To The Moon

The A-share market in July 2026 presented a stark contrast of extremes. Data from Wind shows the STAR 50 Index plummeted 25.90% month-on-month, dropping from 2,207.86 points at the end of June to 1,635.96 points by the end of July, setting a record for the largest monthly decline since the index's inception. Meanwhile, the ChiNext Index fell 23.00% to close at 3,343.96 points—a decline second only to the -26.53% during the circuit breaker period in January 2016, marking its largest monthly retreat in nearly a decade.

Sector-level divergences were even more pronounced. The Shenwan Electronics sector fell 34.72% in July, while the Communications sector dropped 31.90%, with both sectors—favorites among investors in the first half of the year—reversing most of their second-quarter gains within a single month. In contrast, three traditional sectors—coal, oil & petrochemicals, and banking—rose 14.29%, 12.63%, and approximately 11.6%, respectively, carving out a sharply different trajectory from the tech sector.

The shockwaves from this style shift quickly spread to the public fund industry. A total of 4,925 active equity funds posted an average loss of 12.31% in July. Among them, 974 funds saw monthly declines exceeding 30%, 75 funds dropped more than 40%, and one fund—China Merchants Core Equipment A—saw its net asset value (NAV) halved, falling 52.70%.

An even more telling statistic comes from the disappearance of "double-bagger" funds. At the end of the first half of the year, as many as 246 active equity funds had year-to-date returns exceeding 100%. By the end of July, only two funds remained above that threshold.

However, in this systemic correction of tech stocks, the most surprising development wasn't the sharp decline of tech-themed funds—that was, to some extent, an inevitable outcome of "the same source for gains and losses." What truly caught the market off guard was that a group of star fund managers, renowned for value investing and having previously managed assets worth tens or even hundreds of billions, collectively pivoted to the tech sector in the second quarter, precisely at the peak of the rally.

Zhang Kun: Reducing Baijiu Holdings, First-Time Investment in Hard Tech

Zhang Kun is one of the most recognizable names in China's public fund industry. His fund, E Fund Blue Chip Select, had long held baijiu (white liquor) as its core position, once seen as a flagship product of the "baijiu rally." In May 2026, the fund added co-managers with a TMT research background and a deep-value investment style, transitioning to a three-person management structure. The second-quarter report revealed a significant reduction in baijiu holdings—positions in Wuliangye fell 70.68%, Shanxi Fenjiu dropped 70.91%, while Luzhou Laojiao and Kweichow Moutai were cut by 51.76% and 47.13%, respectively. Meanwhile, Semiconductor Manufacturing International Corp (SMIC) and Suzhou Dongshan Precision Manufacturing entered the top ten holdings for the first time, each accounting for about 2.34% of the fund's NAV.

This adjustment seemed logical in the second quarter: tech stocks were accelerating toward a peak while baijiu remained sluggish. However, entering July, the newly added SMIC fell about 29%, and Suzhou Dongshan Precision Manufacturing dropped about 35%, while the reduced holdings in JD Health and Focus Media rose approximately 20% during the same period. The result was a directional mismatch between the portfolio shift and market movements.

Liu Yanchun: A Complete Overhaul of Top Holdings

Liu Yanchun's shift was even more radical. His fund, Invesco Great Wall Dingyi, after appointing a co-manager in May, saw a complete overhaul of its top ten holdings in the second quarter. Previously held consumer and healthcare stocks were entirely removed, replaced by semiconductor and optical communication names such as Konfoong Materials International, Zhongji Innolight, Ningxia Orient Tantalum Industry, and Shenyang Fortune Precision Equipment. The fund recorded a 26.28% NAV growth in the second quarter, outperforming its benchmark by 16.77 percentage points at one point. But as the tech sector reversed sharply in July, its NAV quickly declined.

Notably, another product solely managed by Liu Yanchun—Invesco Great Wall Emerging Growth—retained a high weight in Kweichow Moutai and actually posted positive returns in July. The contrasting fortunes of two funds under the same manager highlight a special dynamic in style-switching markets, where "choice" proves more decisive than "skill."

Zhu Shaoxing: Exiting Moutai, Buying Optical Modules

Zhu Shaoxing's moves were relatively moderate but aligned in direction. His fund, Fullgoal Tianhui Select Growth, removed Kweichow Moutai, XCMG Construction Machinery, Zijin Mining Group, and Ruifeng New Materials from its top ten holdings in the second quarter, while adding the optical module leader Zhongji Innolight for the first time. In his quarterly report, Zhu noted that "the concentration of market liquidity in strong cyclical sectors is at historical extremes," but he also believed that such extreme divergence would still leave enough high-value companies to select after the rally.

