Unveiling the Mystery Behind Recent A-Share Market Volatility

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The recent sharp volatility in the A-share market is not driven by a single factor. Behind it lies a complex interplay of three major forces that together shape the current market landscape. These key forces include:

• Strong policy support to defend the market
• Mixed economic data
• Structural divergence within the market itself

Key Takeaways

• A-share market volatility results from the combined influence of policy, economic data, and market structure.
• The government is working to stabilize market confidence through measures like cutting stamp duty and national team buying.
• Capital flows are diverging—dividend low-valuation stocks are favored, while AI concept stocks carry high risk.
• China’s economic data is mixed, with US-China tech friction and global rate changes also impacting the market.
• Investors should view the market rationally, focus on structural opportunities, and beware of the risks of chasing hot stocks.

Policy Support and Market Confidence

Facing continued market turbulence, policymakers have introduced a series of actions aimed at stabilizing sentiment and providing support. These measures work at different levels to form a protective net, injecting valuable confidence into the market.

CSRC Policies to Activate the Capital Market

Recently, the China Securities Regulatory Commission (CSRC) launched a series of policies designed to “activate the capital market and boost investor confidence”. These measures are not a single shot in the arm but a combination punch attempting to optimize the market ecosystem across trading, financing, and shareholder behavior.

The core goal of these policies is to improve market supply-demand dynamics while reducing transaction costs, directly stimulating investor participation.

The specific policy toolkit covers the following areas:

• Optimizing financing pace: Phased slowdown of initial public offerings (IPOs) and strengthened oversight of listed companies’ refinancing.
• Regulating shareholder behavior: Further standardization of major shareholders’ and senior executives’ share reduction activities to reduce short-term market impact.
• Reducing transaction costs: Coordination with the Ministry of Finance and State Taxation Administration to halve the securities transaction stamp duty rate.
• Supporting financing needs: Lowering margin requirements to provide more liquidity support.
• Encouraging technological innovation: Establishing a “green channel” for listing, financing, and M&A for tech companies achieving breakthroughs in key technologies.

Among them, the stamp duty cut triggered an immediate strong market reaction upon announcement. As shown in the table below, on the first trading day after the policy announcement (August 28), market trading volume saw a significant short-term surge.

Data shows that while the stimulus effect was mainly short-term, it successfully ignited market sentiment, demonstrating the direct role of policy tools in boosting confidence.

Signal Significance of National Team Buying

Beyond regulatory policy guidance, institutions known as the “national team” also took concrete action. Central Huijin and others publicly announced increased holdings in index ETFs and major bank shares.

This move goes far beyond the monetary level. It sent an extremely clear signal to the entire A-share market: policymakers believe current valuations are at a relatively low and reasonable level. This buying is widely interpreted as establishing a “policy bottom,” meaning state-level funds are willing to enter at this level to provide solid support. This plays a key anchoring role in stabilizing expectations, especially for institutional investors.

Impact of PBOC Open Market Operations

On the monetary policy front, the People’s Bank of China (PBOC) has actively used open market operations to ensure reasonable and ample liquidity in the financial system. These operations, though technical, directly affect the market’s “blood supply.”

For example, on a recent trading day, the PBOC conducted the following:

• A approximately $41.2 billion 14-day reverse repo operation.
• Another approximately $33 billion 7-day reverse repo operation.

On another day, the PBOC conducted approximately $68.56 billion in 7-day reverse repos, achieving a net injection of about $27.45 billion. These operations increased short-term fund supply, helping smooth sudden spikes in funding rates caused by seasonal factors or sentiment swings.

The PBOC’s operations are not just about quantity; the signal they send is equally important. The market interprets the PBOC’s intentions—expected injections help stabilize rates (supply effect), while unexpected operations may trigger re-evaluation of future policy direction (announcement effect). Overall, the PBOC’s continuous and transparent liquidity management provides a foundation for stable market operation.

Analyzing Recent A-Share Market Structural Divergence

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Against the backdrop of policy support and macro data interplay, the A-share market has not shown uniform gains or losses. Significant structural divergence has emerged internally, with capital rotating between sectors, creating a tale of ice and fire. Understanding this divergence is key to grasping the current market pulse.

Rise of Dividend Low-Valuation Style

During market turbulence, risk-aversion sentiment has clearly risen. Many investors have shifted focus from high-growth sectors to more defensive assets. In this context, dividend low-valuation style stocks have gradually risen.

According to Huajin Securities, these companies typically have stable cash flows and high dividend payout ratios. When the outlook is unclear, continuous dividend income provides relatively certain returns, acting like a safety cushion, thus attracting capital.

These stocks are mainly concentrated in traditional sectors like energy, utilities, transportation, and large financials. Their appeal lies not in explosive growth but in steady operations and predictable shareholder returns.

Surge and Risks of AI Concept Stocks

In contrast to the steadiness of defensive sectors, tech hotspots remain active. The artificial intelligence (AI) wave continues to drive related concept stocks upward, becoming the most eye-catching offensive force. However, massive gains come with undeniable risks.

Take Raynen Technology as an example; its stock price experienced sharp short-term volatility. The company subsequently issued a risk warning, clarifying several key points:

• Business and Operations: The company mainly engages in industrial automation product business, with normal production and operations and no major changes in the external environment.
• Stock Price Movement: From October 15 to 17, 2025, its stock rose over 20% in three consecutive trading days and hit the daily limit in subsequent sessions.
• No Undisclosed Information: The company confirmed no major undisclosed information.
• Investment Risk Warning: The company explicitly advised investors to pay attention to risks and invest rationally.

This case clearly reveals that when stock prices detach from underlying operations, chasing hotspots can carry significant risk.

