A-share market adjusts amid commodity volatility

Amid heightened volatility in global commodity markets, the A-share market retreated on Monday, reflecting short-term pressure from a sharp correction in precious metals. However, market participants noted that policy support and sector-specific resilience continued to provide a stabilizing underpinning for the broader market.

The benchmark Shanghai Composite Index shed 2.48 percent to close at 4,015.75 points. The Shenzhen Component Index fell 2.69 percent, while the technology-focused ChiNext Index in Shenzhen slid 2.46 percent. Despite the broad pullback, selected sectors such as power grid and consumer-related stocks showed relative strength, underscoring diverging performances and cushioning the overall market downturn.

This could be largely attributed to the recent rout in gold and silver, with the spot price of the yellow metal crashing more than 9 percent on Friday and silver marking its biggest daily loss of about 30 percent since March 1980. The sell-off extended into early Monday trading hours, with spot gold shedding another 7.5 percent and the white metal down by more than 14 percent.

But A-share power grid companies stood out from the Monday market adjustment, with their prices up by 1.98 percent on average.

Experts from China Fortune Securities explained that demand for power equipment has spiked due to the construction of artificial intelligence data centers across the world. This indicates opportunities for companies specializing in liquid-cooled equipment, energy storage, micro-grids and supporting direct current power supply equipment.

As CCTV reported on Saturday, a large number of transformer factories in Guangdong and Jiangsu provinces are already working to their full capacity. Some of them have data center-related orders scheduled until 2027.

Chinese liquor companies also showed robust performance on Monday. Gansu Huangtai Wine-marketing Industry Co Ltd touched the daily upper limit of 10 percent for the third consecutive trading day. Sichuan Swellfun Co Ltd, which closed 7.44 percent higher, approached the 10-percent price increase limit during morning trading hours.

As Chinese liquor companies are actively adjusting their inventory and building healthier distribution channels, wholesale prices of high-end baijiu are likely to stabilize, said experts from Southwest Securities.

Amid the smoother sales from dealers, to end-retailers and consumers, consumption of baijiu is expected to pick up during the longer Spring Festival holiday this year. Baijiu companies are likely to see their prices further recover, analysts from CITIC Securities further explained.

The People's Bank of China, the country's central bank, conducted 75 billion yuan ($10.8 billion) of seven-day reverse repurchase operations on Monday, with an operating rate of 1.4 percent, unchanged from the last one. A total of 150.5 billion yuan of seven-day reserve repos matured on Monday, indicating a net withdrawal of 75.5 billion yuan. Such marginal tightening of liquidity, as market mavens explained, may lead to price pressure on risky assets to some extent.

Analysts from Huaxi Securities said the market liquidity may still face temporary disruptions in February due to cash withdrawals during the Spring Festival and the concentrated issuance of government bonds. But the Chinese central bank's relatively relaxed monetary stance is quite evident. Therefore, liquidity injections are likely to continue increasing, helping to stabilize capital supply in the market before the holiday, they said.