Following the turbulence in the AI sector during July, A-share markets are showing signs of a steady rebound, with the investment landscape broadening beyond technology. On August 17, major indices rallied collectively, with the Shanghai Composite Index surging on the day and pushing its year-to-date return back into positive territory. In the 11 trading sessions so far this month, the index has recorded gains on eight occasions, signaling a gradual recovery from the sharp volatility seen in the tech sector last month.

This market uptick has translated into a recovery for fund performance. Data shows that over 80% of actively managed equity funds have posted positive returns this month, with 43 products gaining more than 25%. Notably, 89 funds have seen their net asset values hit record highs since inception. However, the standout performers are no longer exclusively tech-focused; instead, pharmaceutical, cyclical, and balanced allocation funds are taking the lead, indicating that market hotspots are spreading to a wider range of sectors.

Where to Begin the Analysis

Discussing the current market dynamics, a senior macro strategy researcher at Great Wall Fund noted that the divergence within the tech sector continues, while non-tech areas are absorbing rebalancing capital—this is the clearest shift in the market's main line recently. The clearing of leveraged positions in tech stocks appears largely complete, and stock prices are becoming more sensitive to earnings improvements, potentially setting the stage for a counterattack in the tech sector. Meanwhile, the fund manager of Hengsheng Qianhai High-End Manufacturing Fund cautioned that while there is still room for upside after the recent rebound, investors should also be wary of pullbacks following rapid gains. The market is expected to continue exhibiting structural rotation, with faster switching between growth and low-position defensive sectors.

The Recovery After the Sharp Decline

On August 17, all three major A-share indices rebounded strongly, with the Shanghai Composite rising 1.41% on the day, bringing its year-to-date return to 0.35%. The ChiNext Index and Shenzhen Component Index performed even better, climbing 3.14% and 2.44%, respectively. Market sentiment has warmed, with average daily turnover returning to above 2.4 trillion yuan, enhancing the overall profitability effect.

This rebound is not a one-day phenomenon. After the extreme volatility in the tech sector in July, the A-share market has shown a steady recovery throughout August. In the 11 trading days this month, the Shanghai Composite has risen on eight occasions, accumulating a monthly gain of 3.92%. As the market stabilizes, many funds have seen their net values recover in tandem.

According to Wind data, as of August 16, among the 4,925 actively managed equity funds with available data (including flexible allocation, general stock, partial equity hybrid, and balanced hybrid funds; counting only initial funds), 4,021 have risen this month, accounting for over 80%. Of these, 43 products have gained more than 25% within the month. Leading the pack are still high-beta tech funds such as HSBC Jintrust Tech Pioneer, Founder Fubon Tech Innovation A, XinAo Performance Driven A, and Puyin Digital Economy A, all with gains exceeding 31%. In July, these same products had recorded monthly declines of over 40%. The sharp swings underscore the high volatility inherent in these sectors.

However, the highlights of this rebound extend far beyond that. Unlike the previous single-track focus on AI, market capital is now breaking away from concentrated positions, with investment hotspots rapidly diversifying. Excluding newly launched products this year, 89 actively managed equity funds have seen their adjusted net asset values hit historical highs this month. These record-setting funds span pharmaceutical, cyclical, and balanced allocation strategies, demonstrating that the market's profit-making avenues have broadened significantly—AI is no longer the sole key to success.

The pharmaceutical sector has emerged as a core highlight of this rally. China Merchants Quality Growth A has gained over 26% this month, with its top 13 heavy holdings all in the pharmaceutical and biotech sector. The product's first-half return was only 3.18%, but its year-to-date return has now surged to 35.55%. Additionally, several funds with clear pharmaceutical characteristics, such as Yongying Pharmaceutical Health A, have posted gains exceeding 15% during the period.

Some products have even managed to reverse from losses to double-digit returns amid this market turbulence. For instance, Caitong Pharmaceutical Health A had a year-to-date decline of 3.39% in the first half, but by August 16, its return had rebounded sharply to 18.8%. Similarly, Dongxing Pharmaceutical Biotech Quantitative Stock Selection A has turned profitable, with its year-to-date return climbing from -2.4% in the first half to 13.64%.

