On Tuesday, the A-share market showed initial hesitation during the morning session. However, by the afternoon, major financial sectors—particularly brokerages—regained momentum, driving key indices upward. The Shanghai Composite Index reached a new annual high for 2025, establishing a clear breakthrough pattern on the daily chart and boosting investor confidence in the ongoing market trend.
New Catalysts Boost Market Sentiment
Market participants welcomed two significant positive developments:
First, the U.S. Federal Reserve has once again adopted a dovish tone. Some optimistic analysts anticipate the start of a new interest rate cut cycle. This is a highly encouraging signal for A-shares. Back in late September, expectations of a Fed rate cut led investors to believe that China’s economy would have more room for stable growth. That sentiment triggered what is now referred to as the “9.24 Rally.” The renewed possibility of rate cuts has evoked a similar response, encouraging fresh capital inflows and powering the recent rally.
Additionally, a Fed rate cut would likely enhance global liquidity, attracting more international capital into Hong Kong and mainland Chinese stocks. This has contributed to the sustained upward movement of both markets over the past two trading sessions.
Second, positive news has emerged from the stable currency sector. Guotai Junan International (01788.HK) has officially received approval from Hong Kong’s Securities and Futures Commission to upgrade its securities license. The firm is now licensed to provide virtual asset trading and related advisory services, becoming the first Chinese-funded brokerage in Hong Kong to receive such comprehensive approval. This news led to a nearly 200% surge in the company’s stock price.
This development has sparked considerable interest among short-term traders. It has not only boosted the appeal of stable currency-related stocks but also raised expectations that other brokerages may seek similar licenses. As a result, brokerage stocks—especially internet-based brokerages—have become market leaders, reinforcing the strength of the major financial sector and acting as a driving force behind the market’s upward momentum.
Two Key Factors Influencing Short-Term Momentum
The strong performance of the financial sector has reignited market enthusiasm. With the Shanghai Composite Index hitting a new annual high, optimism about the sustainability of the rally is growing.
However, the extent of further gains depends on two major factors:
Trading Volume
Although the combined trading volume on the Shanghai and Shenzhen exchanges reached ¥1.6 trillion on Tuesday—an increase of ¥188.2 billion from the previous session—this is still considered moderate given the sharp rise in indices and the large market capitalization of financial stocks. This suggests that while investor sentiment is improving, the pace of capital inflow remains cautious. If trading volume does not expand significantly—for instance, approaching ¥2 trillion—the scope and strength of the short-term rally may be limited.
Sector Rotation
The financial sector has been the primary driver of this rally. However, historically, sustained market breakthroughs require support not only from leading sectors like finance but also from segments tied to the real economy. Since manufacturing represents a significant portion of A-shares, a rally driven solely by financial stocks may lack broad-based strength.
If sectors such as new energy, semiconductors, or the STAR Market begin to rally, the upward trend would be on more solid footing, suggesting greater potential for continued growth.
In summary, although short-term market sentiment is positive, the sustainability of the rally depends on trading volume and participation from real-economy sectors. Investors are advised to maintain positions while closely monitoring these developments before making further allocation decisions.
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Frequently Asked Questions
What caused the recent rally in A-shares?
The rally was fueled by expectations of a U.S. Federal Reserve rate cut and new regulatory approvals in the virtual asset sector. These developments attracted both domestic and international capital, particularly into financial and technology-related stocks.
How important is trading volume in sustaining the market rise?
Trading volume is a critical indicator of market strength. Higher volume reflects increased participation and conviction among investors. Without a significant rise in volume, the current uptrend may lack staying power.
Which sectors are supporting the current market trend?
The financial sector—especially brokerages—has been the main driver. For a more sustainable rally, support from real-economy sectors like manufacturing, green energy, and semiconductors is essential.
Should investors consider increasing their exposure to A-shares?
While current conditions are favorable, investors should monitor volume trends and sector rotation. Maintaining a balanced portfolio with exposure to both financial and real-economy stocks is a prudent strategy.
What role does global liquidity play in A-share performance?
Global liquidity conditions significantly influence cross-border capital flows. Expansionary monetary policies in major economies often lead to increased investment in emerging markets like China, supporting asset prices.
Is the breakout in the Shanghai Composite Index likely to continue?
The breakout reflects improved sentiment, but its sustainability will depend on continued institutional support, volume expansion, and broader sector participation. Market participants should watch these factors closely.