【Focus Recap】The Shanghai Composite Index rebounds with decreasing volume, recovers 3,900 points, while the combined trading volume of the two markets continues to hit the lowest level of the year. The innovative medicine concept experiences a long-awaited surge.

Ask AI · How Middle East conflict is catalyzing gains in energy metals and chemical sectors?

Caixin Media, March 27, reported: Today, 78 stocks hit the daily limit, 16 hit the limit and then broke (board failure), and the board-hit rate was 83%. Xintai Shandong and Rongjie Co., Ltd. achieved their fourth consecutive limit-up; Meinuo Hwa achieved five limit-ups in six days; Zhongnan Culture achieved eight limit-ups in 15 days; Oryrd achieved five limit-ups in eight days; Wanbangde, Shitou Co., Ltd., and Ningbo Energy achieved three consecutive limit-ups in four days; Guangxi Energy, Shida Shenghua, and Yunnan Germanium Industry achieved three limit-ups in six days. The market opened weak and then moved higher; the Shenzhen Component Index rose by more than 1%. Total trading volume across the Shanghai and Shenzhen markets was 1.85 trillion yuan, down by 90.3 billion yuan versus the previous trading day. On the market board, sector themes rotated rapidly, with more than 4,300 stocks rising across the board. By sector, energy metals, innovative drugs, and the chemical sector led the gains; insurance, power, and bank sectors fell against the trend. As of the close, the Shanghai Composite Index rose 0.63%, the Shenzhen Component Index rose 1.13%, and the ChiNext Index rose 0.71%.

Analysis of Popularity and Consecutive Limit-Up Stocks

The promotion rate for consecutive limit-up stocks fell to 30%. Of the four stocks that were 3-day consecutive limit-ups yesterday, 3 achieved promotion, but the two “2-to-3” candidates all failed to advance and each closed on the green board. The yesterday’s first major divergence in the green power industry chain continued to split two ways. High-expectation stocks like Yueneng Holdings and Zhongnan Culture hit limit-up, but Guangdong Power A, Hunan Development, and Zhejiang Xinneng all ranked among the top decliners. Driven by energy security concerns triggered by an escalation in the Middle East situation, chemical industries prompted by rising costs and supply-disruption expectations, as well as new-energy tracks such as lithium batteries and energy storage driven by demand for wind/solar + storage installations, both saw a double breakout. Many lithium-related stocks achieved consecutive limit-up promotion. In addition, the innovative drugs concept, which is already in a state of deep overselling, also moved in tandem with the A+H linkage. With uncertainty about whether the height of consecutive limit-ups can improve in the short term, some high-quality, high-visibility names with relatively reasonable positioning—those focusing on “trend capacity” and portfolio clustering—remain the top choice for funds.

Key Theme Line

According to institutional research reports, in the lithium battery segment, total production for April is expected to reach 204GWh, up 56% year over year and up 4% month over month, driving a sustained increase in demand for upstream materials such as anodes/cathodes, separators, and lithium salts. Lithium material stocks continued their prior strength. Rongjie, a lithium mine stock, advanced to a fourth consecutive limit-up. Shida Shenghua and Datongnan achieved consecutive limit-up promotions in the direction of electrolytes and separators, while Haike Xinyuan recorded a 20-centimeter limit-up. With the long-term impact of the Middle East conflict on oil and gas supply, the ongoing high oil price overseas and the sustained high-growth expectations for demand for electric vehicles and energy storage remain favorable for the upstream materials supply-demand outlook, with shipment growth rates for energy storage and power batteries being raised as well, which helps maintain optimism for upstream materials’ fundamentals. However, within the lithium battery industry chain, popular items are still mainly led by “trend capacity” clustering. The potential divergence in short-term high-standard consecutive limit-up names such as Rongjie, as well as risks from lithium salt price volatility, remain unfavorable for lithium mine stocks to break into a continuous upward “squeeze” advance. Still, for Australia, whose share of global supply exceeds 30%, as its fuel oil inventory keeps consuming down to a low level, the degree of disruption to lithium mine capacity remains a major positive factor for supporting the price of battery-grade lithium carbonate.

