The Shanghai Composite Index engaged in a tug-of-war around the 3,700-point level on October 15 as external factors weighed on A-share sentiment, while broad-based exchange-traded funds absorbed selling pressure.
Asia-Pacific markets suffered a sharp sell-off on October 15, with South Korea's KOSPI index triggering a circuit breaker and closing down 7.57%, while Japan's Nikkei 225 index fell 4.90%. A-shares declined broadly, with the Shanghai Composite staging a battle for the 3,700-point mark.
Galaxy Securities chief strategist Yang Chao attributed the trigger to stronger-than-expected U.S. inflation data, which forced markets to reprice Federal Reserve monetary policy. Rising U.S. Treasury yields suppressed global risk appetite, and Asia-Pacific markets were the first to experience significant volatility.
"For A-shares, the external factor was the direct trigger, but growth sectors had already seen crowded trading recently and had inherent demand for valuation digestion. The external shock amplified short-term panic and prompted concentrated profit-taking," Yang said. He noted that domestic fundamentals and the policy environment have not changed direction, and the external shock is more of a sentiment-level disturbance rather than a fundamental trend reversal.
Industry observers believe the market will likely maintain a state of choppy bottoming and rebound in the short term, with limited room for sustained declines. On allocation, they suggest focusing on dividend defensive sectors and separating genuine opportunities from hype in technology, screening sub-sector leaders with delivered third-quarter earnings and solid order books.
Shanghai Composite Fights for 3,700 as Capital Flows into Broad-Based ETFs
On October 15, Asia-Pacific markets suffered heavy losses. South Korean stocks were hit hardest, with the KOSPI and KOSDAQ indices falling more than 8% intraday to trigger circuit breakers, both eventually closing down over 7%. The Nikkei 225 also declined after the open, closing down 4.9%.
A-shares opened with a gap down, and the Shanghai Composite briefly lost the 3,700-point level, touching a low of 3,674.82 points before rebounding in late trading to close at 3,707.48 points, down 1.59%. The Shenzhen Component Index, ChiNext Index, and STAR Market Composite Index all fell more than 2%.
Some institutional analysts believe the core contradiction in this round of adjustment is essentially external liquidity expectations combined with internal capital structure issues, rather than a shift in industrial fundamentals. Overseas inflation data pushing up Fed rate hike expectations, combined with sharp volatility in South Korean stocks triggering chain panic across Asian risk assets, was the trigger for the sentiment deterioration on October 15.
The battle for the 3,700-point level on the Shanghai Composite has drawn significant market attention. The aforementioned institutional analyst believes the index broke below the key threshold zone of 3,741 points but did not breach the 3,674 level, tentatively judging the move as an emotional false breakdown test rather than a direct bear trend turn.
On the afternoon of October 15, broad-based ETFs saw volume surge. E Fund's CSI 300 ETF recorded turnover exceeding 19 billion yuan, while China AMC's STAR 50 ETF and E Fund's ChiNext ETF both exceeded 12 billion yuan in turnover. Huatai-PineBridge's CSI 300 ETF and A500 ETF each saw turnover above 5 billion yuan.
In Yang's view, this is a positive signal, as broad-based ETFs seeing capital inflows to provide support reflects domestic funds recognizing the allocation value at current levels.
UBS Securities China equity strategist Meng Lei also observed that major broad-based index ETF volumes have rapidly expanded recently. According to information obtained, from October 12 to October 14, Shanghai-listed ETFs saw net inflows of 28.379 billion yuan, 23.475 billion yuan, and 23.793 billion yuan respectively, totaling over 70 billion yuan in three days. Among these, broad-based ETFs recorded net inflows of 15.775 billion yuan, 8.405 billion yuan, and 5.712 billion yuan from October 12 to 14.
"Since 2024, whenever the Shanghai Composite Index rapidly pulls back below key levels, ETFs have consistently received sustained net inflows. Unlike 2024 to 2025, when the products receiving large-scale net inflows were mainly CSI 300 ETFs, recent inflows have been distributed across CSI 300 ETFs, CSI 500 ETFs, CSI 1000 ETFs, ChiNext Index ETFs, and STAR 50 ETFs. Therefore, we believe the downside risk facing the current A-share market is limited," Meng said.
Market Style Rebalancing or Main Theme Switch?
Recently, A-shares have been oscillating downward, with more sectors declining than advancing, and capital aggressively selling technology sectors while flowing into a few defensive sectors. On October 15, among the 31 primary industries under the Shenwan classification, only food and beverage and non-bank financials posted gains, while the remaining 29 industries declined. Telecommunications led the decline with a 4.64% drop, and nine other industries including defense and military, machinery and equipment, and non-ferrous metals fell more than 3%.
