The STAR 50 Index has plummeted by over 16% within this month, with more than 300 tech-focused funds reporting losses in the past month, yet capital is still flowing in to seize the opportunity at the market bottom.

On July 16, the Shanghai Composite Index fell below the 3,900-point integer threshold. That day, popular tracks including semiconductors, advanced packaging, and memory chips saw significant corrections, with the STAR 50 Index dropping by over 4%, and its cumulative decline for July has already exceeded 16%.

In fact, the technology sector has recently experienced a noticeable concentrated pullback. According to Wind data, as of July 16, the SWS Electronics Index posted a 21.51% decline within the month, ranking last among 31 industry indices, while the power equipment and communication indices also fell by more than 10%. The sector with the top gain was the pharmaceutical and biological index, which has risen 10.48% since July.

Fu Yifu, a special researcher at SuShang Bank, told a reporter from *Times Weekly* that overall, the market's annual main trend has not shifted. Technology and manufacturing remain the two core allocation directions, but internal differentiation will intensify significantly. In the short term, the market may mainly see high-level volatility. After the correction, high-quality targets that truly benefit from industrial trends and have trackable performance will usher in a better layout window.

The STAR 50 Index fell over 16% within the month, with many popular stocks dropping more than 30% from their highs

On July 16, the A-share market saw another pullback. By the close, the Shanghai Composite Index stood at 3,882.41 points, down 1.85%; the Shenzhen Component Index closed at 14,488.65 points, down 1.97%; the ChiNext Index ended at 3,692.46 points, down 2.95%. The total trading volume of the Shanghai and Shenzhen markets reached 2.40 trillion yuan, a decrease of 167.6 billion yuan from the previous trading day.

That day, several semiconductor-related ETFs fell by more than 5%. The Semiconductor Equipment ETF (GF), STAR Semiconductor Equipment ETF (Penghua), and Chip ETF (E Fund) posted declines of 7.69%, 7.48%, and 6.13% respectively. Looking at the past 5 trading days, the top decliners across the entire market were still dominated by semiconductor equipment-related ETFs, with the largest drop recorded by the STAR Semiconductor Equipment ETF (Penghua) at 25.60%.

Since July, the technology sector has been undergoing a deep correction. Data shows that on July 16, the STAR 50 Index opened lower and gradually turned positive, but continued to decline in the afternoon. By the close of that day, the STAR 50 Index fell 4.02%. Over a longer horizon, the index's cumulative decline for July has reached 16.35%.

In terms of individual stocks, many popular leading stocks that previously doubled in price have fallen more than 30% from their highs. On July 16, GigaDevice, a leading A-share memory stock, hit the daily limit down in the afternoon, with its price down 39.22% from the high at the end of June; Montage Technology plunged 16.44% that day, closing at 211.13 yuan, down 36.58% from its all-time high of 332.90 yuan hit intraday on July 1.

Regarding the reasons for the recent pullback in the technology sector, Fu Yifu analyzed to the *Times Weekly* reporter that the transmission effect of deleveraging in overseas markets is significant. Global tech stocks saw concentrated gains in the early stage, with leveraged funds highly clustered. Once risk appetite reversed, capital outflows formed a negative feedback, and this sentiment quickly spread to the related hardware and semiconductor sectors in the A-share market.

In addition, Fu Yifu believes that the trading structure of the A-share technology sector itself is extremely crowded. After months of continuous rallies, most sub-segments of the technology sector have fully priced in optimistic expectations, with accumulated profit-taking chips. Any marginal negative news can easily trigger a chain of selling pressure. The semi-annual report disclosure period shifts the market's focus from conceptual imagination to actual performance delivery. The valuations of some targets are far higher than their performance realization capabilities, leading funds to actively withdraw from high-valuation theme stocks and shift to low-level sectors with higher safety margins.

"Overall, this correction is not a reversal of industrial trends, but the market digesting overly optimistic sentiment, which is a normal valuation regression during an upward cycle," Fu Yifu said.

Over 300 technology funds posted losses in the past month, and the technology sector still retains flexibility

Against the backdrop of pressured market conditions, some technology-themed funds have performed poorly recently. According to Wind data, as of July 15, more than 300 funds with the word "technology" in their names recorded losses in the past month. Among them, 26 funds including Founder Fubon Technology Innovation C, Bank of Communications Technology Innovation C, and Zhongjia Technology Vision Select C fell by more than 10%.

It is worth noting that despite the continuous market pullback, there is still capital entering the market to buy the dip. Data shows that over the past 5 trading days, the ETF under China Asset Management focused on STAR Market semiconductors ranked first in net inflows across the ETF market, attracting 81.52 billion yuan, exceeding the 13.64 billion yuan of the second-ranked CSI 500 ETF (Southern Asset Management).

By theme, the top ETFs in net inflows over the past 5 trading days are all semiconductor and communication-themed. The Semiconductor Equipment ETF (Guotai), STAR Chip ETF (Harvest), and Communication ETF (Guotai) all recorded net inflows of over 20 billion yuan in the past 5 days.

Fu Yifu stated that the macro environment in the second half of the year will still provide mild support for the A-share market. At the industrial level, the AI-driven technological innovation cycle is continuing, with clear long-term demand logic in areas such as semiconductor localization and computing power infrastructure, alongside continuously increasing industrial policy support. The technology sector remains one of the most flexible directions for the whole year, but the driving force of its market performance will shift from "valuation expansion" to "performance verification". Some leading companies are expected to achieve resonance between earnings and valuations relying on technological barriers and expanding order volumes, while theme stocks without substantial business support will face sustained de-bubbling pressure.

China Europe Fund believes that after market chips and sentiment complete their transition, tech stocks will follow fundamental expectations and still have the potential to outperform the consumer and domestic demand sectors. From a longer-term perspective, domestic assets have scale advantages and policy advantages. Technology is the core driving force for A-share earnings improvement. Within the main technology trend, focus on computing power hardware, especially computing power infrastructure supporting segments such as memory, optical communications, AI power supplies, liquid cooling, and gas turbines that benefit from expanding AI demand but are constrained by production capacity, as well as domestic computing power that benefits from policies and high industry prosperity. At the same time, pay attention to the defensive attributes of bank stocks in the dividend sector.

This article is from the WeChat official account "Times Weekly" (ID: timeweekly), author: Huang Yukun, editor: Lan Shuo, published with authorization from 36Kr.