The Shanghai and Shenzhen stock indices closed with a high-volume doji on Thursday. On October 15, the three major A-share indices opened lower and fluctuated, with over 5,100 individual stocks declining across the market. As of the close, the Shanghai Composite Index fell 1.59% to 3,707.48 points; the Shenzhen Component Index dropped 2.43% to 11,816.79 points; and the ChiNext Index declined 2.92% to 2,783.17 points.
Trading volume across the two markets increased significantly on the day, with total turnover reaching 1,633 billion yuan, an increase of 218.6 billion yuan compared to the previous trading day's 1,414.4 billion yuan. Looking ahead to the market outlook, multiple foreign institutions remain positive on Chinese equities.
JPMorgan maintained its baseline scenario target of 5,200 points for the CSI 300 Index by the end of 2026, based on consensus expectations of 19% year-on-year earnings per share growth over the next 12 months.
Broad-Based ETFs See Significant Volume Increases
In terms of sectors, the market on Thursday broadly exhibited high-low switching and defensive characteristics. Shipping ports, coal, semiconductors, and memory chips led the declines; the liquor sector bucked the trend with leading stocks hitting the daily limit. Bank stocks shored up the market in late trading, with the five major state-owned banks — Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications — rallying toward the close. Bank of Communications (601328) hit a new intraday high, rising as much as 2% at one point, while Agricultural Bank of China (601288), Industrial Bank (601166), and Industrial and Commercial Bank of China (601398) were among the top gainers.
Additionally, it is worth noting that broad-based ETFs have seen significant volume increases recently. On October 15, CSI 300 ETF E Fund (510310) recorded full-day turnover exceeding 19 billion yuan, while ChiNext ETF E Fund (159915) and STAR 50 ETF ChinaAMC (588000) both surpassed 10 billion yuan in turnover.
"Since last Friday, ETF trading volumes for major broad-based indices in the A-share market have rapidly expanded. In fact, since 2024, whenever the Shanghai Composite Index has quickly pulled back below key levels, ETFs have consistently received sustained net inflows. Unlike the experience in 2024 to 2025, when the products receiving large-scale net inflows in the ETF market were mainly CSI 300 ETFs, the recent net inflows have been distributed across CSI 300 ETFs, CSI 500 ETFs, CSI 1000 ETFs, ChiNext Index ETFs, and STAR 50 ETFs," said Meng Lei, China equity strategist at UBS Securities.
Huang Biao, fund manager at Jinxin Fund, believes that Thursday's market adjustment was the result of a combination of domestic and external factors. First, overseas inflation repricing was the most direct trigger. The U.S. September CPI rose 3.7% year-on-year and 0.6% month-on-month, while core CPI rose 2.6% year-on-year and 0.3% month-on-month, all exceeding expectations. After the data release, the market increased bets on a Federal Reserve rate hike in October. Second, the overnight Nasdaq Index fell 1.88%, and the Philadelphia Semiconductor Index dropped 4.3%, transmitting valuation digestion pressure from AI hardware to the domestic market. Third, the 2027 capacity guidance from a leading overseas lithography equipment company fell short of market expectations, triggering a pullback in technology hardware.
"Insufficient domestic incremental capital remains the core contradiction. Yesterday's turnover had already fallen back to the year's low of 1.43 trillion yuan. In the first three quarters, social financing increased by 27.46 trillion yuan, a year-on-year decrease of 2.63 trillion yuan. September's social financing and credit growth mainly relied on government bond issuance. The central bank injected 2 billion yuan of liquidity on a net basis that day, still showing a supportive stance," Huang Biao further stated.
Since late September, the A-share market, particularly the technology sector, has experienced a rapid pullback, with margin balances shrinking and trading volumes languishing, indicating depressed market sentiment. Meng Lei believes that the main reasons for this round of A-share market weakness differ from July's global technology narrative cooling and rapid deleveraging. The short-term pullback stems more from a concentrated release of investors' previously high trading crowding in the technology sector, while public mutual funds also face "breakeven redemption" pressure. Geopolitical factors, U.S. Treasury yields, and oil price fluctuations have also made already insufficient dollar liquidity even scarcer through inflation expectations, affecting market risk appetite.