Data on sectors favored by capital was also sparse. On October 15, main force capital only recorded net inflows into four industries: biomedicine, coal, transportation, and beauty care. The remaining 27 industries all saw net outflows, with main force capital heavily selling electronics and telecommunications, recording net outflows of 8.277 billion yuan and 7.105 billion yuan respectively. Machinery and equipment and power equipment also saw main force net outflows of 4.37 billion yuan and 3.393 billion yuan.
Looking at capital data over the past five trading days, electronics and telecommunications were heavily sold by main force capital, with net outflows of 26.224 billion yuan and 19.849 billion yuan respectively. Machinery and equipment, non-ferrous metals, and computer industries also ranked high in main force net outflows at 9.002 billion yuan, 7.466 billion yuan, and 5.454 billion yuan.
Over the past five days, leveraged capital also recorded significant net outflows from the electronics industry, reaching 17.494 billion yuan and ranking first by a wide margin. Telecommunications followed with net margin outflows of 8.123 billion yuan. Machinery and equipment, power equipment, and biomedicine saw margin net outflows ranging from 1.2 billion to 3.5 billion yuan.
During the same period, industries receiving leveraged capital net inflows were also defensive sectors, with media, commercial retail, and petroleum and petrochemicals leading in net inflows.
Yang analyzed that the current market shows obvious style rebalancing, with capital migrating in phases toward sectors with stable cash flow and strong earnings certainty. The strength in food and beverage and non-bank financials is essentially a defensive choice by capital to hedge volatility, but this does not mean the main theme has completely switched or that technology is being abandoned in favor of a full defensive pivot.
The recent pullback in telecommunications and electronics is mainly due to large prior gains, crowded trading, and overseas rate increases suppressing growth valuations, representing valuation digestion within these sectors.
"The major industrial trend in technology has not changed. Orders and industrial implementation for AI, advanced packaging, and computing hardware continue to advance," Yang said.
Meng also noted that 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. The trading crowding of top-ranked stocks by turnover has also dropped significantly in tandem, indicating that tail risks and trading crowding have been largely released. Of course, the probability of off-market capital rapidly returning in the short term is low, as risk appetite repair still requires time.
How Will the Market Play Out Going Forward?
After this round of selling, how will the A-share market evolve? "The short-term market will likely maintain choppy bottoming and rebound, with increased volatility, but limited room for sustained declines," Yang said. He believes the current situation is more of a stress test in the process of risk appetite repair, and after panic is released, the market will gradually return to domestic fundamentals and third-quarter earnings as the main theme.
In the view of the Tianfeng Securities strategy team, A-shares have continued their weakness after the National Day holiday, with trading volume yet to return to 2 trillion yuan. This round of adjustment has been relatively sufficient in both time and space. The China Securities Regulatory Commission held a symposium on October 10, and policy positives are gradually landing. However, moving from policy bottom to market bottom requires continued observation of changes in market microstructure.
"Judging the earnings inflection point is the core contradiction for whether the market can emerge from its bottoming phase. The market bottom typically leads the earnings inflection point by one to two quarters," the Tianfeng Securities strategy team said.
For the fourth quarter, "overall we maintain a relatively optimistic judgment: on one hand, domestic liquidity remains reasonably ample, steady growth policies continue to land, and corporate earnings have potential for structural repair; on the other hand, as external inflation expectations are gradually digested, upward pressure on U.S. Treasury yields is expected to ease marginally," Yang said. He believes the market will be characterized more by choppy upward movement with structural opportunities dominating.
Huabao Securities said in an October 15 research report that market sentiment needs repair, and in the short term, emphasis should be placed on reducing volatility with dividend-focused allocation. On one hand, exposure to technology positions may need to be gradually reduced to mitigate portfolio volatility; on the other hand, against the backdrop of rising concerns about U.S. and European debt, attention should be paid to the volatility-hedging properties of various dividend strategies, with particular focus on low-volatility dividend directions with stronger defensive attributes.
Yang also recommended adopting a barbell allocation approach to achieve a balance between offense and defense. The base position should retain dividend defensive sectors to smooth portfolio volatility. On the offensive side, investors should separate genuine opportunities from hype in technology, screening sub-sector leaders with delivered third-quarter earnings and solid order books, avoiding pure theme speculation, and waiting for crowding to be fully released before technology will still present good structural opportunities.
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