A-Shares Consolidate with Thin Volume as Shanghai Index Nears 3,800 – When Will Short-Term Stability Return?

On Tuesday, A-shares continued their consolidation with shrinking trading volume, as the Shanghai Composite Index edged closer to the 3,800-point mark.

By the close on December 16, the Shanghai Composite Index fell 1.11% to 3,824.81 points, while the STAR 50 Index dropped 1.94%, the Shenzhen Component Index declined 1.51%, and the ChiNext Index slid 2.1%. Total turnover in the Shanghai and Shenzhen markets further shrank to 1.7242 trillion yuan.

Hong Kong stocks also retreated on Tuesday, with the Hang Seng Tech Index experiencing a sharp afternoon decline. The Hang Seng Index widened its losses to 2% before closing down 1.54%, while the Hang Seng Tech Index briefly dropped over 2.5% before settling at a 1.74% loss.

Market analysts noted that the Shanghai Index decisively broke below the key neckline level of 3,859 within the first 15 minutes of trading, confirming a downward trend. The index also breached the previous low of 3,816, with the early gap-down remaining unfilled throughout the session. A brief rebound attempt around 1:30 p.m. was quickly suppressed, reinforcing the double-bottom pattern.

Technical indicators suggest further downside risks, as the short lower shadow in Tuesday’s candlestick signals no clear signs of stabilization. With trading volume yet to reach a bottoming level, analysts expect additional declines, possibly testing the 3,800-point threshold on Wednesday.

However, some brokers highlight that the Shanghai Index’s 60-minute and 120-minute MACD indicators show bullish divergence. A further drop could trigger a sentiment rebound similar to the November 21 low, offering a potential stabilization signal. Investors are advised to monitor the recovery’s strength and candlestick patterns before confirming a bottom.

**Dual Pressures: External Sentiment and Profit-Taking** GF Fund Management attributed the recent market weakness to a combination of external sentiment shifts and domestic profit-taking. The sell-off in U.S. AI tech stocks late last week reignited concerns about AI valuations and infrastructure prospects, weighing on A-share sectors like communications and electronics, which had priced in optimistic AI growth expectations.

While short-term volatility persists, GF Fund argues that the AI sector retains earnings support based on valuation comparisons and leading firms’ performance. The long-term AI trend remains intact, with potential expansion into mid- and downstream segments next year. However, heightened volatility warrants caution.

The Bank of Japan’s potential rate hike also contributed to liquidity concerns, though its impact on A-shares may be limited. Historically, yen rate hikes disrupted carry trades, disproportionately affecting U.S. tech stocks, while A-shares faced milder short-term turbulence.

Year-end portfolio rebalancing further amplified market fluctuations, as investors locked in gains amid weak domestic catalysts.

**Economic Data Reflects Weak Demand** Recent statistics showed China’s November industrial output rose 4.8% YoY, while retail sales grew 1.3% and fixed-asset investment fell 2.6% YTD. Bosera Funds noted persistent demand weakness, with external demand outperforming domestic consumption. High-tech manufacturing remained resilient despite the slowdown.

**Hong Kong’s Path to Recovery** Huatai-PineBridge Funds highlighted uncertainties around the Fed’s rate-cut timeline and potential BOJ tightening as headwinds for Hong Kong stocks. A BOJ hike could trigger yen-funded capital outflows, straining liquidity.

Domestically, a surge in IPO lock-up expiries and shrinking southbound inflows (down to

However, Huatai-PineBridge sees recovery catalysts in liquidity easing (Fed rate cuts, southbound inflows) and earnings recovery, alongside AI/tech breakthroughs.

**Strategic Opportunities Ahead** Despite near-term volatility, CITIC Fund views the current phase as a window to position for a potential spring rally, supported by global easing and China’s policy stimulus. Bosera Funds expects market stabilization in 2025 as earnings recover, while ChinaAMC recommends focusing on sectors with policy tailwinds (e.g., anti-monopoly resources) and tech innovation.

Huatai-PineBridge suggests that excessive pessimism may create entry points for spring rally positioning, with growth stocks likely leading as China’s 15th Five-Year Plan kicks off.