On October 29, the technology sector retreated once again, with growth-oriented segments such as computing power hardware, semiconductors, and CPO weighing heavily on the market, dragging both the ChiNext Index and the STAR Composite Index to close at their intraday lows. In the afternoon, dividend-focused sectors including power and oil & gas attracted capital inflows, while banking and coal remained strong throughout the day. By the close, the Shanghai Composite Index fell 0.82% to 3,651.43 points, the ChiNext Index dropped 4.45% to 2,517.59 points, the SSE 50 rose 0.36%, the STAR Composite Index declined 4.46%, the Shenzhen Component Index fell 2.92%, and the STAR 50 dropped 4.27%. Total market turnover reached 1.57 trillion yuan, slightly lower on a month-over-month basis, with more than 4,700 individual stocks declining across the market.
We believe the main reasons behind today's technology sector correction are the combined effect of external and internal factors:
1. Google's earnings triggered concerns about the pace of AI investment returns. Google's third-quarter revenue slightly missed expectations. Although its cloud business significantly beat forecasts, search advertising growth fell short of expectations, and quarterly free cash flow was negative $9.1 billion. Capital expenditure continued to increase and is expected to rise significantly further in 2027. Management acknowledged that depreciation from newly added computing capacity, data center operating costs, and external computing procurement will pressure short-term margins and free cash flow. The market's concern is not that Google is shifting its AI expansion direction, but rather the mismatch between investment intensity and the pace of return realization. This sentiment quickly spread to A-share computing power hardware, optical communications, and related segments.
2. Rising expectations for overseas industry consolidation added uncertainty. Market rumors that Marvell may acquire Lumentum heightened concerns about the "de-Sinicization" of the U.S. optical module supply chain. According to Bloomberg, Marvell Technology is in advanced talks to acquire data center optical equipment maker Lumentum Holdings. Sources familiar with the matter said the deal could be announced as early as next week. If Marvell and Lumentum merge, the combined entity would become one of the major suppliers of both DSP and laser components—two core parts in 800G and 1.6T optical modules.
3. Lackluster results from a domestic CPO leader served as the direct trigger for sentiment release. A leading company in the domestic CPO supply chain reported uninspiring quarterly results, fueling concerns about the pace of profit realization across the optical communications supply chain.
However, it is worth noting that the market did not decline unilaterally. Defensive styles outperformed, rising coal prices drove a surge in third-quarter earnings for the sector, and with national team funds providing support in late trading, dividend-focused sectors advanced again today. Since coal prices rebounded significantly in the third quarter, industry costs have remained rigid, with price increases almost entirely converting into profit growth. Better-than-expected financial reports further strengthened expectations for sector-wide earnings realization.
Looking ahead, we believe that although market volatility continues to amplify during extreme declines, a recovery is likely on the horizon:
1) As the Chinese stock market adjusts, market stabilization efforts are strengthening in tandem, sending a clear signal of managing downside risks and limiting downside space, preventing localized issues from spreading into systemic risk. The broader market is unlikely to see excessively low expectations.
2) Although microstructural obstacles in the Chinese market persist, total market capitalization has declined notably since the technology stock correction in July, and the drag on the index has diminished at the margin. Judging from downside space, the degree of chip clearing, and the panic index, this round of adjustment is nearing its end.
3) At the same time, given that uncertainties in international relations have not substantially decreased, the market may still experience fluctuations.
In terms of allocation opportunities, we focus on directions with "healthy microstructure" plus "expectations that can be revised upward." We maintain a strategy of "AI as the main line plus moderate style balance," consider adding to gold on adjustments, potentially taking profits gradually in dividend sectors, and waiting for technology stocks until macro expectations stabilize and a recovery window aligns with overseas technology shares.
For investors, the recent wide-ranging fluctuations in the market are often mixed with a great deal of sentiment and trading-level noise, but they do not mean that the direction of fundamentals has fundamentally changed. The more times like these, the more patience is needed to avoid making impulsive decisions in panic. Investing has never been about who runs faster, but who goes further. Short-term storms will eventually pass. Stay calm, take a longer view, and time will provide the answer.
Risk warning: Short-term index gains and losses and historical performance are for analytical reference only and do not predict future performance. Views are for reference only, may change due to market factors, and do not constitute investment advice or commitments. Funds carry risks, and investment requires caution. MACD golden cross signals have formed, and these stocks are performing well!
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