Over the weekend, central state-owned enterprises including China Reform Holdings and China Shenhua Energy Co Ltd announced plans to increase holdings, conduct share buybacks, and inject assets into the A-share market. Consequently, stock indices opened higher and rebounded on Monday, boosting market confidence.

However, the technology sector, which had previously attracted concentrated capital inflows, experienced a pattern of surging and then retreating. This was due to excessive crowding, the impending test of earnings season, and a wavering narrative around profit realization in the overseas AI industry. The STAR 50 Index, for instance, reached an intraday gain exceeding 3% before turning to a decline of over 1% in the afternoon, indicating a widening of volatility.

Our observations indicate that broad-based index ETFs shifted to net inflows last week. Large-cap value indices played a core role in stabilizing the market's foundation, while small and mid-cap indices continued to seek a bottom under pressure from outflows of leveraged funds, leading to a rebalancing in market structure.

State-Owned Enterprise Support Bolsters Large-Cap Value, ETFs See Significant Inflows

In the past week, equity ETFs saw a total net inflow of 203.5 billion yuan. Among these, size/index ETFs received over 150 billion yuan in weekly subscriptions, while thematic ETFs attracted over 40 billion yuan in contrarian buying.

At midday today, China Pacific Insurance (Group) Co Ltd also issued an announcement reaffirming its firm support for capital market development and enhancing shareholder returns. The company stated that this year it has continued to leverage the long-term investment advantages of insurance funds by increasing its allocation to equities. It plans to continue investing in stocks and ETFs within sectors like technology growth, consumer goods, and new energy, supporting the cultivation and development of new quality productive forces and acting as truly patient capital.

As a result, we witnessed a divergent and reversing market structure during the day's session. Dividend and large-cap value styles strengthened against the trend, with major financials, major consumer sectors, and energy leading the gains, while technology themes collectively surged and then fell back.

First-Half Economic Data Shows Slowing Domestic Demand Recovery, Geopolitical Risks Resurface, Affecting Earnings Expectations

Judging by the pullback of major A-share indices over the past month, the CSI 300, SSE 50, CSI 500, CSI 1000, and STAR 50 have retreated by 11%, 7%, 18%, 20%, and over 25% from their respective peaks. The balance of margin trading and securities lending has declined rapidly, indicating a clear ebb in risk appetite.

From a macroeconomic perspective, the previously released first-half economic data shows that growth rates for fixed asset investment, retail sales, and aggregate social financing all decelerated in the second quarter. This indicates a slowdown in the recovery pace of demand from both households and enterprises, with the pressure from the real estate downturn cycle on private sector balance sheets remaining significant.

While imports and exports maintained high growth, this was largely supported by orders for mechanical and electrical products driven by the expansion of the tech industry and accelerated capital expenditure, with end-consumer demand in other industries remaining relatively weak.

Overseas technology companies, such as the U.S.'s Meta offering compute rentals and South Korea's memory chip profits peaking, are facing potential profit realization that may fall short of expectations. Coupled with the dual risk impact of the U.S. announcing new sanctions and military strikes against Iran, Asia-Pacific stock markets have been severely impacted.

Outlook for the Market

Given the capital siphoning effect of industrial trends and the rising volatility and influence of geopolitical risk events, characteristics of a structural and reversal market are expected to persist through the second half of 2026. Therefore, it is crucial to emphasize flexible adjustments to asset portfolio allocation ratios, hedging short-term volatility while following long-term cycle guidance.

The A-share market is currently suppressed by negative shocks from overseas risks and a slower-than-expected recovery in domestic demand, leading to a pullback exceeding expectations. Although central state-owned enterprises have restarted share purchases and buybacks, aiding market stabilization through ETFs, major indices still require a prolonged period of bottoming and consolidation before establishing a firm footing.

It is recommended to adopt a primarily wait-and-see approach for outright directional positions. For the CSI 300 and SSE 50 indices, a light position in bull call spreads could be considered.