1. Strong Performance in European Markets

Yesterday, U.S. stock markets were closed for Washington’s Birthday, but European markets showed impressive strength. Germany’s stock market, in particular, surged 1.26% overnight, bringing its year-to-date gains to 14.51%. The recent Munich Security Conference (Feb 14-16) drew global attention, highlighting growing policy differences between the U.S. and Europe. These shifts in international relations could have significant long-term effects on global markets.

2. Hong Kong Stocks Continue Their Upward Trend

Despite the U.S. market holiday, Hong Kong stocks remained strong. After a slight pullback yesterday, today’s session saw continued gains. By midday, the Hang Seng Index was up over 2%, the Hang Seng China Enterprises Index rose 2.2%, and the Hang Seng Tech Index climbed nearly 3%. Since January 14, the Hang Seng Tech Index has surged approximately 34%, while Alibaba’s Hong Kong shares have jumped over 63% during the same period.

3. A50 Futures See Strong Gains

A50 futures had been underwhelming in recent weeks, rising only 4.72% since January 14—lagging behind the Shanghai Composite Index. However, today saw a sharp turnaround, with A50 futures climbing over 1.2% since the market opened. Global investment banks remain optimistic about Chinese stocks, with Goldman Sachs projecting $200 billion (approximately RMB 1.45 trillion) in capital inflows this year.

4. China’s Financial Sector Gathers Strength

While the overall A-share market showed mixed performance, the financial sector started gaining traction. Banking stocks, with a total market cap of RMB 9.4 trillion, helped lift the Shanghai Composite Index from negative territory. Large-cap stocks played a stabilizing role, while previously high-flying stocks saw some pullback.

5. Market Divergence in A-Shares

By midday, financial stocks were leading the market, while high-growth stocks experienced declines. This resulted in a divergence among the major indices:

• The Shanghai Composite Index edged up 0.29%, and the Shenzhen Component Index gained 0.13%.
• Meanwhile, the ChiNext Index and the STAR Market Index fell by 0.09% and 0.32%, respectively.
• Market breadth was weak, with 1,763 stocks rising versus 3,487 declining.
• Trading volume contracted sharply, reflecting cautious investor sentiment.

Key Takeaway: Financial Stocks Could Drive the Next Market Move

Despite a volume decline of RMB 225.3 billion compared to yesterday’s morning session, A-share markets still recorded RMB 1.05 trillion in turnover within the first two hours of trading. The financial sector’s momentum signals potential market strength ahead. Additionally, policy support measures have yet to be announced, meaning further catalysts could emerge. Investors will be watching closely for upcoming developments.