On 10/12, China's A-share four major indices closed lower collectively. The ChiNext Index and STAR Market Composite Index both fell by more than 2%, while trading volume across the Shanghai and Shenzhen markets reached 1.54 trillion yuan, down 3627 billion from the previous session. Over 4300 individual stocks declined nationwide. Banking stocks bucked the trend with gains, but technology sectors such as AI computing hardware continued to face pressure.
For the A-share market's decline on shrinking volume, especially the sustained pullback in the tech sector, investors are urgently seeking explanations.
A weekly report signed "Shiva Private Equity Liang Hong" began circulating widely on social media starting from 10/11. It raised widespread concern with claims that "some major insurance asset management giants bought heavily in tech stocks at peak levels in July but significantly reduced positions and cut losses in late September." On the same day, Zhongtai Securities published a research report stating, "The A-share market continued to underperform overseas markets in the first two trading days after the holiday. Passive redemptions by insurers and 'fixed income plus' products were the core selling pressure in this round."
However, after interviewing multiple institutions, First Financial reporters found that opinions vary widely.
An insurance asset management representative told First Financial Daily that, at the regulatory level, there is no unified mandatory stop-loss line for insurers. While each institution may set internal stop-loss requirements to protect returns or manage risk, "isolated, phased portfolio adjustments do not necessarily indicate a consistent 'chasing highs and selling lows' investment style."
A non-banking securities analyst told reporters that insurance asset management firms set their own stop-loss limits, though specific thresholds can be adjusted. The analyst noted that some insurance accounts may adjust equity positions at quarter-end or year-end due to financial reporting requirements. "However, the capital involved is not large enough to cause significant market-wide corrections," the analyst said.
Other market participants stated that factors such as the Federal Reserve's rate hikes and rising U.S. Treasury yields are the underlying causes of domestic market volatility, noting that "capital flows merely accelerated the decline."
Debate Over Insurance Capital Stop-Loss Measures
According to Zhongtai Securities, insurance funds and "fixed income+" capital that significantly increased their technology allocations in Q2 this year have seen their correlation with the tech sector drop by 70% to 80% from peak levels across different weighting methodologies. However, this remains 20% to 30% above the 2025 normal baseline, suggesting there may still be approximately 20% to 30% of new tech positions left to digest.
Zhongtai Securities believes that the current deleveraging of this capital is nearing its end. While volatility may persist in the final phase, sustained selling pressure is declining.
What stop-loss constraints do insurance funds face? A researcher at an insurance asset management firm told Yicai that while regulators have not imposed a unified mandatory stop-loss line for insurance companies, internal firms set their own stop-loss requirements to protect returns or manage risk. "There are fixed stop-loss lines, but they vary by institution," the researcher said.
Could this lead insurance capital to diverge from the "long-term, long-horizon investment" mandate? "Insurance companies certainly engage in long-term investments; it's not all about chasing highs and selling lows. However, some funds do trade with more flexibility," said the researcher. Occasional portfolio rebalancing by individual institutions does not necessarily reflect a consistent pattern of chasing highs and selling lows.
However, there is no consensus in the industry on whether changes in funding conditions are the primary driver of the market correction. A non-bank analyst at a securities firm told Yicai that while some stocks did hit insurance fund liquidation lines during the recent sharp decline, many insurers did not liquidate immediately and made subsequent adjustments in compliance with regulations.
A senior investment research professional at a large public fund told First Financial: "Funds have not changed. At least through mid-9, institutional holdings remain largely unchanged compared to the second quarter."
In addition to stop-loss limits, insurers face constraints from new regulatory indicators. In 8 this year, the National Financial Regulatory Administration issued the "Measures for the Management of Assets and Liabilities of Insurance Companies" (hereinafter referred to as the "Measures"). The "Measures" incorporate indicators such as the net investment income coverage ratio and comprehensive investment income coverage ratio for life insurance companies, requiring them to be no less than 100% respectively. This further strengthens asset-liability matching management for insurers and will take effect on 1 in 1 of 2027.
A non-bank analyst told Yicai that the Measures will mainly affect mid- and small-sized insurers. In the current low-interest-rate environment, these companies may need to increase allocations to high-dividend assets to improve returns in order to maintain asset-liability matching. "This doesn't mean funds are insufficient and capital is being shifted from tech to dividend stocks. Compared with public mutual funds, the insurance sector remains an incremental market," the analyst said.
Increased external disturbances
In the three trading days following the National Day holiday, A-shares continued their correction trend that began in late 9, with the technology sector experiencing the most significant decline. According to Wind data, from 10 month 8 to 10 month 12, the ChiNext Index and STAR Market Composite Index fell by 5.47% and 2.84%, respectively.
From an industry performance perspective, as of 10 month 12, the Electronics and Communication sectors in the Shenwan Level 1 classification have declined by 8.68% and 9%, respectively, since 10. In 9, these two sectors fell further by 8.22% and 5.53%, highlighting increased adjustment pressure on the technology sector.
A public fund investment research professional stated that external factors such as U.S. Treasury yields and oil prices have impacted risk appetite in emerging markets, which is the primary driver of the ongoing market correction. Additionally, a demand for style rebalancing in the fourth quarter has also contributed. In his view, stabilization in oil prices, reduced risks from U.S. Treasuries, and particularly a moderation in expectations for Fed rate hikes will be key to halting the market decline and achieving stability.
Guojin Securities strategist Mou Yiling believes that the recent divergence between US and Chinese tech stocks was directly triggered by concerns over future fundamentals stemming from potential sanctions risks, such as those posed by the US Federal Communications Commission (FCC), leading to valuation pressure. This was further exacerbated by an overcrowded trading structure in China's market.
In Mou Yiling's view, even after significant adjustments, current A-share tech valuations remain expensive—indeed, higher than U.S. stocks. He notes that growth sectors led by optical modules, PCBs, and computing chips still have PE-TTM valuation percentiles above 60%, with PB valuation percentiles even higher at over 85%. While dynamic valuations may appear reasonable and ROE has improved, this raises the bar for future fundamental assumptions—assumptions now facing increasing uncertainty.
CSC Securities analysts Xia Fanjie and He Sheng note that, overall, positive signals are beginning to accumulate. For now, the optimal strategy is to prioritize defense while awaiting a turnaround. Domestically, the technology sector continues to show strong earnings performance, has undergone sufficient prior correction, and market stabilization mechanisms are in place. If expectations of tightening ease further and geopolitical tensions subside, bolstered by Q3 earnings validation, market sentiment is expected to gradually shift.
