The consecutive decline of the semiconductor sector — is the Federal Reserve to blame?
On the 8th, semiconductor-related sectors continued to adjust. As of the close of trading on that day, the Sci-Tech Innovation 50 Index, the ChiNext Index, and the Communication Equipment Index fell by approximately 4.30%, 3.69%, and 3.61% respectively. Combined with the performance on Friday (the 5th), many technology-related indices showed obvious adjustments.
During the two trading days on the 5th and 8th, the cumulative returns of many technology-themed funds have retreated by more than 10%. Among them are Huatai-PineBridge China-South Korea Semiconductor ETF, Cathay Science and Technology Chip Design ETF, and Cathay Integrated Circuit ETF.
The net value of many ETFs retreated by more than 10% in two trading days
Before the opening of the A-share market on the 8th, the stock markets in Japan and South Korea had already declined. As of the close of trading on that day, the Nikkei 225 Index closed down 3.85%, at 64,024.60 points; the South Korean KOSPI Index closed down 8.29%, at 7,484.41 points. The heavyweight stocks Samsung Electronics and SK Hynix in the South Korean stock market both declined significantly, with the declines on that day being approximately 10.18% and 7.68% respectively.
Before that, the U.S. stock market had already declined significantly. As of the close of the U.S. stock market in the early morning of the 6th Beijing time, the Dow Jones Index, the S&P 500 Index, and the Nasdaq Index fell by 1.35%, 2.64%, and 4.18% respectively. On that day, chip stocks declined more significantly. The Philadelphia Semiconductor Index fell 10.26%. The stock prices of individual stocks such as Marvell Technology, Micron Technology, ARM, Intel, Qualcomm, and AMD all fell by more than 10%.
On the 8th, the Chinese technology sector adjusted again. In the A-share market, as of the close of trading on that day, the Sci-Tech Innovation 50 Index, the ChiNext Index, and the Communication Equipment Index fell by approximately 4.30%, 3.69%, and 3.61% respectively. In the Hong Kong stock market, as of the close of trading on that day, the Hang Seng Tech Index fell 2.71%. The stock prices of GigaDevice Semiconductor and MINIMAX-W fell by approximately 3.87% and 8.14% respectively.
The continuous corrections on the 5th and 8th led to an obvious retreat in the returns of many technology-themed public funds. The net values of many ETF products have cumulatively declined by more than 10%. On the 8th, the Huatai-PineBridge China-South Korea Semiconductor ETF fell 6.45%. Adding the decline of 5.99% on the 5th, the net value of the fund has cumulatively retreated by approximately 12.05% in two days. However, the secondary market price of this fund still maintains a relatively high premium rate.
On the 5th and 8th, the Cathay Science and Technology Chip Design ETF fell by approximately 4.60% and 5.73% respectively, and the net value of the fund has cumulatively retreated by approximately 10.06%; the Guolian'an Science and Technology Chip Design ETF fell by approximately 4.74% and 5.54% respectively, and the net value of the fund has cumulatively retreated by approximately 10.02%; the Cathay Integrated Circuit ETF fell by approximately 5.07% and 5.30% respectively, and the net value of the fund has cumulatively retreated by approximately 10.11%. In the past two days, the net values of many other ETF products have cumulatively retreated by more than 9%.
Institutions: Caused by external disturbances
Regarding the stock market correction, the market believes that it is related to the strong performance of the U.S. non-farm payroll data, which has led to an increase in the expectation of the Federal Reserve to raise interest rates.
China Europe Asset Management analyzed to Jwview that the direct trigger for the market adjustment on the 8th was mainly external disturbances. The U.S. non-farm payroll data for May was better than expected, and the market repriced the Federal Reserve's interest rate hike path for the year. Global risk assets were generally under pressure; the situation in the Middle East became tense again. Iran and Israel attacked each other, and shipping in the Strait of Hormuz was disrupted. Concerns about global energy and supply chain security increased, further raising the market's risk aversion sentiment.
Huijun, the fund manager of the Shanghai Bank Digital Economy Hybrid Initiated Fund, told Jwview that the recent correction in the semiconductor sector was directly triggered by overseas factors: the U.S. non-farm payroll data led to an increase in the expectation of the Federal Reserve to raise interest rates, and the market repriced the Federal Reserve's hawkish path. The rise in long-term interest rates suppressed high-valued sectors such as AI. The cooling of overseas capital expenditure expectations was quickly transmitted through the equipment and materials sectors, and sectors such as the Sci-Tech Innovation 50 Index weakened synchronously.
Huijun said that at a deeper level, the market's concerns about the sustainability of AI capital expenditure have fermented. Funds have rotated from hardware to the application end. Semiconductors, which led in gains and had concentrated institutional holdings in the early stage, have become the first choice for profit-taking. Both margin trading purchases and over-allocation by funds in the sector are at historical highs. The crowded chips have magnified the adjustment range; coupled with the concentrated shareholding reductions of many leading companies and single-batch cash-outs of over 10 billion, the selling pressure has been further increased. However, this round of adjustment is more biased towards the emotional and valuation levels, and the logic of domestic substitution and the fulfillment of equipment and materials orders have not been falsified.
