This week, the entire A-share market took a "deep dive," hitting its lowest point on Friday. This sentiment likely resonates with many A-share investors.
On Friday, the sectors that had surged the most in the first half of the year—optical chips, CPO, memory, and HBM—suffered the steepest declines, all falling by more than 10%. Demingli, a memory stock that had soared tenfold this year, has now hit its third consecutive limit-down, leaving investors with no exit. The primary catalyst for this sell-off is not just the A-share market itself but, more importantly, a technical breakdown in global markets. Leverage was added too quickly, too high, and too concentrated. When the tide goes out, it's clear who has been swimming naked. After the sharp decline, the market is focused on one question: what comes next?
Global Semiconductor "Deleveraging"
To set the scene, here are the key data points: On Friday, all major A-share indices retreated. The Shanghai Composite Index fell 3.05%, the Shenzhen Component Index dropped 5.40%, the ChiNext Index plunged 7.15%, the STAR 50 Index declined 7.12%, and the Beijing Stock Exchange 50 Index decreased 2.31%. Trading volume was 2.67 trillion yuan, marking the fifth consecutive session below the 3 trillion yuan threshold. Only 481 stocks advanced while 4,997 declined, resulting in an advance-decline ratio of approximately 1:10, indicating very poor market sentiment.
Looking at the sector performance, indices for previously hot sectors like optical chips, optical modules (CPO), CRO, memory, and HBM saw significant drops, all exceeding 10%. Stocks such as Changguang Huaxin, Lianxun Instruments, and Baicheng Pharmaceutical hit the 20% limit-down, with numerous other stocks experiencing 10% limit-downs or declines above 10%. Notably, some companies, including Demingli (001309), have recently recorded three consecutive limit-down sessions.
What caused this phenomenon?
A widely accepted view in the market is that a global semiconductor "deleveraging" is underway, triggering a liquidity crunch. Overnight in U.S. markets, semiconductor, memory, and optical communication stocks continued their sharp decline. The Philadelphia Semiconductor Index fell over 4%. SK Hynix, which recently listed in the U.S., dropped more than 13%. SanDisk fell over 12%. Stocks like Intel, Broadcom, and Micron Technology all declined more than 5%. Similar trends were seen in South Korean and Japanese markets. The KOSPI fell over 6% on Thursday, while Japan's Nikkei 225 index briefly fell below 64,000 points, closing down 4.03%.
Industry insiders point out that this indiscriminate sell-off in hard tech sectors across the Asia-Pacific markets is essentially a liquidity squeeze triggered by global semiconductor deleveraging. When high-flying hard tech and AI computing stocks experience a "run-on-the-bank" style decline, previously profitable long positions face immense pressure from redemptions and risk control limits.
Furthermore, the selling pressure in A-share AI industry chain sectors is also quite evident. For instance, regarding leveraged funds, the latest data as of Thursday shows the margin trading balance has dropped from around 3 trillion yuan in early July to approximately 2.86 trillion yuan, a decrease of about 140 billion yuan. Simultaneously, sources indicate that mainland public funds have also recently undergone passive position reductions.
Key Indicators for a Market Bottom
After the sharp drop, the market's central question is: what's the outlook?
In the short term, position unwinding still needs time. Analysts note that as long as the decline in overseas semiconductor giants persists and the valuation reset for the domestic memory industry chain remains incomplete, the AI industry chain sectors will likely need to go through another round of position liquidation. Pressure from forced liquidations of leveraged positions and passive reductions by public funds may continue to be released in the near term.
However, positive signals also exist. Caixin Securities believes that as volatility in the technology innovation sector has not significantly eased, market confidence is difficult to repair effectively, and the market remains in a weak, volatile bottoming phase. Oriental Securities points out that the Shanghai Composite Index has been fluctuating within the 3800-4200 point range for over half a year. Despite recent large fluctuations, the market is still oscillating within this range. After the market rebalanced from a K-shaped divergence to convergence, the issue of deteriorating local trading structures has been alleviated.
The growth trend of the technology sector has not reversed. Oriental Securities emphasizes that the fundamental strength of the tech theme remains intact. After prolonged suppression, pessimistic expectations for the traditional economic chain have been largely priced in, opening up room for valuation recovery. On the surface, risk appetite disturbances cause volatility, but at a deeper level, they represent an optimization of position structures and a re-digestion of market分歧. After sufficient turnover, the market structure becomes healthier.
Of course, there are now two key signals to watch for a potential bottom: First, when core global technology assets cease to show significant negative feedback, primarily signaled by stabilization and recovery in the South Korean stock market. The South Korean market was closed on Friday for a holiday; its performance on Monday's open will be a crucial indicator.
Second, a slowdown in the pace of leveraged position unwinding. Since July, leveraged positions have decreased by approximately 140 billion yuan. If the unwinding pace slows, a market bottom may be gradually approaching.
This week's sharp decline in the A-share market is essentially a共振 of global semiconductor "deleveraging" and internal structural imbalances within the A-share market. Has the fundamental picture of the global semiconductor industry changed? No. Has the long-term trend of AI computing demand changed? No. However, leverage was added too quickly, too high, and too concentrated. Once liquidity dried up, the leverage collapsed. Has the fundamental picture of the A-share AI industry链 changed? Also no. Memory chip demand remains robust, as evidenced by leading memory chip company Montage Technology forecasting over 60% year-on-year net profit growth for the first half of the year. But valuations were too high, trading was too crowded, and profit-taking pressure was too great—these contradictions require a thorough adjustment to digest.
It is worth noting that these tech companies are also taking action. For instance, Montage Technology stated that, given its stock price has fallen more than 20% over 20 consecutive trading days, Chairman Yang Chonghe has proposed the company use its own funds to repurchase A-shares, with a total repurchase amount of no less than 300 million yuan and no more than 600 million yuan.
Other Market Observations
Amid Friday's sea of red, a few sectors bucked the trend and moved higher, such as utilities, banking, and oil & petrochemicals. Their strength stems from similar logic—they are classic defensive sectors. The utility sector offers stable cash flows, reliable dividends, and relatively reasonable valuations. The banking sector provides high dividends and low valuations, making them natural "safe havens" for capital. These sectors have been highlighted as potential defensive plays in recent commentary.
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