A sudden downturn has gripped the A-share market!

In the context of a strong Hong Kong stock market and a bullish A50 index, the A-share market experienced a stunning drop this afternoonThe Shanghai Composite Index plummeted by over 1% at one point, while the ChiNext index saw a decline of more than 2%. A widespread sell-off marked the day, leading to a total trading volume of less than 1.83 trillion yuanBy the close of the market, the Shanghai index fell by 0.93%, the Shenzhen Component Index dropped by 1.61%, and the ChiNext Index slipped by 1.98%.

Market analysts suggest that the market's speculative fervor is nearing its endThe remarkable growth seen in sectors such as artificial intelligence and computing power led to substantial price surgesWhen it comes time for these speculative gains to be realized, the resulting sell-offs can be quite severeFurthermore, the four major state-owned banks reaching new highs may have suppressed the market's risk appetite, which contributes to further sell-offs in speculative stocksAs the annual report disclosure period approaches, the market may preemptively react to this uncertaintyNotably, large Exchange Traded Funds (ETFs) have recently shown a downward trend in their share volumes.

A sudden sell-off

In the afternoon, the situation changed dramatically for A-sharesAfter breaking key support levels, the index saw a turbulent decline with signs of panic selling emergingThe Shanghai Composite Index saw a decline of close to 40 points at its lowestBy the end of the trading day, the Shanghai index was down 0.93%, the Shenzhen index fell 1.61%, and the ChiNext index dropped 1.98%, affecting over 4,600 individual stocks.

In contrast, bank stocks performed strongly against the trend, with shares of Industrial and Commercial Bank of China, China Construction Bank, Bank of China, and Agricultural Bank of China reaching new highs

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This bullish performance from large bank stocks may, to some extent, suppress the risk appetite of investors, as historical trends often indicate that as the large-cap bank stocks rally, mid and small-cap stocks tend to suffer.

Additionally, similar patterns occur when brokerages are used to leverage the indexThe structure of the market today reflected this phenomenonWhile some sectors such as robotics performed well, overall performance declined sharply after peaksStocks like Beizhi Technology, New Era, Jidong Equipment, and Nanxing Technology experienced limits on their gainsHigh-flying stocks faced a significant retreat, with sectors like DeepSeek and AI healthcare taking the lead in losses as many prior strong stocks like Rundong Medical and Bei Rui Genetics hit their daily limits, totaling 21 stocks faced with such declines.

It's worth noting that this sell-off was not driven by external forcesEarlier in the day, the A50 index had gained over 1%. Without the compound effect of the A-share decline, it could have maintained its upward momentum throughout the dayThe Hong Kong stock market showed a similar pattern, with the Hang Seng Tech Index rising more than 3% at one point, only to be affected by A-share volatility, but it rebounded shortly after the A-share market closed.

Examining the reasons for the market's downturn, analysts attribute a significant part of it to structural adjustmentsRecently, with substantial peaks in the artificial intelligence-related sectors, the market has reached a realization pointHistorically, speculative surges often coincide with sharp declines, accompanied by numerous stocks hitting their daily lower limitsThis recurring theme substantially affects market sentimentIn addition, as the annual reporting period approaches, it has also turned investors cautiousNotably, last week, many large ETFs, with the exception of broker ETFs, saw a decrease in their share volumes, implying that some funds utilized recent price increases to take profits.

Is the spring rally still alive?

So, is the market's bullish trend at an end?

The well-known international investment bank Goldman Sachs released significant signals in a report published on the 17th local time

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On one hand, the bank raised its 12-month target for the MSCI China Index from 75 points to 85 points, implying a potential upside of 16%. It also adjusted the forecast for the CSI 300 index from 4,600 points to 4,700 points, predicting a possible increase of 19%.

On the other hand, Goldman Sachs predicted that the penetration of artificial intelligence technologies could lead to an average annual EPS enhancement of 2.5% for Chinese listed companies over the next decade, benefiting prominently the healthcare, manufacturing, and finance sectorsThey believe that the current dynamic PE of the MSCI China Index sits at only 10.3 times, which is 1.2 standard deviations below the five-year average, presenting significant historical potential for valuation recoveryLiu Jinjin, head of Asian equity strategy at Goldman Sachs, stated that "Chinese assets are poised to experience a dual impact from profit improvements and valuation expansions, where the resonance effect of technological revolutions and policy benefits may exceed expectations."

Famed analyst Zhang Yidong believes that the A-share market in 2025 will be characterized by large-cap stocks leading the way, with oscillations to mitigate external risks and internal challengesThis would facilitate a reassessment of social wealth, lifting the market's bottom line, promoting innovative productive forces, aiding in high-quality resolutions of debt issues, and stabilizing the economyHe suggests that the innovation bull market's primary upward trend has been establishedLooking back at the market from 1999 to 2001, economic stagnation combined with state-owned enterprise reform and technology themes has often been the driving forceThe surge that began on May 19, 1999, remained until June 2001, showcasing successive rallies in local Shanghai and Shenzhen stocks tied to the enterprise reforms and M&A themes.

The breakthroughs made by Chinese technology-oriented private enterprises in fields such as AI, humanoid robots, and innovative pharmaceuticals demonstrate the effectiveness of R&D investments in the tech sector

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