Some institutions believe that driven by this round of "technology bull market", the valuations of the Sino-US AI sectors are both at historical highs.
Galaxy Fund told Jwview that from the perspective of data and historical comparison, the valuation and trend of the overseas semiconductor sector (represented by the Philadelphia Semiconductor Index in the U.S. stock market) are indeed at a relatively high level. According to Wind data, from April 1, 2026, to May 6, 2026, the Philadelphia Semiconductor Index had a rally of more than 50% in 25 trading days. This slope set a new record since March 9, 2000, and the index has deviated from its 2000-day moving average by more than 60%. In addition, the U.S. semiconductor sector also has high crowding and high valuation multiples at historical levels.
CITIC Construction Investment Securities said in a research report released recently that before this correction, the U.S. S&P 500 Index had risen by approximately 15% in two months. A series of fanaticism indicators had risen to levels higher than historical levels, approaching the peaks in 2000 and 2021. The narrow width and high concentration have formed an amplifier for the retreat.
Galaxy Fund said that from the perspective of the Chinese domestic market, according to Wind data, the Shenwan Semiconductor Index is currently at a relatively high valuation position in the past decade. Its valuation logic is linked to overseas markets, but it also has unique domestic structural characteristics.
Galaxy Fund said that in the Chinese semiconductor sector, sectors that directly cut into the global AI computing power supply chain (such as optical module chips, advanced packaging materials, and computing power chip design) or undertake China's independent computing power infrastructure construction have had their valuations pulled up to historical highs under the overseas mapping. According to Wind data, the Wind Optical Module (CPO) Concept Index, the Wind Advanced Packaging Concept Index, the Wind Chip Design Concept Index, and the Wind Computing Power Theme Index have all been above the 60th percentile in the past decade.
The market adjustment may bring a reallocation window
Although the technology sector has retreated significantly and rapidly, some institutions still believe that the semiconductor sector is attractive.
China Europe Asset Management believes that in the short term, the market has entered a typical phased adjustment window of "dual internal and external suppression + high crowding release". However, it is necessary to clearly distinguish two levels of logic at present: First, the better-than-expected U.S. non-farm payroll data has reset the expectation of interest rate cuts, which is an impact at the valuation level. It has not changed the fundamental boom trends of the technology industry chain, such as the acceleration of AI computing power capital expenditure, the expansion of domestic storage production, and the increase in CCL prices; Second, the recent strengthening of the regulation of "pure concept speculation" actually constitutes a long-term benefit for high-quality enterprises with real performance support and solid R & D investment. The market style will converge to "value growth".
"The technology and cyclical sectors are the core driving forces for the improvement of China's asset profitability. It is expected that this trend will continue to deepen. The technology and cyclical sectors can be continuously concerned. Therefore, the subsequent market adjustment may bring a reallocation window." China Europe Asset Management suggested that the structural highlights of China's industries can be grasped, and the opportunities in the technology, cyclical, and dividend sectors should be focused on.
Specifically, China Europe Asset Management said that in the technology main line, it is necessary to focus on computing power hardware, especially storage, optical communication, and AI power supply/liquid cooling and gas turbines and other computing power infrastructure supporting facilities that benefit from the expansion of AI demand but are still limited by production capacity, as well as domestic computing power that benefits from policies and high prosperity; in the cyclical sector, pay attention to high-quality enterprises in China's energy and chemical industry with scale effects, including oil and gas, oil-based chemical industry, and coal chemical industry; in the dividend sector, pay attention to bank stocks with limited capital consumption and expected to maintain high ROE and dividend rates, as well as real estate stocks that benefit from the rapid increase in industry supply-side concentration.
Nuoyuan Fund told Jwview that it is suggested to focus on two main lines: First, the AI and technology sectors. The long-term development logic of the industry is solid. This round of correction is mostly due to capital reallocation and emotional disturbances. After a full adjustment, high-quality targets with technological advantages and realized performance are worth continuous tracking; Second, defensive assets. Dividend directions such as high dividends, banks, and public utilities become more attractive during periods of increased market volatility.
Huijun believes that the world will enter a period of intensive verification of liquidity and risk preference in the next two weeks. For example, the listing of SpaceX may cause a siphon effect; the direction of the Federal Reserve's interest rate decision is still uncertain; the debate on "whether AI spending can deliver returns" continues to ferment. The window period is a process for high-level varieties to digest expectations and release fluctuations. It is necessary to distinguish between emotional and valuation corrections and reversals of industrial trends. The market reaction after the event is often more indicative than the event itself.
This article is from the WeChat official account “Jwview” (ID: jwview). Author: Xue Yufei, Editor: Dong Wenbo. Republished by 36Kr with authorization.