The ChiNext index has delivered strong performance this year, but its rapid July pullback has sparked investor concern. The question on many minds is whether this signals a trend reversal or merely a sharp decline within a broader uptrend.
From its late-June peak to the July 17 low, the ChiNext index experienced a maximum drawdown exceeding 20%. However, just two trading sessions later, on July 21, the index surged by 7%. This extreme short-term volatility has naturally intensified market disagreement.
Sharp Declines are a Bull Market Trait
To analyze this correction, it is crucial to first examine the speed of the decline. From late June to July 17, the ChiNext index fell for only about three weeks, losing over 20% in a short period. The primary drivers were high market congestion combined with external news disruptions, such as intensified volatility in Korean stocks, Meta's sale of computing power, and delays in Kyber rack systems. This resembles a sharp drop following a concentrated emotional release. In contrast, historical downturns that felt like a "bottomless pit" typically lasted much longer. For example, the 2018 deleveraging bear market took over 170 trading days from peak to trough, and the sector rotation adjustment from 2021 to 2022 lasted over 180 trading days, with declines ranging from 34% to 55%.
The driving mechanisms behind a bull market's "sharp decline" and a "slow bear market" are distinct. The former is usually triggered by emotional venting, crowded trades, deleveraging, or external shocks—coming and going quickly. The latter is often accompanied by sustained fundamental deterioration and weakening trend expectations, leading to longer adjustment periods. From this perspective, a three-week, 20% drop cannot be simply equated with a trend-driven decline lasting over six months.
Focus on Logic, Not Guessing the Bottom
Some may ask: historical major declines often exceed 30%, so does a 20% drop mean there is still room to fall further? Judging the depth of a correction ultimately depends on the trigger. Mid-term adjustments lasting over six months are typically accompanied by comprehensive deleveraging, a significant macroeconomic slowdown, or a sharp tightening of liquidity. None of these signals have been observed during this ChiNext correction. Furthermore, overseas investment in computing infrastructure is accelerating, and the domestic substitution process is ongoing. The core logic of the AI-driven tech industry has not fundamentally changed, suggesting this is more a phase of digestion after a significant rally.
Chart: The ChiNext index's earnings growth differential relative to the CSI 300 remains in an uptrend.
Data source: Wind, as of May 2026
Following the July 17 low, the market has shown some noteworthy changes. On July 21, the ChiNext index initially fell in the morning but surged in the afternoon, closing up 7% for the day. Meanwhile, trading volume in broad-based ETFs noticeably increased around July 21, with products like the ChiNext ETF E Fund (159915) showing significantly higher trading activity. A surge in volume near the end of a correction often indicates that panic selling and buying support are occurring simultaneously. When market differences between bulls and bears are fully released, short-term trends are more likely to gradually find a new balance.
Of course, positive signals do not guarantee an uninterrupted rally. Sharp declines can be followed by volatile oscillations or even a retest of the lows. Instead of repeatedly guessing the market's bottom, investors should base their response on their own investment horizon, position size, and risk tolerance. For investors who are bullish on tech's long-term development and can withstand market volatility, it is advisable to continuously monitor the recovery and prepare for phased position building while managing risk.
For those looking to participate in the investment opportunities of ChiNext stocks, the ChiNext ETF E Fund (159915) could serve as a convenient tool. Wind data shows that as of July 22, this ETF has a scale of nearly 60 billion yuan and an average daily turnover of 5.4 billion yuan for the year, both ranking first among ChiNext-related ETFs, indicating strong liquidity. For off-market investors without a stock account, the E Fund ChiNext ETF Feeder Fund (A/C/Y: 110026/004744/022907) is also worth considering.
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