Keep buying as it keeps falling!

Since this round of pullback, large funds have repeatedly shown up in ETFs. On the morning of July 17, several broad-market ETFs once again saw a significant surge in trading volume. The GEM Board ETF managed by Ea-Fon (159915) recorded trading volume of over 7.8 billion yuan ($), exceeding the total volume for the entire previous day. The 华夏 (Huaxia) STAR 50 ETF and several other broad-market ETFs also saw notable volume increases, with trading amounts all exceeding 3 billion yuan, nearing the level of the entire previous day.

Analysts believe this may mean that mainstream large funds could be using ETFs to help safeguard market liquidity. Then, under today’s market conditions, does this move signal that the market is about to stabilize?

Broad-market ETFs with standout volume
As of the close on the morning of July 17, the GEM Board ETF Ea-Fon (159915) saw trading of 7.84 billion yuan, exceeding the total for the entire previous day. Besides that, several broad-market ETFs have also been repeatedly seeing heavy volume. The 华夏 STAR 50 ETF (588000), Huatai-PineBridge CSI 300 ETF (510300), Southern CSI 1000 ETF (512100), Huatai-PineBridge A500 ETF (563360), and Southern A500 ETF (159352) all had trading amounts above 3 billion yuan, nearing the level of the whole previous day.

Recently, ETF capital inflows have been obvious. According to Wind data, as of yesterday, the CSI 300’s near-1-week scale increased by more than 14 billion yuan, the CSI 1000’s scale increased by 11.3 billion yuan, and the CSI 500 increased by nearly 6 billion yuan. And within the past day alone, the CSI 300 scale increased by 5.6 billion yuan, the CSI 1000 increased by 6.3 billion yuan, and the CSI 500 increased by 2.53B yuan.

According to data from Guohai Securities, last week, stock ETFs saw net inflows of 91.19B yuan. Among them, the indices with net inflows in broad-market ETFs included CSI 1000, STAR 50, etc., while the indices with more net outflows included SSE 50, CSI A-shares, etc. For industry thematic ETFs, the indices with more net inflows included STAR Semiconductor Materials & Equipment, Semiconductor Materials & Equipment, while the indices with more net outflows included CSI Bank and sub-sector chemicals, etc. For strategy-style ETFs, the indices with more net inflows included low-volatility dividend/quality factors, while indices with more net outflows included Guoxin Value, etc.

When will the market stabilize?
So when will the market stabilize? JPMorgan believes that the recent pullback in A-share AI theme sectors is essentially a leverage de-leveraging/clearing process rather than a signal of deterioration in fundamentals. The long-term investment logic of China’s AI ecosystem has not been harmed. On the liquidity front, the proportion of A-share IT industry financing transaction value has fallen from an interim peak of about 12% to 8%—9%, indicating that much of the portion with the highest leverage has already been forced to exit, and the de-leveraging process has basically been completed.

For the outlook, JPMorgan keeps unchanged its baseline scenario target levels for the MSCI China Index at end-2026 and the CSI 300 Index at 100 points and 5200 points, respectively, and advises investors to continue holding quality AI large-cap stocks through short-term volatility, waiting for the August earnings season when China’s AI ecosystem could be expected to regain leadership.

However, it is still worth noting geopolitical factors. Recently, the situation involving Iran has escalated. According to information from Iran, during a new round of U.S. military attacks from the evening of July 16 to the early hours of July 17 local time, multiple bridges in Iran were hit. Further retaliatory action may also come as expected; earlier negotiations may have completely broken down. Going forward, inflation expectations may rise again. For the global market, this will inevitably be a kind of drag/pressure. Analysts believe that once hostilities in Iran subside, U.S. Treasury yields start to fall notably again, and valuations have been sufficiently digested, the market may see new opportunities.