains this afternoon, closing slightly down 0.36% with massive volume of 23.09 billion yuan for the session.
Investment Strategy in a Rotating Market
The current market environment presents both challenges and opportunities for investors. Sector rotation requires agility but also discipline to avoid chasing yesterday’s winners.
Broker Perspectives and Recommendations
Pacific Securities noted in their latest research that this index consolidation period has been shorter than estimated, showing the strength of bulls in the current bull market context. Regarding sector direction, Pacific Securities believes chemicals, agriculture, steel, and photovoltaics remain at historical bottoms with sufficient safety margins. Chip semiconductors, optical modules and other adjustments have reached their space limits, and currently, investors can continue to hold stocks waiting for rises—new highs are almost certain. Innovative medicine—a high-growth sector with fundamental performance reversal—presents buying opportunities on any declines. Solid-state battery volatility has already been relatively high, and chasing rallies is not recommended, but the major行情 has not ended. Industrial revolution上涨 will not finish short-term; if there are adjustments, participation can still be emphasized. Overall, with rapid sector rotation, regardless of which sector investors hold,坚持 holding might be the best choice. Everbright Securities believes the market有望 continue rising, with technology growth style大概率 continuing to dominate. Regarding recent catalysts, Huawei will hold the Huawei Connect 2025 conference in Shanghai from September 18-20 with the theme ‘Leaping Industry Intelligence,’ and related concepts might预热 in advance—recommended to monitor.
Navigating the Rotation
For ordinary investors, the current market doesn’t lack opportunities but rather the ability to keep up with the rotational rhythm. Rather than chasing yesterday’s winners, investors might consider: – Maintaining exposure to multiple sectors rather than overconcentrating – Looking for quality companies in overlooked sectors that might benefit from rotational flows – Setting appropriate profit-taking levels for positions that have seen significant gains – Monitoring volume and momentum indicators for early signs of rotational changes The rotational market presents particular challenges for retail investors who typically lack the research resources and trading speed of institutional players. A disciplined approach focusing on fundamental quality rather than short-term momentum may prove more successful in such environments.
Looking Ahead: Rotation as Market Health
Rather than viewing today’s action as concerning, investors might interpret the rotational character as a sign of market health. The ability of money to move between sectors rather than exiting completely suggests underlying strength beneath the index-level weakness. The current rotation demonstrates that multiple narratives can coexist in the market—AI transformation, economic recovery, commodity cycles, and technological innovation. This diversity of leadership typically creates more sustainable advances than narrow markets dominated by a handful of names. For investors, the key is recognizing that rotation creates both risk and opportunity. Yesterday’s leaders can become tomorrow’s laggards, while overlooked sectors can suddenly catch favor. Maintaining a diversified approach while monitoring the fundamental drivers behind sector performance offers the best chance of navigating these rotational waters successfully. Monitor economic data, corporate earnings, and policy developments for clues to the next phase of this rotational market, and consider rebalancing portfolios to capture opportunities across multiple sectors rather than betting exclusively on yesterday’s winners.
