Summary of Key Points
Recently, the A-share market has experienced a stark contrast of extremes: on one hand, there have been continuous signals of market rescue (such as investigations by the Securities Regulatory Commission chairman and increased holdings by state-owned asset platforms), while on the other hand, major funds and leveraged capital have been panicking and fleeing the market. However, at the same time, "smart money" (primarily represented by broad-based ETFs) has been quietly buying up stocks, with a total inflow of 156.1 billion yuan in one week. There has been a shift in sector performance, with technology stocks, which had risen sharply earlier, being heavily sold off, while defensive sectors with low valuations and high dividends, such as coal, power, and liquor, performing well. Overall, market sentiment has shifted from hesitation to a more defensive stance, but the entry of funds looking for bargains does offer some hope for market stability.
I. The Market Rescue Measures Are in Place, But Reactions Are Hesitant
On July 20th, the A-share market opened higher due to these rescue measures: the Shanghai Composite Index and the Shenzhen Component Index both rose by nearly 2%, with the ChiNext Index even exceeding a 3.5% increase. These measures included an inspection by the Securities Regulatory Commission chairman, Wu Qing, who stated his commitment to maintaining market stability, as well as announcements by two major state-owned asset platforms, China Guoxin and Chengtong, to increase their stock holdings the previous evening. By the end of the day, however, the gains had narrowed significantly—the Shanghai Composite Index only rose by 0.85%, while the Shenzhen Component Index fell by 0.71%. This indicates that investors are still unsure and hesitant to enter the market aggressively, as confidence is still in the process of recovery.
II. Major Funds Shift Their Focus: Technology Stocks Are Sold Off, Low-Valued Sectors Gain Popularity
Last week (July 13-17), major funds (such as institutional investors) withdrew a net amount of over 300 billion yuan from the market, representing a "systematic retreat" rather than just a change in sectors. Specifically:
- Technology Sectors Suffer Heavy Losses: Sectors that had performed well earlier, such as consumer electronics and communications, became targets for capital outflows. For example, Huatian Technology and Jiangbolong saw net sales of over 5 billion yuan, and Zhongji Xuchuang experienced a net sale of over 3 billion yuan.
- Low-Valued Sectors Perform Well: Defensive sectors like coal, power, oil and petrochemicals, and liquor saw strong gains. Companies such as Huaneng Mengdian and Dayou Energy even hit daily limit-ups. The reason is that these sectors have lower valuations and higher dividends, making them safer havens for funds during market panic.
III. ETFs Continue to Buy Despite Market Declines: 156.1 Billion Yuan in Broad-Based Fund Inflows
Despite the market's decline, funds in ETFs (which essentially represent a basket of stocks) have been taking a contrarian approach, buying more as prices fall. Last week, broad-based ETFs tracking indices like the CSI 300, CSI 1000, and STAR 50 saw a total inflow of 156.1 billion yuan, with the CSI 300 ETF alone attracting nearly 40 billion yuan. Some may wonder why the overall size of ETF funds decreased by 43.8 billion yuan. This is because while funds are buying, the stocks in these ETFs have declined significantly, reducing their total value. However, it also indicates that a portion of "smart money" is quietly building positions in major market indices during the panic.
IV. Leveraged Capital Ramps Up Withdrawals: Technology Sectors Hit Hard
Leveraged capital (such as those using margin trading) has been withdrawing rapidly from the market, with a decrease of 165.2 billion yuan in one week, and more than 80 billion yuan alone on July 17th. The majority of this withdrawal focused on technology sectors. For example, the semiconductor industry saw a net outflow of 41.2 billion yuan, communication equipment 17.4 billion yuan, and consumer electronics 7.2 billion yuan. This is because technology stocks are highly volatile, and those using leverage are afraid of further losses, so they are quickly closing their positions.
V. Market Sentiment Turns Defensive: The Future Depends on Whether State-Owned Funds Continue to Support the Market
Current market sentiment is clearly defensive, as the proportion of trades involving margin financing has dropped from 9.03% to 7.72%. A decline below 8% suggests that the most active risk-taking investors (retailers and speculative funds) are becoming more cautious and less active in trading.
The good news is that state-owned asset platforms have begun to increase their stock holdings, and broad-based ETFs are also buying up stocks at lower prices. If state-owned funds or other institutional investors continue to inject liquidity into the market, it could lead to a temporary bottoming out. Once panic subsides and more funds enter the market, stability may be achieved.
In summary, the A-share market is currently in a phase where opportunities lie amidst fear: while capital is fleeing, "smart money" is taking advantage of the dips. For ordinary investors considering entering the market, it is advisable to wait for signs of stabilization before making decisions. They could consider investing in low-valuation, high-dividend defensive sectors or gradually building positions through broad-based ETFs.