Limited Downside Risk for A-Shares
Looking ahead to the market outlook, multiple foreign institutions remain positive on Chinese equities. "We believe the downside risk facing the A-share market is currently limited," Meng Lei pointed out. In fact, A-share earnings remain in an upward cycle. From trading data, the weekly turnover of the large technology sector as a proportion of the entire A-share market has fallen back to levels seen in early April this year. Trading crowding for top-ranked stocks by turnover has also declined significantly in tandem, indicating that tail risks and trading crowding have been largely released. Of course, the probability of off-market capital quickly flowing back in the short term is low, as risk appetite recovery still requires time.
JPMorgan believes that although CSI 300 Index valuations have contracted by an average of 38%, high-dividend targets tend to have lower sensitivity to trailing 12-month P/E contraction, and at the sector level, impressive trailing 12-month EPS growth can offset valuation contraction. According to consensus expectations, the IT sector's forward 12-month EPS growth reaches 53%, making it the sector most likely to offset P/E contraction through earnings growth.
On the liquidity front, JPMorgan noted that domestic interbank liquidity remains ample, but market-level indicators continue to fluctuate at low levels; the global liquidity tightening cycle appears to have further suppressed the CSI 300's forward 12-month P/E. CME's "FedWatch" expects one more rate hike by the end of 2026 and three more by the end of 2027. Based on this, JPMorgan maintained its baseline scenario target of 5,200 points for the CSI 300 Index by the end of 2026, based on consensus expectations of 19% year-on-year EPS growth over the next 12 months.
AllianceBernstein believes that after September's sentiment-driven pullback, A-share valuations may have fallen back to a relatively attractive range, while corporate earnings remain robust under the dual drivers of AI and industrial upgrading. Although short-term market focus remains on peak AI capital expenditure and uncertainty over the Fed's path, these negatives have been largely priced in, and further deterioration in sentiment may instead create a window for long-term investors to position.
"We believe that as the market shifts focus from AI enablers to AI winners, and as China's manufacturing upgrading and domestic AI investment continue to advance, companies with solid capital allocation capabilities and excellent management teams are expected to outperform in future cycles," said Li Changfeng, head of market strategy at AllianceBernstein.
In the view of Manulife Fund, the pace of domestic economic and corporate earnings recovery may be relatively moderate. PPI is already near a cyclical bottom, and whether it can return to positive growth depends on the implementation and intensity of demand-side stabilization policies. Equity market performance is more driven by changes in market expectations. Currently, overall market valuations are at relatively low levels, and there is no systemic downside risk for now. A market style rebalancing may arrive within the year.
Recommend Maintaining a Barbell Allocation
At the sector level, AI-themed stocks have recently declined almost across the board, while high-dividend sectors (such as banks and hydropower), cyclical sectors (such as shipping), and policy-driven directions (such as real estate) have bucked the trend. JPMorgan stated that when tracking indicators such as A-share market crowding and momentum breadth fall back to low levels within historical ranges, the risk-reward ratio becomes more favorable. Reasonably valued AI sub-sectors can buffer downside risk — for example, the two verticals of storage and servers/switches (ODM/OEM), where forward 12-month price-to-sales ratios are reasonable and year-on-year sales growth is considerable.
Moreover, if domestic policymakers subsequently clearly raise AI capital expenditure targets substantially, it would constitute a major positive for the industry, especially benefiting the domestic supply chain. AllianceBernstein recommends adhering to a bottom-up, diversified allocation approach. In the AI space, focus on both globally competitive export chains and domestic substitution targets, as well as growth opportunities in application-end and upstream infrastructure. Outside the technology sector, innovative drugs, energy storage, and high-dividend and buyback targets benefiting from structural reforms are also worth attention.
Manulife Fund stated it will continue to focus on targets within the dividend sector that possess bond-like characteristics. Such assets have prominent valuation advantages and stable dividend returns. Overall, although various uncertainties remain in the market, a large number of listed companies' valuations are already at historical lows, and structural investment opportunities in the second half of the year are relatively abundant. JPMorgan, meanwhile, maintained a barbell allocation strategy, allocating to AI infrastructure, CXO, and innovative drugs on the growth side, and to high-dividend targets on the other side.
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