On October 15th, the Asia-Pacific stock markets experienced a "Black Thursday," with South Korea's KOSPI index triggering a circuit breaker and closing down 7.57%, while the Nikkei 225 index fell by 4.90%; A-share markets also saw widespread declines, with the Shanghai Composite Index engaging in a battle for the 3700-point mark.
In response to this, Yang Chao, the chief strategist at Galaxy Securities, told Yicai that the trigger was the US inflation data exceeding expectations, which caused the market to reprice the Federal Reserve's monetary policy. The rise in US Treasury yields suppressed global risk appetite, and stock markets in the Asia-Pacific region were the first to experience significant fluctuations.
"Looking at the A-share market, external factors are the direct triggers. Recently, there has been overcrowding in trading of growth sectors, which already had a need to digest valuations. The external shocks have amplified short-term panic, leading to a concentrated rush to cash out by funds," believes Yang Chao. He argues that there has been no shift in the domestic fundamentals or policy environment; the external shocks are more of an emotional disturbance rather than a reversal in fundamental trends.
In the industry's view, the short-term market is likely to remain in a state of fluctuating consolidation and bottoming out, with limited room for further decline. In terms of investment allocation, one can focus on dividend-defensive sectors. Within the technology sector, it is important to distinguish between genuine and fake companies, and to select those leading companies that have delivered solid performance as reflected in their third-quarter reports and have solid orders.
The Shanghai Composite Index is battling for 3,700 points, with funds flowing into broad-based indices ETF
On October 15th, stock markets in the Asia-Pacific region suffered a heavy setback.
The South Korean stock market has become a "hard-hit area." The KOSPI index and the KOSDAQ index both tumbled more than 8% during trading, triggering the circuit breaker mechanism, and ultimately both indices closed down by more than 7%. The Nikkei 225 index also saw a downward fluctuation after opening, closing down 4.9% as well.
The A-share market also opened lower with a gap down, with the Shanghai Composite Index falling below 3,700 points during the session, reaching a low of 3,674.82 points. There was a rebound in the later stages of the session, and it eventually managed to stay above 3,700 points, closing at 3,707.48 points, a decline of 1.59%. The Shenzhen Component Index, ChiNext Index, and Science and Technology Innovation Composite Index all fell by more than 2%.
Some institutional analysts believe that the core contradiction of this round of adjustments is essentially a combination of external liquidity expectations and internal capital structure issues, rather than a shift in the fundamental fundamentals of the industry. Overseas inflation data has fueled expectations of interest rate hikes by the Federal Reserve, and coupled with significant fluctuations in the South Korean stock market, it has triggered a chain panic among Asian risky assets, which served as the catalyst for the weakening sentiment on October 15th.
The battle for 3,700 points on the Shanghai Composite Index has drawn high attention from the market. In this regard, the aforementioned institutional sources believe that although the index fell below the previously key critical level of 3,741 points, it did not break through 3,674 points. For now, it is judged that the nature of the market movement is still a test of emotional-based false breaks, and it does not indicate a direct shift towards a bearish trend.
On the afternoon of the 15th, there was heavy trading in the broad-based index ETF. On that day, the trading volume of the CSI 300 ETF managed by E Fund exceeded 19 billion yuan; the trading volumes of the Sci-Tech Innovation 50 ETFs managed by Huaxia and the GEM ETF ETF managed by E Fund both surpassed 12 billion yuan; the trading volumes of the CSI 300 ETFs managed by Huatai-PineBridge and A500ETF Huatai-PineBridge both exceeded 5 billion yuan.
In Yang Chao's view, this is a positive sign. The broad-based ETF has funds entering to support it, indicating that domestic funds recognize the allocation value within the current range.
Meng Lei, a stock strategy analyst at UBS Securities China, also observed that recently, the trading volume of the main broad-based index ETF in the A-share market has rapidly increased. According to Yicai, from October 12th to October 14th, the Shanghai market ETF saw net inflows of 28.379 billion yuan, 23.475 billion yuan, and 23.793 billion yuan respectively, with a total net inflow of over 70 billion yuan over the three days. Among them, the broad-based index ETF12 had net inflows of 15.775 billion yuan, 8.405 billion yuan, and 5.712 billion yuan on those same days.
"Since 2024, whenever the Shanghai Composite Index quickly pulls back below key levels, ETF has seen continuous net inflows. Unlike the period from 2024 to 2025, in the past, the products that attracted large-scale net inflows to the ETF market were mainly CSI 300 ETFs. However, recent net inflows have been distributed across CSI 300 ETFs, CSI 500 ETFs, CSI 1000 ETFs, the GEM Index ETF, and the Sci-Tech 50 ETF. Therefore, we believe that the downside risks faced by the current A-share market are limited," said Meng Lei.
Market Style Rebalancing or Main Trend Switch?
Recently, the A-share market has been fluctuating downward, with fewer sectors seeing gains and more experiencing declines. Funds have also made large-scale sales in the technology sector, while there has been net inflow into a few defensive sectors.
