Table of Contents

• You might want to know


• Main Topic


• Key Insights Table


• Afterwards...

You might want to know

Will the large July declines in technology stocks lead to a continued slide in August or to a recovery across A‑shares?

What do ten years of historical monthly patterns say about the most probable direction after a steep single‑month fall?

Main Topic

The final trading week of July (July 27–31) closed out a month that left a deep impression on many A‑share investors. In only 23 trading days, market leadership shifted dramatically. Technology holdings that had posted robust gains earlier in the year experienced large, concentrated drawdowns in July. Investors who rotated into technology late in June often found themselves in sizable unrealized losses by month end. Conversely, some non‑tech sectors that had been weak earlier in the year staged recoveries during July.

Looking broadly at market benchmarks, the Wind All A Index declined about 13.14% in July — the second‑largest monthly drop since 2016. Small‑ and mid‑cap indices (for example, CSI 500, CSI 1000, CSI 2000) were particularly hard hit, while non‑tech large‑cap, dividend and micro‑cap segments showed relative resilience or even gains. Such divergence underscores a notable intra‑market rotation and style rebalancing.

At the stock level (excluding newly listed stocks in July), roughly 2,535 stocks finished the month higher, with an average gain of 10.17% and a median gain of 8.29%. A small subset delivered very strong returns: three stocks rose more than 100%, 22 rose more than 50%, and 233 rose more than 20%. By contrast, about 2,983 stocks ended the month down, with an average decline of 20.52% and a median decline of 16.77%. Notably, 136 stocks fell more than 50%, and 1,315 fell more than 20%.

Those loss statistics are important because a 20% decline requires a 25% gain just to return to breakeven. When many stocks cross that threshold, short‑term recovery to prior highs becomes materially more difficult. The market’s dispersion in July therefore increased the number of names facing a protracted recovery path.

By industry, 14 Shenwan primary industries were up in July, with coal, oil & petrochemicals, banking and food & beverage among the leaders. Seventeen industries fell, with electronics and telecommunications dropping over 30% and building materials and machinery falling more than 20%.

Fund flows show another dimension of the reaction. At June 30, there were 174 funds with year‑to‑date returns above 100%, the highest approaching about 173%. By July 31 that number shrank to a single fund. Yet, large investors increasingly used ETFs as a vehicle to provide liquidity support or to opportunistically buy; Wind data indicate net inflows of RMB 467.7 billion into equity and cross‑border ETFs in July. Broad‑based ETFs accounted for RMB 315.7 billion of that net inflow, while sector/theme ETFs added RMB 157.7 billion. Within sector ETFs, semiconductor‑related products attracted capital while medical and banking ETFs saw outflows.

Summarizing July’s market action: indices were under clear pressure and the overall market’s ability to generate gains was poor; the proximate cause was a broad and deep pullback in technology stocks. Drivers behind the tech selloff included a global de‑risking and deleveraging process in technology shares as well as a domestic style rotation in the A‑share market. Importantly, while sentiment deteriorated in July, the calendar month’s losses are now historical fact — the question becomes what is statistically most likely for August.

To answer that, we examine ten years of monthly data for four representative indices: Wind All A, ChiNext, CSI 500 and CSI 1000. The backtest looks at instances in which a single month saw a large decline and tabulates the most common subsequent monthly patterns. The result is that, historically, the most probable outcome in the month following a sharp single‑month decline has been a phase of repair or rebound rather than an immediate continuation of the decline. That does not predict market action on a daily basis or guarantee that the whole month will be positive, but it does indicate a statistical tendency toward recovery over the subsequent month.

This key insight significantly impacts the understanding of short‑term risk positioning: after concentrated drawdowns, markets often experience a rebound window as selling pressure eases, margin and leverage metrics normalize, and bargain‑hunting flows return. Historically, the most frequent next‑month pattern has been a partial to full recovery rather than further large losses.

Examining market internals during late‑July trading adds nuance. On July 31, while offshore technology names rallied strongly, A‑share tech sectors opened higher but closed lower — a sign that domestic buying enthusiasm was still tentative. Emotions and positioning change incrementally; maintaining a calm, rules‑based approach helps investors navigate this phase.

Institutional research offers complementary perspectives. For example, one brokerage highlights that recent policy signals and global liquidity trends are supportive: a possible slowdown in Fed rate hikes, improved dollar dynamics, and faster domestic policy implementation could ease liquidity constraints. The brokerage argues technology’s fundamentals remain intact — cloud demand, semiconductor capex and core industry drivers persist — and that recent price adjustments may largely reflect de‑crowding rather than a structural reversal. With global deleveraging possibly approaching a late stage, the source of downside pressure may be diminishing.

That institution further notes a sequential pattern: non‑tech weakness earlier in May–June was followed by sharp tech declines in July, which collectively have allowed much of the market’s risk to be released through staggered sector adjustments. Going forward, the brokerage views the next couple of months as an opportunity window for oversold rebounds. Lower financing balances after rapid index declines could prolong the base‑building period and reduce volatility, which in turn supports a steadier recovery phase.

They propose three opportunity areas: first, selectively participate in technology oversold rebounds — with emphasis on overseas compute exposure, domestic semiconductor equipment, and AI application names that display resilient demand. Second, consider contrarian allocations to beaten‑down resource and energy sectors (for example, some commodity‑linked and energy equipment names) and dividend‑oriented indices that now trade with attractive yields. Third, monitor non‑bank financials that have sustained lengthy adjustments but appear to have removed much negative pressure and may benefit from catalysts and index‑stabilizing roles.

Another major brokerage’s strategy team suggests that given continuing offshore capex, a domestic economy that is modest in aggregate but healthy in industrial activity, and signs of a PPI bottoming, the market’s next phase is likely a rebalancing away from a single crowded growth corridor toward a broader set of high‑profitability and low‑valuation opportunities. Recommended exposure themes for August include semiconductor and electronic chemicals, power equipment (batteries, grid equipment), specialty pharma, non‑bank financials, shipping/ports and coal — reflecting a blend of structural growth, cyclical recovery and value reallocation.

In short, the evidence from a ten‑year backtest combined with flow and fundamental signals suggests that August is more likely to be a repair or rebound month for the A‑share market, although the recovery may be uneven across sectors and stretched out in time due to prior volatility and lower leverage in the system. Investors should weigh the historical tendency to recover with current positioning, risk tolerance and a focus on names and sectors with resilient fundamentals.

Key Insights Table

Afterwards...

Looking forward, several technological and policy areas deserve continued attention. First, developments in semiconductor equipment, compute infrastructure and AI‑related applications remain central to medium‑term earnings trajectories and capital expenditure plans; monitoring firm‑level capex guidance and supply‑chain signals will be important. Second, the interaction between monetary policy expectations and global liquidity (including dollar moves) will shape cross‑border risk premia and flow dynamics; researchers and investors should keep a close watch on central bank communications and currency trends.

Third, domestic policy implementation speed and targeted fiscal or investment measures can materially affect cyclicals and sectors tied to real activity; tracking concrete policy delivery and project execution will help distinguish short‑lived sentiment shifts from sustainable recovery. Finally, continued innovation in ETF products and institutional use of ETFs as tactical liquidity tools suggests that passive and semi‑passive instruments will increasingly influence short‑term market structure — understanding their flows and footprints is essential for market participants.

In sum, the historical pattern and current signals point to a higher probability of a repair phase in August, but the recovery is likely to be selective and dependent on both macro‑liquidity developments and sector‑specific fundamentals.