More than 5,000 individual stocks fell, and the A-share market narrowly held the 3700-point mark.
Since October 8, the Shanghai Composite Index has fallen by a total of 104.42 points this month, representing a decline of 2.74%.
"I can't hold on anymore and want to close my account. Every day when I open my eyes, I start to 'lose money'." "I'm going to work extra hard to add positions." On October 15, "A-share market falls below 3700 points" became a trending search on social platforms, and investors joked about their investment experiences on social media.
Some people panicked and intended to liquidate their positions and leave the market, while others wanted to find opportunities to add positions. Ms. Yang, an investor, said that on October 15, the stock she bought hit a "historical low", so she could only "add positions through tears" to reduce the holding cost of the stock. But after she finished adding positions in the morning, the stock price fell again. Watching the Shanghai Composite Index close near 3700 points, Ms. Yang worried that she would fall into the awkward situation from "bottom fishing" to "being trapped".
As of the close of October 15, 5105 stocks in the entire A-share market fell, only 425 stocks rose, and the three major stock indexes all closed lower. The Shanghai Composite Index once fell below 3675 points during the session, rose briefly in the afternoon, and finally closed at 3707.48 points, down 1.59%; the Shenzhen Component Index closed at 11816.79 points, down 2.43%; the ChiNext Index closed at 2789.44 points, down 2.92%.
New Round of Interest Rate Hike Shockwave
On October 15, Xia Fanjie, a strategy analyst at CITIC Construction Investment Securities, told the Economic Observer that the direct reasons for the decline of the A-share market are two overseas factors: First, the United States released the September CPI (Consumer Price Index), with an overall month-on-month increase of 0.6% in line with expectations, a year-on-year increase of 3.7% exceeding expectations, the core CPI rose 0.3% month-on-month and 2.6% year-on-year, both exceeding expectations. The unexpected warming of housing rents combined with the widespread strengthening of core commodities and energy led inflation to shift from single-point disturbance to diffusion. The market raised the probability of a rate hike in October from about 22% to 50%, and the probability of a rate hike in December once soared to over 95%. After the expectation of interest rate hike rose, US technology stocks fell sharply. Second, under the expectation of interest rate hike, the concern about the AI valuation bubble spread, and the Asia-Pacific market fell across the board in early trading that day.
From the perspective of peripheral markets, on local time October 14, the three major US stock indexes all fell, the Nasdaq Index closed down 1.88%, the Dow Jones Index fell 0.09%, and the S&P 500 Index fell 1.1%.
Affected by the disturbance of the US stock market overnight, on Beijing time October 15, the Japanese and South Korean stock markets opened lower and then moved down in shock. The South Korean Composite Index fell by more than 8% during the session, triggering the circuit breaker mechanism, which is the tenth time that the South Korean stock market has triggered the circuit breaker mechanism this year, and the last trigger was on October 13. On that day, the South Korean Composite Index closed down 7.57%, and the Nikkei 225 Index also fell sharply, closing down 4.9%. In addition, the Hang Seng Tech, MSCI Taiwan and other Asia-Pacific tech indexes also saw sharp declines.
Tech stocks in the A-share market also continued to suffer heavy losses. Wind data shows that on October 15, among the Shenwan first-level industries, fewer rose and more fell. The communication, national defense military industry, mechanical equipment, non-ferrous metals and building materials industries led the decline, with declines of 4.64%, 3.98%, 3.65%, 3.63% and 3.61% respectively. Only the food and beverage and non-bank financial industries rose, with increases of 0.72% and 0.40% respectively.
Before the last Fed rate hike "landed", the market's expectation of rate hikes also continued to disturb the global tech stock market. At that time, the yield of US bonds continued to rise, the marginal change of global capital flow, and the contagion of risk sentiment put pressure on the stock market valuation.
On local time September 16, the Federal Reserve raised the target range of the federal funds rate by 25 basis points to 3.75% to 4%. This is the first time the Federal Reserve has adjusted its policy rate this year, and it is also the first rate hike since the end of July 2023. After the rate hike landed, on September 17, the Shanghai Composite Index of A-shares only fell slightly by 0.41%, and the Japanese and South Korean stock markets also fell slightly that day, which means that the market usually continues to digest the expectation of rate hikes until the policy is officially implemented.
As for when this rate hike will come, many institutions expect that it may be in December rather than October.
CITIC Securities pointed out that it is expected that the Fed will raise interest rates once more within the year, that is, it will hold still in October and further raise interest rates by 25 basis points in December. In an environment where oil prices remain high and inflation stickiness remains, it is difficult for US financial conditions to ease meaningfully, the dollar liquidity is expected to remain tight, the US bond interest rate does not yet have a clear downward space, gold sentiment is still relatively fragile, and the resilience of fundamentals is more important than the odds of liquidity.
