Summary of Key Points
In August, the A-share market saw a rebound, with the Shanghai Composite Index experiencing a significant increase on a single day that turned its annual performance from negative to positive. Out of the 11 trading days since August, the index has risen in 8 of them. Over 80% of actively managed equity funds have seen gains, with 43 funds increasing by more than 25%, and 89 funds reaching record highs. However, the focus of investment has shifted from the AI technology sector to diversified areas such as pharmaceuticals, cyclical stocks, and balanced portfolios. Institutions believe the market has entered a period of consolidation, with the technology sector showing divergence but with potential for a comeback. The pharmaceutical sector stands out due to its lower level of investor interest and strong performance. Investors should be cautious about chasing high-priced, highly speculative technology stocks and instead focus on core assets and low-valued defensive sectors.
I. A-share Rebound: Index Recovery, Annual Performance Turns Positive
On August 17, the three major A-share indices all showed improvement: the Shanghai Composite Index rose by 1.41%, bringing its annual performance back from negative to 0.35%. The ChiNext Index (3.14%) and the Shenzhen Component Index (2.44%) performed even better. This was no short-lived surge; in the 11 trading days since August, the Shanghai Composite Index has risen in 8 out of 11 days, with a cumulative increase of nearly 4%. Market activity has also picked up, with daily trading volumes exceeding 2.4 trillion yuan, indicating a growing sentiment of profitability.
II. Fund Performance: Over 80% of Funds Are Profitable, and Hotspots Are No Longer Limited to AI
The rebound in the stock market has helped funds recover their losses:
- Overall Performance: More than 80% of actively managed equity funds have been profitable since August, with 43 funds increasing by more than 25% in a month (for example, HSBC JinXin Technology Pioneer increased by over 31%). However, these funds had lost 40% in July, highlighting the high volatility in the technology sector.
- Diversification of Hotspots: Unlike before when AI was the dominant factor, there is now a variety of fund types that have performed well:
- Pharmaceutical Funds: Zhaoshang Quality Growth A, which only rose by 3% in the first half of the year, has now achieved an annual return of 35%, with its top thirteen holdings all being pharmaceutical stocks. Caitong Medical Health A, which lost 3% in the first half, is now earning a 18% return.
- Cyclical Funds: Wanjia Macro Timing Multi-Strategy A has already earned 46% this year—up from 14% in the first half. It gained 15% in July when technology stocks declined and another 10% in August, demonstrating a successful counter-trend strategy.
- Balanced Funds: 89 funds have reached record highs, covering sectors such as pharmaceuticals, cyclical stocks, and balanced portfolios, indicating that AI is no longer the only key factor for success.
III. Market Changes: Moving from a Single Focus to Diversified Rotation
Previously, the market was dominated by AI; now, investment capital is beginning to spread:
- Divergence in the Technology Sector: Researchers at Great Wall Fund note that funds invested heavily in certain sub-sectors of technology (such as AI) are withdrawing, with capital flowing into non-technology sectors like pharmaceuticals and cyclical stocks.
- Pharmaceuticals as a Highlight: The pharmaceutical sector is gaining attention because it is less crowded (with fewer investors), its mid-year performance is clear, and there is policy support plus the potential for overseas market expansion (e.g., with innovative drugs).
- Cyclical Stocks on the Rise: As Manager Huang Hai from Wanjia Fund pointed out, extreme divergence can lead to a return to average values. When everyone is focusing on AI, cyclical stocks may present opportunities for profit.
IV. Institutional Views on the Future Market: Opportunities and Risks
Institutions are optimistic about the market outlook but also warn of potential risks:
- Short-term Recovery: Great Wall Fund expects a “golden autumn” market, driven by factors such as reduced expectations of foreign interest rate hikes, positive domestic policies, and ongoing market liquidity.
- Mid-term Key Points: The success of the market will depend on whether corporate performance improves (as reflected in mid-year reports) and whether policies can boost the economy (through fiscal and monetary measures).
- Risk Warning: Hengshen Qianhai Fund managers suggest that the index may experience a pullback after the rebound, with a faster rotation between growth (technology) and defensive (low-valued) sectors.
- Long-term Trend: CITIC Prudential Fund notes that semiconductor components (with domestic substitution and global supply shortages) are likely to show strong performance. China’s capital market is shifting from focusing on speculative concepts to embracing innovation-driven growth, with hard technology and high-end manufacturing as key areas for long-term development.
V. Advice for Ordinary Investors: Avoid Chasing High Prices, Choose Solid Investments
Researchers at Great Wall Fund recommend:
1. Avoid Overcrowded Technologies: Avoid investing in highly speculative AI sub-sectors that have already seen significant price increases.
2. Focus on Core Assets: Invest in companies with solid performance and the ability to generate cash flows (e.g., innovative pharmaceuticals or semiconductor components in the technology sector).
3. Low-valuation Defenses: Allocate funds to low-valued sectors (such as banks and real estate) to hedge against market volatility, rather than seeking quick profits.
In simple terms: Don’t follow the latest trends; choose companies that are actually generating profits and keep some of your money in more stable assets.
With this analysis, even those without financial expertise can understand that the A-share market is recovering, with more opportunities for profit. However, it’s important to make rational investments and avoid taking on high risks.