The three major A-share indices experienced a sharp collective decline on Friday, July 17th, with the Shanghai Composite Index falling below the 3,800-point mark.
By the close, the Shanghai Composite Index was down 3.05% at 3,764.15 points, the Shenzhen Component Index dropped 5.40%, and the ChiNext Index plummeted 7.15%. Total turnover for the Shanghai, Shenzhen, and Beijing markets reached 2.67 trillion yuan, an increase of 252.7 billion yuan from the previous session.
Market Highlights
In terms of sector performance, the power sector bucked the downtrend with a strong advance. The power ETF from Huabao Fund (159146), which covers a full energy layout including wind, solar, hydro, thermal, and nuclear power, gained 1.94% in intraday trading.
Banking stocks provided support throughout the session against the broader market decline, with state-owned major banks leading the charge. The leading large-cap bank ETF from Huabao Fund (512800) rose 0.9% intraday.
The resilience of high-dividend stocks was evident, with the A500 Dividend Low Volatility ETF (159296), the 800 Dividend Low Volatility ETF (159355), and the Value ETF (510030) from Huabao Fund all closing in positive territory.
On the downside, the technology sector underwent a broad-based correction, with computing hardware such as optical modules facing significant selling pressure.
The ChiNext Artificial Intelligence ETF from Huabao Fund (159363), which holds a concentrated position in leading optical module companies, weakened throughout the day, closing down 9.26% in intraday trading.
Banking Sector: A Defensive Stronghold
Banking stocks acted as a defensive pillar against the market's decline, with state-owned major banks collectively showing strength.
By the close, China Construction Bank rose over 3%, while Bank of China and Industrial and Commercial Bank of China gained more than 2%. Agricultural Bank of China, Bank of Suzhou, Bank of Ningbo, and Chongqing Rural Commercial Bank all advanced over 1%.
The leading large-cap bank ETF from Huabao Fund (512800) saw notably increased volume in the afternoon session, with its intraday price rising over 1.5% at one point before closing up 0.9%.
Its daily turnover reached 19.44 billion yuan, marking a new high for the year.
Looking at a longer timeframe, the banking sector has turned upward since July, frequently exhibiting resilience against the broader market and recording gains in 10 out of the last 13 sessions.
The CSI Bank Index has accumulated a gain of 6.48%, outperforming the broader market by over 14% (the Shanghai Composite Index fell 8.07% over the same period).
Capital has been flowing in actively, with main funds injecting over 100 billion yuan in the past five days.
The bank ETF from Huabao Fund (512800) has also seen notable fund inflows, attracting a cumulative total exceeding 7.96 billion yuan over the past five days.
Overall, the banking sector's performance may be attributed to a confluence of factors: the recent continuous distribution of dividends, signs of fundamental recovery, a shift of funds towards safe-haven assets, and historically low valuations.
Chemical Sector Shows Resilience
The chemical sector demonstrated notable resilience. The chemical ETF from Huabao Fund (516020), which reflects the overall trend of the chemical sector, saw its intraday price rise over 1% at one point before retreating with the broader market to close down 1.25%.
In terms of component stocks, sectors like synthetic resins and lithium batteries led the declines. By the close, Sunresin Technology fell 10.26%, while Dongcai Technology hit the downside limit.
Companies such as Shengquan Group, Shenzhen Senior Technology Material, and Guangzhou Tinci Materials Technology also ranked among the top decliners, weighing on the sector.
On the news front, ongoing U.S.-Iran tensions have led to a recent rebound in crude oil prices. Concurrently, refrigerant prices have continued to climb.
Data indicates that high temperatures in many regions this summer have been significantly more intense than in previous years, leading to a substantial increase in demand for air conditioning and refrigerator maintenance, which in turn has supported continued high prices for popular refrigerants like R32 and R134a.
Technology Sector Under Pressure
Technology stocks experienced a tense moment, with computing hardware like optical modules facing a broad sell-off.
TFC Optical Communication, Changxin Botech, and Lante Optical-Electronic led the declines, falling over 13% each, while Zhongji Innolight plunged 12% and Eoptolink Technology tumbled 11%.
Regarding popular ETFs, the ChiNext Artificial Intelligence ETF from Huabao Fund (159363), heavily weighted in optical module leaders, weakened throughout the day, closing down 9.26% intraday and breaking below its 120-day moving average.
Its price fell to a near three-month low. The fund saw a net subscription of 228 million units for the day, following net purchases exceeding 9 billion yuan over the previous five days, indicating a clear pattern of buying on dips.
What is the nature of this recent AI sector sell-off? Some analysis suggests the recent correction in the A-share AI theme sector is essentially a deleveraging event, not a signal of deteriorating fundamentals, and that the long-term investment logic for China's AI ecosystem remains intact.
Following this round of selling, the optical module sector has not been spared. The high-profile ChiNext Artificial Intelligence Index has retreated 22.9% from its peak on June 25th. Has this created a high-value configuration window? This can be examined from two perspectives.
First, the fundamental support from the industry remains solid. Capital expenditure (CapEx) from major North American cloud service providers (CSPs) has not peaked and is expected to continue rising.
Furthermore, the pricing dynamics of optical communication are healthier and more growth-oriented compared to traditional cyclical products.
Additionally, within the broader technology sector, optical communication boasts extremely strong short-to-medium-term earnings certainty, remaining a crucial pillar for sector stability.
Second, the adjustment in optical modules appears relatively thorough. According to some securities analysis, the crowding in the optical module sector has retreated to historical bottom levels, comparable to lows seen in April and October of last year.
Simultaneously, the valuation gap between leading A-share companies in the North American computing supply chain and the domestic computing supply chain has also narrowed to levels seen at the start of the rally in June last year.
Moreover, since July, U.S. stocks in the optical sector have stabilized ahead of semiconductor memory stocks, providing a positive overseas signal for the A-share market.
Further analysis points out that after the recent correction, the forward price-to-sales multiples and valuation spreads for China's overall AI ecosystem have returned to more reasonable levels.
It is suggested that investors continue holding quality large-cap AI stocks during short-term volatility, as China's AI ecosystem is expected to reclaim market leadership during the August earnings season.
For ordinary investors, utilizing ETF tools for phased, low-point investments may be a convenient way to capture potential sector recovery.
The ChiNext Artificial Intelligence ETF from Huabao Fund (159363) and its off-exchange counterparts (Class A: 023407; Class C: 023408) focus on leading CPO (co-packaged optics) optical module companies.
The underlying index has an approximate 40% weighting in companies like Zhongji Innolight, Eoptolink Technology, and TFC Optical Communication, positioning it as a core representative of AI computing power.
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