Emerging Themes Like Commercial Aerospace

Besides AI, some policy-supported emerging themes have also become capital chase targets. Commercial aerospace is one. Recently, the China National Space Administration announced the establishment of a commercial aerospace management department, interpreted by the market as a strong catalyst for industry development.

Clear policy support greatly boosted market confidence in the commercial aerospace industry chain. From rocket launches and satellite manufacturing to ground equipment and applications, related companies’ attention rapidly increased. This policy-driven thematic rally has become another major feature of the current structural market.

Macro Economy and External Environment Variables

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Besides policy and internal market structure, the health of the macro economy and complex external environment are also key variables affecting A-share trends. These factors are like weather changes—sometimes sunny, sometimes stormy—directly influencing investor expectations and decisions.

Dual Interpretation of Key Economic Data

Economic data is the dashboard for measuring economic temperature, but recently released data presents complex and contradictory signals, leading market participants to different outlooks.

The latest Caixin China Manufacturing PMI is a typical example.

The PMI uses 50 as the dividing line. Above 50 indicates manufacturing expansion; below 50 indicates contraction. The latest 49.9 shows slight cooling in manufacturing sentiment, with output and new orders growth stalling.

However, looking at sub-items reveals more layers:

• Weak Domestic Demand: Decline in domestic new orders is a main drag on overall PMI.
• Strong External Demand: Thanks to proactive business development, overseas new orders grew at the fastest pace in 8 months.
• Business Confidence: Despite weak current data, companies’ outlook improved, mainly boosted by government support policies, expansion plans, and new product launches.

This data contradiction naturally leads to two economist views:

• Optimists believe China’s economy started strong this year, especially with active investment in emerging fields like EVs and solar. Export growth also provides support.
• Pessimists point out ongoing downside risks. Manufacturing may have overinvestment, real estate issues remain unresolved, and local government debt and youth unemployment need time to address.

New Developments in US-China Tech Friction

Geopolitical tensions, especially US-China tech friction, add significant uncertainty to the market. The US has recently taken a series of actions to restrict China’s access to advanced technology, with both breadth and depth escalating.

Main actions include:

• Expanding Entity List: The US Commerce Department continues adding Chinese entities to control lists to combat transshipment. To counter evasion via shell companies or renaming, the list structure was revised to include specific addresses.
• Strengthening Rule Application: Expanding the “Foreign Direct Product Rule” (FDPR) scope to control products made overseas using US technology or software. This affects multiple Chinese entities accused of ties to Russia.
• Cross-Agency Enforcement: The US Commerce and Justice Departments formed a “Disruptive Technology Strike Force” to enhance inter-agency cooperation and block key technologies from reaching designated adversaries.
• Financial and Export Control Linkage: Increasing coordination between financial sanctions and export controls. Financial institutions are required to report suspicious activities related to potential export control violations, tightening the control network.

These measures directly impact companies in the semiconductor and AI industry chains, challenging their operations. This ongoing external pressure also suppresses overall market risk appetite for the tech sector.

Global Rate Environment and Foreign Capital Flows

Monetary policy directions of major global economies profoundly affect international capital flows. Currently, the US Federal Reserve (Fed) and European Central Bank (ECB) show clear policy divergence.

The ECB is cutting rates significantly faster than the Fed. Fed Chair Powell remains cautious about further cuts, keeping the USD in a relatively strong rate environment for some time. Higher rates increase USD asset appeal, theoretically guiding capital out of emerging markets.

Observing foreign capital inflows to China via “Stock Connect” (northbound funds) reveals an interesting phenomenon:

Overall northbound fund flows remain relatively stable, with no large-scale, sustained net outflows. This may partly reflect policy-driven fund behavior. However, looking at another category representing long-term asset managers (mutual funds and ETFs), volatility has significantly increased since mid-2022, with multiple negative readings.

This indicates some international long-term investors have become more cautious due to macroeconomic uncertainty and geopolitical risks. Such cross-border capital flows often require efficient financial tools for currency exchange and cross-border payments, such as platforms like Biyapay specializing in handling such complex international transfers. Overall, the divergence in foreign capital flows reflects global investors’ complex mindset when weighing opportunities and risks in the China market.

Recent A-share market volatility results from the combined effect of policy, market structure, and macro environment. The market shows oscillation and structural rally characteristics under multiple factor interplay.

In the current “vacuum period” lacking overall catalysts, understanding sector rotation logic is crucial.

This reminds observers to stay rational, focus on structural opportunities, and beware of hotspot speculation risks. This helps lay a foundation for understanding medium- to long-term trends.

FAQ

What is a “policy bottom”? Does it mean the market will definitely rise?

A “policy bottom” refers to a price level where policymakers signal strong reluctance for further declines. It is usually established by actions like national team buying.

A “policy bottom” provides confidence support but does not guarantee an immediate reversal and rise. Actual market direction still requires cooperation from economic fundamentals and capital conditions.

Why does the index seem stable while my stocks fall sharply?

This is the manifestation of “structural divergence.” Capital concentrates in certain sectors, like dividend low-valuation stocks, lifting the index. Meanwhile, other sectors’ stocks may fall due to outflows. Overall market performance and individual stock trends can differ greatly.

What are the risks of chasing hot themes like AI?

Chasing hotspots may lead to buying at high valuations. When sentiment cools or fundamentals cannot support prices, prices may quickly retreat.

For example, in US market history, some tech themes experienced sharp corrections after rapid rises, causing losses for late buyers.

Why monitor foreign capital (northbound funds) flows?

Foreign capital flows are a window into international investors’ confidence in the China market. Sustained inflows or outflows affect market fund supply and investor sentiment. However, it is only one of many market-influencing factors and should not be the sole judgment basis.