In July, the A-share market saw an unprecedented wave of buying during downturns, with exchange-traded funds (ETFs) attracting massive capital inflows. Total net inflows across all ETFs reached 493.745 billion yuan, setting a new monthly high for the year. Among these, stock ETFs pulled in over 477.57 billion yuan, with broad-based ETFs alone accounting for 315.66 billion yuan.
As the extreme "K-shaped divergence" in market performance began to narrow, questions arise about whether the technology bull run is only halfway through and when the market may stabilize. The A-share market experienced significant declines in July, with all core broad-based indices closing in the red. The STAR 50 Index and the ChiNext Index fell by 25.9% and 23%, respectively, while the Shanghai Composite Index briefly dipped below the 3800 mark on multiple trading days. However, as indices dropped, buying interest surged, with stock ETFs leading the charge, capturing 96.7% of all net inflows. Broad-based ETFs, in particular, absorbed 315.66 billion yuan, accounting for roughly two-thirds of all bargain-hunting capital.
This is not merely a case of buying on dips. The total ETF market size rebounded to 4.94 trillion yuan, still below the previous peak of 6 trillion yuan, but total ETF shares hit a record high of 3.25 trillion units. Notably, several "firsts of the year" occurred in July, including record monthly net inflows for the overall ETF market, stock ETFs, and broad-based ETFs. Broad-based ETFs even turned from net outflows to net inflows for the first time in 2025, signaling a potential turning point.
Two key forces are driving this trend
First, there is the market's "smart money." Historically, the pattern of "buying more as prices fall" has been validated in A-shares. When the Shanghai Composite Index breaches critical levels and valuations enter historically low ranges, some capital opts for left-side positioning, betting on a reversion to the mean. Second, there is the entry of long-term capital, which carries more significant signaling value. Following multiple intraday breaches of the 3800 point level in July, state-owned capital operation platforms like China Chengtong and China Reform Holdings announced market entry to stabilize sentiment. Concurrently, major insurance funds have intensified their calls to increase equity allocation, while private equity funds have launched a wave of self-purchases, with some firms buying actively up to three times in the month to demonstrate confidence in the market outlook.
Broad-based ETFs and semiconductors emerge as two main investment themes
In July, various market forces formed a rare synergy, with broad-based ETFs becoming the primary battleground for bargain hunters. Six index-tracking ETFs received net inflows exceeding 40 billion yuan each. The CSI A500 Index and CSI 300 Index ETFs attracted the most, with net inflows of 45.591 billion yuan and 45.399 billion yuan, respectively. CSI 1000 Index ETFs saw combined net buying of 45.012 billion yuan, while ChiNext Index and STAR Semiconductor Materials and Equipment Index ETFs received 42.866 billion yuan and 41.091 billion yuan, respectively.
On a single-day basis, the pace of capital inflows accelerated. The top four daily net inflows for broad-based ETFs all occurred in July, with 64.69 billion yuan on July 17, 59.06 billion yuan on July 20, 43.98 billion yuan on July 13, and 36.45 billion yuan on July 29. On July 20, the Huatai-PineBridge CSI 300 ETF saw a record single-day net inflow of over 14.071 billion yuan, the largest since the tariff trade friction in April 2025, pushing its scale back above the 100 billion yuan mark. Popular broad-based ETFs like the China Asset Management STAR 50 ETF and the China Asset Management ChiNext ETF recorded daily trading volumes surpassing 10 billion yuan for several consecutive days.
Among individual ETFs, the China Asset Management STAR 50 ETF led with net inflows of 40.287 billion yuan, reflecting the strongest "buying on dips" sentiment. The Huatai-PineBridge CSI 300 ETF ranked second with 34.738 billion yuan, bringing its total scale to 122.999 billion yuan. The China Asset Management ChiNext ETF attracted 33.841 billion yuan, underscoring a clear bet on a rebound in growth stocks. Additionally, ETFs such as the China Asset Management STAR Semiconductor Materials and Equipment Thematic ETF, China Southern CSI 1000 ETF, China Southern CSI 500 ETF, Huatai-PineBridge CSI A500 ETF, China Asset Management CSI 1000 ETF, Fullgoal SSE Composite Index ETF, and Guotai Semiconductor Materials and Equipment Thematic ETF all saw net inflows exceeding 10 billion yuan in July.
Is the narrowing of the "K-shaped divergence" a pause in the tech bull market?
As technology stocks adjusted, sectors like high-dividend and small-cap stocks rebounded, narrowing the extreme "K-shaped divergence" seen in the first half of the year. Fund managers offered varied perspectives on the market's direction. Zhang Xiaotian from GF Fund's Index Investment Department noted that bearish logic has been largely priced in, and while deleveraging in the South Korean market may cause a second bottom, it is more of an emotional shock than a shift in industry trends. As deleveraging winds down, combined with catalysts in the second half of the year, the market may tilt toward bullish logic at any time.
China Merchants Fund believes that with the clearing of margin financing and support from stabilizing forces, the market is poised for a recovery. Over the long term, A-shares are transitioning from being "capital-driven" to "earnings-driven," with the AI industry trend remaining strong, though it requires further verification from mid-year earnings reports. Structurally, defensive plays like high-dividend stocks and large financials, along with rotation into innovative drugs, may persist, while AI hardware and semiconductor self-sufficiency remain key mid-term growth themes.
Bank of China Investment Management argued that the narrowing of the "K-shaped divergence" does not signal the end of the tech rally. The AI industry trend still has ample room to grow, and the A-share market may see a third wave of gains this year, with profit opportunities broadening. For industry allocation, the AI chain should focus on areas where earnings are materializing, while opportunities in domestic computing power and semiconductors are worth exploring on dips. Non-AI assets should consider resource products with supply constraints driven by demand from emerging industries, as well as hedge assets against tech risks, such as innovative drugs and precious metals.
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