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On November 5th, A-shares failed to stage a miraculous afternoon rally and instead followed their usual pattern of a sharp dive. The Shanghai Composite Index turned negative, while the STAR 50 Index swung from a surge of 5% to nearly flat. AI computing power plays led by optical communications continued to collapse, and dividend-focused indices such as banks and coal also entered a slow decline.
Among individual names, Zhongji Innolight was reversed and plunged 12%, Lianxun Instruments dropped 13%, while Eoptolink Technology, Dongshan Precision, and O-Net Technologies each tumbled 8%. PCB stocks suffered heavy losses, with WUS Printed Circuit and Shengyi Technology falling more than 7%, and Kinwong Electronic and Shennan Circuits dropping over 6%. Bank stocks, after forming a double top, fell for three or four consecutive days. However, banks saw some upward movement just now, with China Construction Bank turning positive.
Notably, more than 4,000 stocks in the A-share market still advanced, with 68 hitting the daily limit, suggesting an overall strong market sentiment. Earlier this morning, the reasons behind the rally in lithium batteries, photovoltaics, and Hong Kong tech stocks were analyzed. This article now examines why A-shares, particularly tech small-caps, plunged in the afternoon.
First, external markets offered no support. The Philadelphia Semiconductor Index plunged 3%, and South Korean stocks, dominated by the memory chip duopoly, plummeted 5%. A-shares found it difficult to remain insulated, especially tech small-caps represented by optical communications and circuit boards. Investors widely believe that Democratic control of Congress will constrain Trump's tax cut and pro-business policies, while also imposing stricter regulatory pressure on the tech and AI industries, particularly creating uncertainty around data center construction policies. As a result, today saw hardware fall while software and Hong Kong tech stocks rose.
Second, A-shares have their inherent quirks. Aside from rare miraculous rally days, the market's typical pattern is a dive at 10 AM and another in the afternoon. Investors may as well get used to it, as this could be driven by quantitative trading.
Third, the reverse indicator Ren Zeping struck again. The well-known contrarian indicator Ren Zeping, in his fan group, loudly proclaimed for the Nth time: "From now on, start being optimistic!" This phrase has become a broken record from him, repeated every few days since July. However, fans responded with disdain and resignation: "Take it back," "Please spare us your magic," "We beg you."
Fourth, third-quarter tech small-cap holdings remain in an overweight state among public funds. In the words of retail investors, the chips inside are quite dirty—one careless move and you're deep in losses. Precisely because mutual funds and other institutions hold heavy positions, continuous declines easily trigger forced selling, leading to sharp plunges.
According to Huatai Securities, from a total volume perspective, AI hardware exposure remains near 50%, with position size declining about 11.9% after excluding price movement effects. In the 26Q3 fund allocation, CPO supporting components, MPO optical connections, and PCBs continued to see increased positions. Funds reduced holdings in some memory, CPU, and traditional fiber optic segments, while adding to board-level segments such as optical connections and PCBs.
So which industries are at low allocation levels? Huatai Securities noted that assets with allocation coefficient percentiles (since 2016) at low levels are mainly concentrated in consumer, pharmaceutical, export, and manufacturing chains. Specifically: 1) Consumer sector: the 26Q3 allocation coefficient percentile rebounded to about 2%, with liquor, film and cinema lines, and beverage and dairy products at historically low allocation coefficients; 2) Manufacturing: the 26Q3 allocation coefficient percentile fell back to about 12%, with photovoltaic equipment, aviation equipment, wind power equipment, home appliance components, and ground military equipment at low allocation coefficients; 3) Export chain: the 26Q3 allocation coefficient percentile rebounded to about 19%, with small household appliances and other home appliances at low allocation coefficients; 4) Pharmaceuticals: the 26Q3 allocation coefficient percentile rebounded to about 48%, with biological products at low allocation coefficients.
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