On June 5th, the A-share market experienced a sharp decline in the afternoon session, with technology sectors such as semiconductors, memory chips, and CPO (Co-Packaged Optics) leading the downturn. This dragged down the indices for the ChiNext and STAR markets, while the total market turnover expanded significantly, exceeding 3 trillion yuan. The market exhibited a pattern of "weak indices but strong individual stocks," with 3,277 stocks closing higher for the day.
Market analysts point out that the afternoon sell-off stemmed from excessively crowded positioning in the previously high-flying tech sectors, leading to a concentrated exit by profit-taking investors. Trading volume in other sectors continued to shrink, making it difficult to provide additional funding support for high-valuation tech stocks. Furthermore, with both China and the US preparing for large-scale tech company IPOs, investors need to be wary of correction risks in the technology and growth sectors.
Significant Pullback in Electronics and Communications Sectors
After opening lower and recovering, the major indices accelerated their decline in the afternoon. The Shanghai Composite Index closed down 0.74% at 4,027.74 points, the ChiNext Index fell 3.2% to 3,957.94 points, and the Shenzhen Component Index dropped 2.21%. The CSI 300 Index declined 1.79%, the SSE 50 Index fell 0.88%, the STAR 50 Index plunged 4.01%, while the Beijing Stock Exchange 50 Index gained 5.59%.
Market turnover expanded in sync, with the combined turnover for the Shanghai, Shenzhen, and Beijing markets reaching 3.1 trillion yuan for the day, an increase of 321.7 billion yuan from the previous session. Regarding leveraged funds, as of June 4th, the balance of margin trading and securities lending across the three markets rose to 2.92 trillion yuan.
The market showed a divergence with weak indices but strong individual performances; 3,277 stocks closed higher while 2,113 declined. Among the most active stocks, 32 saw daily turnover exceed 100 billion yuan, primarily technology stocks, most of which fell sharply.
The three major stocks in the CPO concept, often referred to collectively, all experienced significant corrections. Zhongji Innolight closed down 7.81% at 1,179.99 yuan per share, Suzhou TFC Optical Communication fell 3.6% to 748 yuan, and TFN dropped 4.88% to 457 yuan. Semiconductor stock GigaDevice fell nearly 8% to 488 yuan, while JCET Group, Cambricon, SMIC, and Demingli all posted heavy losses. The consumer electronics sector also faced pressure, with Luxshare Precision closing down 7.8% at 68.77 yuan and Foxconn Industrial Internet falling nearly 6% to 74.06 yuan. Electronic equipment manufacturer Montage Technology dropped nearly 8% to 239.39 yuan, BIWIN Storage fell about 9% to 311 yuan, and Longsys closed down 8.53% at 520.01 yuan. Electronic component stock Fenghua Advanced Technology declined over 6% to 59.65 yuan, WUS Printed Circuit fell over 5% to 133.22 yuan, and Shenghong Technology closed down 7.59% at 338.9 yuan.
In terms of sector performance, large-cap growth stocks fell over 4%. Semiconductors, CPO concepts, power, electronic components, consumer electronics equipment, automotive chips, memory chips, communication equipment, and basic metals all saw significant declines. General equipment, banking, retail, and robot actuators provided some support.
Among the 31 primary Shenwan industries, 13 closed higher. Banking and commercial retail both gained over 1%, while social services, petroleum & petrochemicals, media, transportation, basic chemicals, and textiles & apparel closed slightly in the green.
The electronics, utilities, and communications sectors fell more than 3%, while power equipment, non-ferrous metals, and coal declined nearly 2%.
High-Valuation Tech Stocks Face Selling Pressure
The A-share market declined on heavy volume for the day, with indices closing notably lower, although the majority of individual stocks ended higher.
Cheng Tianyi, a senior researcher at Qingdao Anzhi Investment, analyzed that the sharp pullback in the tech sector directly dragged down the ChiNext and STAR indices. The significant cumulative gains and extremely crowded positioning in this sector triggered the correction.
Yang Yijie, fund manager at Gecko Capital, believes the core reason for today's sharp decline in A-shares was the sell-off in high-valuation tech stocks. The reduction in margin financing ratios for leading semiconductor and AI companies by several brokerages in early June served as an important catalyst. The sharp decline in the ChiNext and STAR indices is rooted in the sectors' high year-to-date gains, historically high positioning concentration, stretched valuations in the tech theme, and the concentrated exit of profit-takers accelerating the afternoon weakness.
Xia Fengguang, fund manager at Rongzhi Investment, noted that the significant correction in the US semiconductor sector put pressure on the ChiNext and STAR market directions in China. However, the main cause was the loosening of market structure following extreme divergence, coupled with persistently sluggish trading volume in other sectors, which were unable to continue providing incremental funds for high-valuation stocks, making a sector correction inevitable.
Be Wary of Three Key Risks
Is the tech stock decline an opportunity to buy the dip?
Yang Yijie stated it's difficult to conclude at present and cautioned that tech stocks lacking earnings support may not hold investment value even after price corrections. Currently, the stocks truly suitable for bottom-fishing are high-quality, fundamentally sound performers whose prices have fully retreated to lower levels.
Regarding portfolio positioning, Yang suggested adopting a barbell investment strategy to gradually accumulate quality stocks and maintain balanced allocation: using AI and semiconductors as the core offensive thrust, with energy storage, non-ferrous metals, and innovative drugs serving as the defensive base, supplemented by high-dividend assets like power and insurance to hedge against market volatility.