Beyond thematic sector funds, cyclical managers adept at contrarian positioning are also standing out. Wanjia Macro Timing Multi-Strategy A posted a 14.89% return in the first half, surged over 15% during July's tech downturn, and has added another 10% in August. This consistent performance across various market conditions has pushed its year-to-date total return to over 46%.

The fund's manager, Huang Hai, captured this sentiment in his second-quarter report: "Extreme divergence often breeds a return to the mean. When capital becomes overly concentrated in a single track and market sentiment is driven by trends, we instead see a historic opportunity on the other side." This perspective serves as a fitting footnote for these record-setting funds.

What Has Changed in the Market Structure

"The current market liquidity shock has largely ended. With the support of market stabilization forces, the A-share market may enter a phase of overall upward bias in index fluctuations, with a pattern of sector rotation and repair," said a research official at China Merchants Fund. Structurally, the defensive attributes of high dividends and large financials, along with the safe-haven rotation in innovative drugs, may continue for a period. In his view, the medium-term industrial trend for tech remains strong, but the opening of upward space requires sustained catalysis from incremental industrial growth. Additionally, the recent volatile trading in tech growth stocks reflects divergent capital views, but this may actually help the tech sector establish a solid bottom.

Regarding the persistently strong pharmaceutical sector, the Great Wall Fund researcher believes that the sector, especially innovative drugs and the CXO chain, shows relatively more sustainability. "The core isn't about short-term volatility elasticity, but rather its combination of low crowding, better visibility in interim earnings, and intact policy and overseas expansion logic. This makes it more likely to absorb capital flowing back from high-volatility growth sectors," he said.

Looking ahead, multiple institutions maintain a positive outlook. The researcher at Great Wall Fund predicts a potential "golden autumn market," with the market likely continuing to operate in a pattern of volatility and repair. Structural opportunities remain, but the bar for asset quality is rising. He highlights two key observation dimensions: short-term recovery momentum persists, driven by easing external tightening expectations, a proactive domestic policy stance, and capital that hasn't yet retreated from the market. In the medium term, whether the market can raise its center of gravity depends on whether corporate earnings show trend improvements in interim and subsequent reports, and whether fiscal and monetary coordination can effectively drive credit expansion.

The fund manager at Hengsheng Qianhai noted that as the concentrated disclosure window for interim earnings approaches, the market may increasingly focus on structural opportunities tied to the earnings mainline. In the short term, policy tailwinds and earnings recovery provide support, but external uncertainties will still create disturbances. In the medium term, as incremental policies take effect and external risks are digested, the market is expected to continue its repair trajectory amid volatility.

"After the deep adjustment in July, the market has refocused on capital expenditure narratives, with the tech sector gradually repairing. Long-term, the AI industry remains in an investment expansion phase with no signs of slowing," he analyzed. While tech stocks are experiencing significant volatility and faster rotation, the medium-to-long-term prospects for related companies remain broad.

At the industry level, a representative from CITIC Prudential Fund observed that semiconductor components, as an elastic segment in the industry's upward cycle, have drawn significant investor attention recently. The combination of overseas supply bottlenecks and domestic penetration could form a resonance logic, potentially allowing the domestic semiconductor components sector to unlock earnings elasticity first.

He further noted that amid global capital restructuring and asset repricing, China's capital market may be shifting from a "market dividend" to an "innovation dividend" driven valuation adjustment. Overseas investors may be gradually incorporating Chinese assets into their long-term allocation frameworks, with hard tech and high-end manufacturing likely becoming key focus areas for sustained market attention.

In light of current market conditions, the Great Wall Fund researcher suggests that investors might reduce exposure to highly crowded segments within the tech sector and instead focus more on core assets closer to earnings and cash flow validation. For dividends and certain low-valuation sectors, they serve more as hedges against the tail risk of an underwhelming overall recovery rather than as sources of offensive elasticity.