On Tuesday, China's A-share market experienced a downward shift amid volatility. The ChiNext Index initially rose over 1% in early trading, buoyed by the continued strength of the AI hardware sector. However, waning follow-up buying pressure led to a midday retreat, dragging down market sentiment and causing major indices like the Shanghai Composite and Shenzhen Component to decline. This suggests weakening momentum in the AI theme, indicating the market may need further consolidation.
**New Catalysts Emerge for AI Sector** Two fresh narratives have recently emerged to support the AI theme:
1. **New Mutual Fund Performance Rules** Proposed regulations state fund managers will face salary cuts if they underperform benchmarks by over 10%—even if they generate profits. Conversely, outperforming benchmarks while delivering profits will trigger raises. This incentivizes benchmark-hugging strategies, amplifying momentum flows into consensus plays like AI hardware stocks, which saw early Tuesday gains.
2. **AI Chip Developments** Reports indicate the U.S. will allow NVIDIA to export its H200 chips to China, providing internet giants with opportunities to expand AI infrastructure. This could boost H200 shipments and benefit related supply-chain leaders, potentially explaining the strong opening for CPO stocks. The fund performance rules further amplified early buying, lifting the ChiNext Index.
Yet, after 10:00 a.m., follow-through buying dried up, leaving many AI hardware leaders struggling to hold gains. This not only reversed the ChiNext’s advance but also dampened broader market sentiment, pushing major indices lower.
**Low-Volatility Dividend Stocks Step In** Current trading sentiment remains subdued due to: - **Global Market Caution**: Investors await clarity on potential Fed rate cuts in December, keeping global equities range-bound and limiting A-share momentum. - **Domestic Policy Watch**: Local institutions remain hesitant without clear policy direction for 2024. Despite Monday’s RMB 2 trillion turnover, Tuesday saw liquidity shrink to RMB 1.9 trillion—even with AI sector strength—hinting at further contraction.
However, downside appears limited. While AI’s push weakened, low-volatility dividend stocks like Agricultural Bank of China (601288) and ICBC (601398) rose 2.55% and 1.38%, respectively, signaling defensive capital support. This suggests indices may lack upward energy but face limited declines. Investors are advised to hold positions through this "wait-and-see" phase.
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