A-shares enter a volatile period. How will the market rotate styles?

A-shares enter a volatile period. How will the market rotate styles?

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The overall A-share index has entered a consolidation range, but this does not mean the market will see a full-scale "rotation from high to low"—Dongwu Securities believes the maintenance of the consolidation period depends on sector rotation within STAR assets rather than a switch to consumer, financial, and real estate sectors across the market.

According to the macro commentary report released by Dongwu Securities on June 4, the market shifted from TACO trading in April to NACHO trading in May, with global funds once again concentrating in a few asset categories with clear industry trends. A few assets in the A-share technology sector rose to new highs, but broad-based indices overall entered a narrow consolidation, a state likely to persist until the end of Q2.

Dongwu Securities points out that historical data show once the market style switches to sectors outside of STAR assets, indices often begin to decline rather than maintain consolidation.

Against this backdrop, Dongwu Securities recommends paying attention to the relay opportunities in the resource-type Res-STAR sector; specifically, it is optimistic about the coal, electricity, petrochemical, and shipping sectors, and predicts that after the consolidation ends, market style will likely return to the technology-type Tech-STAR sector.

A-share consolidation pattern has formed, to continue to the end of Q2

Since mid-May, among major global stock indices, only Korea, Japan, Taiwan, and the A-share ChiNext index have continued to hit new highs, while other overseas stock indices have entered a consolidation trend.

Dongwu Securities points out that after the earnings season, concentrated industry-level positive factors are limited, and market focus shifts back to macro factors. On one hand, oil prices fluctuate at high levels and overseas situations remain unresolved; on the other hand, overseas economic data are better than expected along with hawkish monetary policy expectations, shifting global liquidity expectations. Before Q2 earnings disclosure, with a lack of further upward drivers at the industrial level, macro factors may have short-term reversals due to the US-Iran conflict, but are insufficient to have a strong impact on the market. Thus, the market's overall low-volatility repeated reversal status is expected to continue until the end of Q2.

From the internal structure of the market, the polarization coefficient for valuation in the tech sector has been pushed to a high level, the tech sector's upward slope is gradually decreasing, sector volatility is enlarging, and some sectors alternate between large rises and falls in a single day. Meanwhile, the dividend index has started to perform recently, the market's barbell style is returning, and discussions about "rotation from high to low" are gradually increasing.

No "rotation from high to low" during consolidation, internal rotation within STAR is key

Dongwu Securities cited its previously proposed STAR (Strategic Treasures Always Robust) asset framework, dividing strategic security assets into three categories: Tech-STAR (including semiconductor integrated circuits, high-end equipment manufacturing, digital information, biomedicine, aerospace, artificial intelligence, etc.), Res-STAR (traditional and new energy resources, strategic minerals, key new materials), and Infra-STAR (logistics and shipping, national defense and military, power grid and computing synergy, etc.).

Looking back at two representative consolidation periods from 2025 to 2026—September to November 2025 and December 2025 to January 2026—Dongwu Securities found that when the style switched from Tech-STAR to Res-STAR, indices could maintain a high-level consolidation range; however, once it switched to sectors outside of STAR assets such as consumer and financial real estate, indices usually started to decline, marking the end of the consolidation pattern.

Dongwu Securities attributes this pattern to the highly concentrated structure of funds. Data show that last week (May 25–29, 2026), the trading congestion in the TMT sector accounted for over 45% of total A-share trading, and free-float market cap was about 42% of A-shares. Once STAR assets adjust, other sectors cannot accommodate large capital inflows in the absence of market consensus; after short-term rebounds in consumer and financial real estate, the market still needs to wait for STAR asset sentiment to adjust before rising again to drive overall popularity.

Res-STAR relays, coal, petrochemical, shipping receive focus

Dongwu Securities believes that, referring to past consolidation patterns, after Tech-STAR starts to adjust, broad sectors are usually relayed by Res-STAR.

Specifically, Dongwu Securities is optimistic about the following three directions: First, coal and electricity sectors—intensified El Niño phenomenon plus entering the summer peak electricity season in June, demand-side increases and supply-side tightening are expected to drive performance and prices higher; Second, petrochemical sector—uncertainty remains in the navigation of the Strait of Hormuz, slow supply recovery, oil company inventories gradually decline, prices gradually rise; Third, shipping—affected by crude oil prices, rerouted shipping lines lengthen distances, and early positioning for summer peak season is expected to lift freight rates.

Dongwu Securities also pointed out that this consolidation period faces short-term impacts from market liquidity due to overseas central bank super weeks and World Cup events, and medium- to long-term impacts from potential US midterm elections. Under these circumstances, Res-STAR not only has fundamental support, but also defensive attributes, able to partially withstand market volatility triggered by external risk events.

Looking ahead, Dongwu Securities judges that after the consolidation ends and market liquidity returns, market style will likely switch back from Res-STAR to Tech-STAR again, and with the dual support from interim results announcements and industry trends, further drive the market upward.

Risk warning and disclaimerThe market contains risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific situation. Investments based on this are at your own risk. ```