In the recent period, many leading innovative drug companies have released annual reports that came in above expectations. Companies such as Nocelai Health (诺诚健华), Everest Newray (云顶新耀), and China Biologic Medicine (中国生物医药), among others, turned losses into profits. In addition, multiple companies also released their latest updates on new drug progress. With multiple factors stacking up to drive it, the innovative drugs concept saw a meaningful rebound. Momentum stocks in the weight-loss drug concept—Meinuo Hwa—achieved a fourth consecutive limit-up. Wanbangde, which also benefited from the equity transfer concept, delivered a “4 days, 3 limit-ups” move. Shutaishen, Reorgon Biotechnology, and Ketuobiotechnology recorded 20-centimeter limit-ups. Meanwhile, weight stocks such as BeiGene, and Hengrui Medicine, all rose more than 5%. As BD revenue is a major source of income for domestic innovative drug companies, in the first two months of this year BD revenue already exceeded any quarter of last year and is approaching the full-year level of last year. However, the CICC Innovative Drugs Index has already adjusted back to the level of May last year. With the end of last year’s broad-based “no-difference” rally and a return toward the area around the starting point, a structural valuation repair rally for some high-quality companies whose performance has been realized earlier may be poised to begin.

Due to cost transmission and tightening supply, overseas chemical giants such as BASF and Wacker have recently raised prices one after another, with the maximum increase reaching 30%. The Middle East region’s oil and gas supply disruption has formed a sustained impact on global chemical product capacity. After having stabilized earlier, the chemical sector returned across the board. Sectors such as phosphorus chemicals and coal chemical industries led the way, with multiple stocks such as Jintong Technology, Chitianhua, Jinzengdad, and Liuguo Chemical hitting limit-up. Against the backdrop that spot crude oil prices in the market remain at $150 per barrel, the rapid release of G7 oil reserves in the short term is powerless to reverse the larger trend of global oil and gas supply imbalance. Coupled with the contraction in domestic capital expenditures, the earnings elasticity and valuation-for-money of domestic coal-chemical capacity—driven by cost advantages and substitution effects—stand out. However, in the first two months of this year, China’s fertilizer export volume fell by more than 70% year over year. Under the current trend that fertilizers and other products prioritize ensuring domestic demand, whether domestic chemical companies can fully benefit this time remains uncertain. For sub-sectors that indirectly benefit demand—such as phosphorus chemicals, lithium battery electrolyte solvents, and others linked to needs like lithium batteries—are still worth积极 monitoring.

Multiple brokerage research reports noted that Nvidia disclosed the Scale-across and next-generation architecture dragonfly network architecture at the OFC conference and began using OCS switches for internal validation of the new architecture. Earlier in the day, computer hardware stocks rebounded after being dragged down by a selloff in overnight U.S. stock communication optical concept shares. The core OCS concept stock Tengjing Technology rose by more than 10%. The OCS-related concept stock Yunnan Germanium Industry hit a 6-day 3-limit-up move, setting new highs. Popular OCS concept names such as Decoli, Unilase Technology (光库科技), and Micron Technology (赛微电子) all ranked among the top gainers. Judging from the moves by multiple big manufacturers such as Nvidia entering the space, the application scenarios and breadth of customer acceptance for OCS are expanding. However, if the broader computing hardware—led by optical communications—falls back into a kind of “tightening the circle” clustered trading pattern again, because it remains highly uncertain whether domestic companies can be included as suppliers for North American leading manufacturers, the fundamentals of such companies are still prone to being disproved in the short term. In addition, with current computer hardware stocks’ share of overall market trading turnover still declining, that remains unfavorable for them to sustain a continuous rally. Chasing higher prices in the short term should therefore be relatively cautious.

Outlook for the Next Phase

With the unfavorable situation that last night and this morning the external markets generally weakened, the market today showed a pattern of opening lower and then moving higher. Although today’s total trading value across both markets further fell to 1.85 trillion yuan, setting a low-volume level for this year, more than 4,300 individual stocks closed higher—100 stocks across the market rose more than 10%—and there were only 2 stocks that hit the daily limit-down. After bearish momentum was repeatedly released and the short-term selloff energy appears to have exhausted further downside-follow-through, this has been further confirmed. From the major indices: although the Shanghai Composite today recovered the 3,900-point integer level and the 5-day moving average, and the daily KDJ formed a low-level golden cross, on the 60-minute K-line the MACD is still running below the zero axis, so the index has not truly escaped the risk of ongoing adjustment. As for the micro-cap stock index, although it edged up this week, with the current period of dense earnings disclosures approaching and the market’s risk appetite still insufficient, it remains unfavorable for underperforming small-cap stocks. Investors should focus more on sectors where first-quarter earnings growth has relatively higher certainty.

Intraday Limit-Up Analysis Chart

(Caixin Media, Jin Haoming)