On the 15th, among the 31 sectors in the Shenwan classification, only the food and beverage and non-bank finance sectors were in the green, while the remaining 29 sectors declined. Among them, the communications sector led the declines with a drop of 4.64%, and there were also 9 sectors such as national defense and military industry, machinery and equipment, and non-ferrous metals that saw declines of over 3%.
There is also less data on industries that are favored by capital. On the 15th, mainstream funds only had a net inflow into four industries: biomedicine, coal, transportation, and beauty care; the remaining 27 industries experienced net outflows. Among them, mainstream funds sold off heavily in the electronics and communications industries, with net outflows of 8.277 billion yuan and 7.105 billion yuan respectively. The machinery and equipment, as well as power equipment industries, also saw net outflows of 4.37 billion yuan and 3.393 billion yuan from mainstream funds.
Looking at the capital data of the past 5 trading days, the electronics and communications industries have seen significant selling by major funds, with net outflows of 26.224 billion yuan and 19.849 billion yuan respectively. The machinery and equipment, non-ferrous metals, and computer industries also experienced substantial net outflows by major funds, amounting to 9.002 billion yuan, 7.466 billion yuan, and 5.454 billion yuan respectively.
In the past 5 days, leveraged funds have also seen a significant net outflow from the electronics industry, with a net outflow of 17.494 billion yuan, ranking first by a large margin; followed by the communications industry, which experienced a net outflow of 8.123 billion yuan in financing funds; the machinery and equipment, power equipment, and biomedicine industries saw net outflows ranging from 1.2 billion to 3.5 billion yuan. During the same period, the industries that saw net inflows of leveraged funds were also defensive sectors, with media, commerce and retail, and petroleum and petrochemicals among those with the highest net inflows.
Yang Chao analyzed that the current market is showing a clear rebalancing of styles, with funds periodically shifting towards sectors with stable cash flows and strong performance certainty. Sectors such as food and beverages, as well as non-bank finance, have strengthened. Essentially, this is a defensive move by funds to hedge against volatility, but it does not mean a complete shift in the main investment trend. The recent pullbacks in communications and electronics sectors are mainly due to large prior gains and crowded trading, coupled with rising overseas interest rates that have pressured growth valuations, which is a process of internal valuation digestion within these sectors.
"The major trends in the technology industry have not changed. AI, advanced packaging, and orders for computing power hardware, as well as the implementation of these technologies in the industry, continue to advance steadily," said Yang Chao.
Meng Lei also mentioned that, based on trading data, the proportion of the current large-tech sector's weekly trading volume in the total A-share market has returned to the level seen at the beginning of April this year. The trading congestion of individual stocks with higher trading volumes has also significantly decreased, indicating that the tail risks and trading congestion have been largely alleviated. Of course, the probability of off-exchange funds flowing back quickly in the short term is low, as it still takes time for their risk preferences to recover.
How will the market develop in the future?
After this wave of sharp decline in the A-share market, how will the market develop in the future?
"In the short term, the market is likely to remain volatile and see a bottoming out followed by a rebound. The fluctuations will increase, but there is limited room for further decline," believes Yang Chao. He argues that what is happening now is more of a stress test during the process of risk appetite recovery. Once panic subsides, the market will gradually return to focusing on domestic fundamentals and the performance of companies in their third-quarter reports."
In the view of the strategy team at Tianfeng Securities, the A-share market has continued to be weak since National Day, with trading volumes not yet returning to 2 trillion. The time and space for this round of adjustment have been relatively sufficient. On October 10th, the China Securities Regulatory Commission held a symposium, and favorable policies have been gradually implemented. However, from the policy bottom to the market bottom, it is still necessary to continue observing the changes in the micro-structure of the market.
"Determining the performance inflection point is the core issue in whether the market can emerge from its bottom-finding period. The market bottom usually appears 1 to 2 quarters ahead of the performance inflection point," said the strategy team at Tianfeng Securities.
For the fourth quarter, "overall, we maintain a relatively optimistic outlook: on one hand, domestic liquidity remains reasonably ample, and policies to stabilize growth continue to be implemented, indicating potential for structural improvement in corporate profits; on the other hand, as external inflation expectations gradually ease, the upward pressure on U.S. bonds is expected to be marginally alleviated," believes Yang Chao. He believes that the market trend will be more characterized by fluctuating upward movements, with structure being key.
Huabao Securities stated in a research report on October 15th that market sentiment needs to be restored, and in the short term, the focus should be on reducing volatility and dividend allocation. On one hand, it may be necessary to gradually reduce exposure to technology-related positions to mitigate portfolio volatility; on the other hand, amid growing concerns about U.S. and European bonds, it is important to leverage various dividend strategies to hedge against volatility, with a particular focus on low-volatility dividend sectors that have stronger defensive characteristics.
Yang Chao also suggests adopting a dumbbell-style configuration approach to achieve a balanced offense and defense. Keep dividend-defensive sectors in the core portfolio to smooth out fluctuations in the overall portfolio; on the offensive side, filter through the technology sector to identify genuine companies with solid third-quarter performance and solid orders, avoiding pure theme-driven speculation targets. Once the overcrowding in these sectors has been sufficiently reduced, there will still be decent structural opportunities in technology.