Xia Fengguang warned that persistently high US inflation data is gradually cooling the market's widespread expectation for interest rate cuts, with the possibility of further rate hikes re-emerging. Combined with preparations for large tech company IPOs in both China and the US, tech stocks harbor hidden risks in both fundamentals and liquidity. In this environment, investors should view the tech growth theme cautiously, firmly avoid stocks with prominent valuation bubbles and extreme fund crowding, and not blindly hold onto hopes for a rebound.
Xia also pointed out that there are still many quality stocks with investment value within the sector. Adhering to value-based stock selection is key. AI applications and commercialization are worth long-term tracking, and sectors with stable free cash flow like consumer staples and high dividends are also worth attention.
Regarding the future trend of tech stocks, Cheng Tianyi stated that there are currently no clear fundamental risk signals, and tech stocks have relatively clear and certain industry trends. However, due to localized overheating, short-term volatility risks have increased. Once the previously leading core tech sectors enter an adjustment phase, the market might experience a temporary style shift, with previously lagging, lower-positioned sectors potentially seeing a phase of outperformance. Operationally, short-term focus could be on lower-positioned sectors, while looking to accumulate quality tech leaders with high industry prosperity and strong earnings certainty on pullbacks.
Li Mingluo, investment manager at Cheese Fund, analyzed that recent market conditions show insufficient willingness for incremental funds to enter, with clear characteristics of a存量博弈 (game among existing players). The short-term trading congestion and valuation pressure on the STAR 50 Index have not been fully digested. At the market style level, the divergence between technology and value has approached historical extremes. Before the outcome of the June Fed meeting is known, indices are likely to consolidate within a range of 4,050 to 4,150 points, with rapid rotation continuing within the tech sector, making chasing highs extremely unattractive. Investors need to be vigilant about three risks: first, further bursting of the valuation bubble in tech stocks; second, worsening Middle East局势 pushing oil prices above $120, triggering imported inflation and disturbing the market; third, the Fed's rhetoric turning unexpectedly hawkish, leading to a repricing of global risk assets.
Promising Investment Directions
Looking ahead to the A-share market outlook, Yuan Huaming, General Manager of Huahui Chuangfu Investment, believes the short-term market is likely to maintain a pattern of high-level震荡 (volatility) and sector rotation. Hard tech, represented by AI, remains the core theme, with the possibility of a high-to-low switch in market focus. Opportunities arising from policy changes should be watched. Supported by relatively宽松 (accommodative) liquidity and稳增长 (growth-stabilizing) policies, the probability of a significant market downturn is limited.
Regarding current portfolio positioning, Li Mingluo建议 (recommends) maintaining a neutral position of 50-60%, reserving some cash to应对 (cope with) market volatility around the Fed meeting. Operationally, follow three principles: First, avoid chasing rallies and selling on dips within the tech sector. The strategy should be to accumulate on dips,分批布局 (building positions in batches) in core stocks with strong earnings certainty during pullbacks, focusing on品种 (stocks) that have already exceeded expectations in Q1 reports but whose stock prices have not fully reflected this. Second, use high-dividend stocks and consumer leaders as defensive core holdings. Third, wait for clearer market direction before deciding whether to increase进攻仓位 (offensive positioning).
How to position among sectors? Yuan Huaming直言 (stated directly) that current tech品种 (stocks) have relatively high valuations, with the possibility of operational performance driving differentiation within the sector. Sectors like banking, power, utilities, securities, and finance have relatively attractive valuations, with leading companies showing稳健 (stable) or improving operational performance, making them good defensive choices during market波动 (volatility). As monetary policy and industry support policies are gradually implemented, sectors like real estate, infrastructure, equipment更新 (renewal), and import substitution are expected to迎来阶段性投资风口 (encounter phased investment opportunities).
Li Mingluo看好 (is optimistic about) three main配置方向 (allocation directions): First, opportunities to布局 (position) in core hardware segments of hard tech on pullbacks. Optical modules and communication equipment, as the most certain beneficiaries of AI computing infrastructure, have already delivered on Q1 earnings, with H1 reports有望继续超预期 (likely to continue exceeding expectations). After the剧烈震荡 (sharp volatility) in early June, the previous valuation premium for some leading stocks has been digested to some extent. If the Fed subsequently releases dovish signals, boosting market sentiment, it could present a good中期加仓窗口 (medium-term window for adding positions). Semiconductor equipment and materials benefit from the long-term certainty of import substitution logic,叠加 (coupled with) the Ministry of Industry and Information Technology's policy support for the 6G industry利好芯片元器件 (benefiting chip components), solidifying the medium-to-long-term配置逻辑 (allocation logic). One can wait for valuations and trading热度 (heat) to cool further before entering.
Second,扩散机会 (diffusion opportunities) in the AI application layer. Recent market funds have shown signs of扩散 (diffusing) from pure computing hardware to the AI application端 (end).细分方向 (Sub-sectors) like 6G, autonomous driving, AI办公 (office), and industrial software are开始获得关注 (beginning to gain attention). Compared to upstream semiconductors and optical modules where valuations are at historical extremes, the valuation premium in the AI application layer is relatively温和 (moderate), with greater想象空间 (room for imagination) for earnings弹性 (elasticity), making it suitable for前瞻性左侧布局 (forward-looking, left-side positioning).
Third,防御配置 (defensive allocation) in low-valuation value sectors. The current yield on the 10-year government bond is approaching previous lows, with the banking sector's P/E ratio around only five times. High-dividend品种 (stocks) like coal and power benefit from the market's high-to-low switch, continuously attracting incremental funds and can serve as ballast in a portfolio.
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