A-share markets closed lower across the board on October 12, with the ChiNext Index and the STAR Composite Index both dropping more than 2%. Combined turnover on the Shanghai and Shenzhen exchanges reached 1.54 trillion yuan, shrinking by 362.7 billion yuan from the previous trading day. More than 4,300 stocks across the market declined, bank shares bucked the trend to move higher, while tech sectors such as AI computing hardware continued to face pressure.
As investors scrambled to explain the shrinking volume and persistent pullback in tech stocks, a "weekly report" attributed to "Xiva Private Fund's Liang Hong" began circulating widely on social media starting October 11. Its claim that "certain insurance asset management giants bought heavily into tech stocks at July highs but made significant stop-loss cuts in late September" drew widespread attention. On the same day, a research note from Zhongtai Securities stated that "in the first two days after the holiday, A-shares continued to significantly underperform overseas markets, with insurance and 'fixed income plus' passive redemptions being the core source of selling pressure."
However, multiple interviews found that institutional views are far from uniform. A person at an insurance asset management institution told reporters that regulators currently do not impose a unified hard stop-loss line on insurance companies. To protect returns or control risk, individual institutions set internal stop-loss requirements, but "a single institution's periodic position adjustment is not enough to prove it has always followed a 'chase rallies, dump losers' investment style."
A non-bank analyst at a brokerage told reporters that insurance asset managers set their own stop-loss lines, but the specific standards can be adjusted. The analyst noted that some insurance accounts may adjust equity positions at quarter-end or year-end for financial reporting reasons, "but the scale of these funds is not that large, so the claim that they caused a major market adjustment does not hold up."
Another institutional source said that factors such as Federal Reserve rate hikes and rising US Treasury yields are the underlying drivers of domestic market volatility, and "capital behavior merely accelerated the decline."
Dispute over insurance capital stop-losses
According to Zhongtai Securities, insurance and "fixed income plus" funds that concentrated their allocations into tech in the second quarter have seen their correlation with the tech sector fall by roughly 70% to 80% from peak levels, depending on the weighting method used, but it remains about 20% to 30% higher than the normal level seen in 2025. This implies that roughly 20% to 30% of newly added tech positions may still need to be digested. Zhongtai Securities believes this type of capital is now in the final stages of clearing out, and while the last phase could still bring bouts of volatility, the persistent selling pressure is declining.
What stop-loss constraints do insurance funds actually face? A researcher at an insurance asset management company told reporters that regulators currently do not set a unified mandatory stop-loss line for insurance companies, but insurance asset managers do impose internal stop-loss requirements to safeguard returns or control risk. "There is a fixed stop-loss line, but each institution's line is different," the researcher said.
Does this mean insurance capital behavior runs counter to the "long-term money, long-term investment" principle? "Insurance certainly has long-term, long-horizon investments; it cannot all be 'chasing rallies and dumping losers,' but at the same time some funds trade with relatively more flexibility," the researcher said, adding that a single institution's periodic position adjustment is not enough to prove it has always followed such a style.
Views within the industry differ, however, on whether changes in capital flows are the main cause of the market adjustment. The aforementioned non-bank analyst told reporters that during previous sharp market drops, some individual stock prices did hit insurance stop-loss triggers, but many insurers did not close positions immediately and only adjusted later in accordance with regulations. An investment research professional at a large public fund told reporters: "Capital has not changed much. At least as of mid-September, institutional holdings had not shifted significantly compared with the second quarter."
Beyond stop-loss lines, insurance companies also face the latest regulatory constraints. In August this year, the National Financial Regulatory Administration issued the "Measures for the Asset-Liability Management of Insurance Companies," which incorporates net investment return coverage ratio and comprehensive investment return coverage ratio for life insurance companies into regulatory indicators, requiring each to be no lower than 100%. This further strengthens asset-liability matching management for insurers and will take effect on January 1, 2027.
The aforementioned non-bank analyst told reporters that the Measures will mainly affect small and medium-sized insurers. In the current low interest rate environment, such companies may need to increase allocations to high-dividend assets to boost yields and ensure asset-liability matching. "This is not to say that funds are insufficient and therefore need to shift from tech to dividend stocks. Compared with public funds, insurance is still an incremental market," the analyst said.
External disruptions increase
In the three trading days after the National Day holiday, A-shares overall extended the adjustment trend seen since mid-to-late September, with the tech sector leading the decline. Wind data shows that from October 8 to October 12, the ChiNext Index and the STAR Composite Index fell 5.47% and 2.84%, respectively. By sector, as of October 12, the electronics and communications industries among the top-tier Shenwan sectors had fallen 8.68% and 9% respectively since the start of October, after declining 8.22% and 5.53% respectively in September, highlighting mounting adjustment pressure on tech stocks.
The public fund investment research professional believes that external factors such as US Treasury yields and oil prices have affected risk appetite in emerging markets, which is the main reason for the sustained market adjustment, while the need for style rebalancing in the fourth quarter also played a role. In his view, stabilizing oil prices, cooling US Treasury risks, and especially gradually moderating Federal Reserve rate hike expectations are key factors for the market to bottom out and stabilize in the future.
Mou Yiling, a strategy analyst at Sinolink Securities, believes the recent divergence between Chinese and US tech stocks was directly triggered by potential sanctions risks represented by the US Federal Communications Commission (FCC), which raised concerns about future fundamentals and pressured valuations, compounded by still-crowded domestic trading structures.
In Mou's view, after the sharp adjustment, current A-share tech valuations are still not cheap and are even higher than US stocks. He noted that the PE-TTM valuation percentiles of growth sectors represented by optical modules, PCBs and computing power chips remain above 60%, while PB valuation percentiles are even higher, all above 85%. Although dynamic valuations may be reasonable and ROE levels have improved, this means higher requirements are being placed on future fundamental assumptions, and the basis for those assumptions is facing various uncertainties.
Analysts Xia Fanjie and He Sheng of CITIC Securities also believe that, overall, positive signals have begun to accumulate. Prioritizing defense and waiting for a turning point is the optimal strategy at this stage. Domestically, the tech sector's earnings remain strong, prior adjustments have been relatively thorough, and market stabilization mechanisms are in place. If tightening expectations and geopolitical tensions ease further, combined with verification from third-quarter earnings, market expectations may gradually reverse.
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