Xiong Yuan, chief economist of Guosheng Securities, also believes that the necessity for the Fed to raise interest rates continuously in October is still limited, and the possibility of raising interest rates in December is relatively higher. However, if a new agreement can be reached between the United States and Iran and oil prices fall significantly later, the interest rate hike will most likely not happen in December. The main risk point is still the US-Iran situation, and it is necessary to closely watch the changes in oil prices.
Waiting for Rebound
Looking at the longer timeline, the Shanghai Composite Index fell below 4000 points in early July this year, fell below 3900 points at the end of September, all the way to the 3700 point mark, falling back to the level before August 18, 2025. Since October 8, the Shanghai Composite Index has fallen by a total of 104.42 points this month, representing a decline of 2.74%.
Regarding the recent weak performance of the A-share market, Xia Fanjie believes that one of the fundamental reasons is that the A-share market has entered the second round of leverage structure adjustment period. After the main A-share stock indexes successively fell below the annual line, trend-based and quantitative funds made structural position reduction, resulting in insufficient incremental funds in the market. After the index fell, it triggered the liquidation of margin trading positions, and the market entered the second round of leverage structure adjustment period. Data shows that from September 23 to October 14, there were 9 days of net outflow of margin trading funds in 10 trading days, with a total net outflow of 120.8 billion yuan during the period, which further deteriorated the capital side of the market.
"The reduction of margin trading balance combined with the sluggish trading volume shows that market sentiment is depressed." Meng Lei, China Equity Strategist at UBS Securities, believes that the main reason for this round of A-share market weakness is different from the cooling of the global tech narrative and rapid deleveraging in July. The short-term correction is more due to the concentrated release of investors' previously high transaction congestion in the tech sector, and public offering funds are also facing the pressure of "redemption after returning to cost".
Chen Guo, Chief Strategist of Eastmoney, also believes that the contraction of micro liquidity is an important reason for the weak performance of A-shares in the third quarter. The simultaneous occurrence of cooling transactions and margin trading contraction indicates that transaction support has weakened.
Wind data shows that in June this year, the average daily trading volume of the Shanghai and Shenzhen stock markets was about 3.11 trillion yuan, and the figure shrank to 1.81 trillion yuan in September. Since October, the average daily trading volume of the Shanghai and Shenzhen stock markets is about 1.64 trillion yuan, continuing to shrink.
From the perspective of capital flow, Wind data shows that in the afternoon of October 15, when the stock prices of securities firms and five major state-owned banks took turns to rise to "stabilize the market", the net outflow of main force funds in a single day in industries such as national defense military industry, transportation, public utilities, petroleum and petrochemical, non-ferrous metals, and coal all exceeded 1 billion yuan. On the same day, the net capital inflow of sectors such as electronics, media, power equipment, and biomedicine ranked at the top.
What Ms. Yang added positions to are the stocks in the non-ferrous metals and coal sectors. She does not know whether she will continue to add positions if the stock price continues to fall. She also bought CSI 300 broad-based ETF (Exchange Traded Fund), and found that the trading volume of this fund showed an upward trend in the afternoon.
Mr. Xu, an investor who also chose to add positions, thought "the opportunity is coming", he began to buy a small amount of tech stocks and related ETFs, waiting for the opportunity to rebound. He found that the index began to rise at the end of the trading session.
Ms. Yang and Mr. Xu have become the epitome of many investors in the current market — they are all waiting for the arrival of the rebound node.
Chen Guo believes that the risk appetite of the A-share market may have been excessively revised down, and it is expected to stabilize and rebound in the short term. In the future, we need to continue to pay attention to the marginal changes in the micro liquidity of the A-share market, including IPO (Initial Public Offering) financing and ETF inflows. At present, insurance capital is still a relatively possible source of increment, and its allocation demand is not limited to the OCI (Financial Assets Measured at Fair Value with Changes Included in Other Comprehensive Income) account. Therefore, we need to continue to pay attention to dividend assets and quality blue chips that meet the preferences of insurance funds, including high-quality assets that may benefit from stake increase.
Meng Lei believes that A-share profitability is still in an upward cycle. From the transaction data, the current weekly trading volume of the big tech sector as a proportion of the total A-share market has fallen back to the level in early April this year. The transaction congestion of the top stocks by trading volume has also fallen sharply at the same time, indicating that tail risk and transaction congestion have been basically released. Of course, the probability of rapid return of off-market funds in the short term is low, because the repair of their risk appetite still takes time.
This article is from the WeChat Official Account "Economic Observer", author: Niu Yu, published with authorization from 36Kr.