Jiao Wei: A Dramatic Shift from Resources to Semiconductors and Back

Jiao Wei's experience is particularly dramatic. The Yinhua Fund manager, who had admitted in his 2024 quarterly report to "missing the AI rally with complex emotions" and insisted that "AI is outside our circle of competence," made a complete pivot from resource stocks to tech stocks in the second quarter. His fund, Yinhua Furao Select Three-Year Holding Period, saw all resource holdings from the first quarter—such as Shaanxi Coal Industry, Chifeng Jilong Gold Mining, CNOOC, and Zijin Mining—exit the top ten, replaced by semiconductor and AI hardware names like Sinochip Semiconductor, SMIC, NAURA Technology Group, Shennan Circuits, and WUS Printed Circuit. In his second-quarter report, Jiao described this as a "market-following" choice but added that he would "participate with a clear head and great vigilance." July's crash seemed to validate his caution—market tracking suggests the fund may have quickly rebalanced in mid-July, shifting from tech stocks back to dividend-yielding assets like banks and non-ferrous metals. His other product, Yinhua Fuyu Theme, which held substantial bank and coal stocks, performed relatively steadily in July.

Zhao Bei: A 24-Percentage-Point Gap Between Two Funds

Zhao Bei's case illustrates stark contrasts between different products managed by the same manager. Her fund, ICBC Credit Suisse Growth Select, fell 19.97% in July, while her three other healthcare-focused funds—ICBC Credit Suisse Healthcare Industries, ICBC Credit Suisse Frontier Medical A, and ICBC Credit Suisse Pension Industries A—rose 4.02%, 2.49%, and 1.07%, respectively, during the same period. The difference of over 24 percentage points between the best- and worst-performing funds under the same manager stems from the tech-focused fund suffering the correction while the healthcare-focused funds enjoyed a recovery rally.

Extreme Consensus Often Signals Risk Ahead

Five fund managers with distinctly different styles all made the same choice in the same quarter: abandon long-held sectors and pivot to tech stocks. This is no coincidence. By the end of the second quarter, active equity funds' allocation to the electronics sector had risen to about 43%, and communications to about 17%, with the combined weight nearing 60%, the highest since 2015. In contrast, the allocation to food & beverage had fallen to roughly 1.6%. When even the most reluctant trend-chasers start chasing, it often signals that market consensus has reached unprecedented unanimity.

Multiple forces drove this consensus. The first-half AI rally had the characteristics of a global industrial wave—optical communications, computing chips, and memory semiconductors strengthened on earnings delivery, with the STAR Composite Index rising over 50% in the first half. In this environment, sticking to traditional sectors meant consistent underperformance, and shrinking fund sizes directly threatened managers' career survival. Many fund companies added co-managers with tech backgrounds to star manager funds in the second quarter, an institutional arrangement suggesting the pivot was not an impulsive personal decision but a strategic institutional choice.

However, extreme consensus often precedes risk. July's crash was not triggered by a single factor but by the resonance of external shocks and internal vulnerabilities. Externally, Nvidia's push for over $750 billion in AI infrastructure deals, involving its simultaneous roles as supplier, investor, and guarantor, sparked concerns about "circular financing." South Korea's KOSPI index plunged nearly 30% in July, with SK Hynix and Samsung Electronics experiencing multiple single-day drops exceeding 10%, as forced liquidation of Korean semiconductor leveraged ETFs transmitted panic to global markets. Alphabet's free cash flow turned negative for the first time in decades in the second quarter, further fueling doubts about the return on AI capital expenditure. Internally, the tech sector's crowding had reached historical extremes. Margin trading saw net outflows of about 408 billion yuan in July, ending three consecutive months of net inflows. High valuations combined with the opening of the first-half earnings verification window shifted market pricing logic from "speculating on expectations" to "verifying earnings," putting pressure on high-tech assets to deliver profits. At the end of June, the trailing price-to-earnings ratios of the STAR 50 and ChiNext indices stood at 264 times and 54 times, respectively, at the 95.90% and 81.21% historical percentiles over the past three years. With such concentrated positioning, even minor selling pressure could trigger a stampede.

Notably, during the panic-driven selloff, contrarian capital flowed into ETFs, "buying more as prices fell." Throughout July, equity ETFs saw total net inflows of 477.8 billion yuan, setting a new monthly record for the year. Broad-based ETFs targeting the STAR Board and ChiNext attracted substantial funds, suggesting that some long-term capital remains focused on the fundamentals of the tech sector.

Looking back on July, the storm leaves many questions for market participants to ponder. When an industry trend is genuine but the trading structure is extremely crowded, how does one find a balance between participation and avoidance? When performance pressure clashes with adherence to investment philosophy, how should fund managers decide? And more fundamentally, in the recurring cycle of extreme crowding eventually unraveling, does the market's institutional design provide adequate protection for ordinary investors? These questions may take time to answer. But the data from July is clear enough: the STAR 50's -25.90%, the ChiNext Index's -23.00%, the average -12.31% loss across 4,925 funds, and the NAV curves of those star fund managers caught at the peak—all will be recorded as a profound chapter in the 2026 A-share market.