A Tale of Two Markets in July
China's A-share market in July 2026 was defined by a sharp sector rotation, with defensive and commodity-linked sectors outperforming dramatically as technology indices suffered significant corrections. The benchmark Shanghai Composite Index (SSE) fell 6.40% over the month to close at 3,832.26 points on July 31, though the final session saw a broad rally with turnover exceeding 2.5 trillion yuan and nearly 4,700 stocks closing in positive territory. The CSI 500, a barometer of mid-cap stocks, posted a more modest decline of around 2% for the month.
Sector Winners: Coal and Defensive Stocks Lead
According to Shenwan一级行业 data, coal led all 31 sectors with a monthly gain of 14.29%, followed by oil & petrochemicals, banking, food & beverage, beauty care, agriculture & forestry, transportation and commercial retail. These sectors share a common profile: stable cash flows, high dividend yields and low sensitivity to economic growth volatility. The performance of these "old economy" sectors reflects a flight to safety amid elevated market uncertainty, particularly in the aftermath of the STAR 50 Index's steep correction.
The Technology Correction: STAR 50 Falls 25.9%
On the other end of the spectrum, the STAR 50 Index plunged approximately 25.9% in July 2026, while the broader tech complex — including semiconductors, optical communications (CPO) and electronics — suffered significant losses. Despite a brief high-open driven by positive sentiment following the US stock market rally, tech stocks "gapped up and faded lower" on July 31, suggesting that buyers remain cautious and that sentiment has not yet stabilised. The ChiNext (Growth Enterprise Board) rose 3.06% on July 31, partially recovering from earlier-month losses.
Analyst Strategy: Barbell Approach Recommended
China Galaxy Securities chief strategist Yang Chao described July's rotation as a "panic liquidation" event concentrated in AI and technology names, noting that capital is shifting from crowded AI positions to defensive assets. For August, Yang recommends a barbell strategy: one end anchored in high-dividend, defensive names (coal, banking, utilities) and the other end awaiting selective entry points in technology names that have corrected to attractive valuations. The analyst emphasised that while the AI industry trend remains intact, the market will increasingly differentiate stocks based on earnings certainty rather than speculative momentum. August is expected to be a period of weak recovery with elevated volatility, as investors await policy signals and Q3 earnings season.