A-Share Market Update: Banks Surge Against Tech Sector Pressure
On October 12th, the A-share market exhibited clear differentiation. The Shanghai Composite Index fell by 0.43% to close at 3797.24 points, while the Shenzhen Component Index and the Growth Enterprise Market Index fell by 2.03% and 2.61% respectively. The ChiNext Index also dropped by 2.10%. The total turnover in both markets reached 15.378 trillion yuan, with over 4,300 individual stocks experiencing declines, indicating a noticeable decrease in market risk appetite.
Tech stocks generally declined, while bank stocks surprisingly strengthened. China Merchants Bank rose by 3.24%, Agricultural Bank and Construction Bank both gained 3.01%, and Bank of China rose by 2.95%. On the other hand, sectors such as semiconductors, communication equipment, and electronic components witnessed significant declines.
In the past few months, the tech sector has been consistently declining, especially since September 23rd. By the morning of October 12th, the ChiNext 50 Index had dropped by over 13%. This divergent trend is greatly influenced by regulatory guidance.
In recent years, Chinese regulatory authorities have been encouraging the entry of medium to long-term capital into the market – the so-called “patient capital” – to create a more stable investment force in the capital market.
Over the weekend, regulatory authorities held a forum to continue guiding long-term capital into the market, with a particular focus on insurance funds.
Insurance funds are being closely watched due to their immense scale, relatively long investment horizons, and significant impact on market capital structure allocation decisions. Through policy guidance, regulatory authorities are directing insurance funds to flow into bank stocks in order to boost their prices. Through a special accounting method, even if the stock prices drop after insurance funds purchase bank stocks, the insurance companies will not face losses on their books. They will only record the profits, such as the dividends from bank stocks, ensuring a risk-free gain.
This unique accounting method employed by the regulatory authorities falls under the category of public window dressing.
On October 10th, the chairman of the China Securities Regulatory Commission, Wu Qing, held a forum with capital market and financial experts, who suggested expanding channels for medium to long-term capital entry into the market and developing patient capital.
By the end of June 2026, the surplus of insurance funds had exceeded 40 trillion yuan, with approximately 4.1 trillion yuan invested in stocks. This implies that even a partial adjustment in stock allocation by insurance funds could have a significant impact on related sectors.
Why are insurance funds favoring bank stocks? Bank stocks meet the multiple requirements of stability and cash returns sought by insurance funds.
Firstly, bank stocks generally offer a certain dividend yield. For insurance institutions that require long-term asset allocation and value continuous cash flow, stable dividends are attractive.
Secondly, large state-owned banks hold a crucial position in the financial system. Currently, bank stock valuations are historically low, with dividend yields far exceeding long-term savings rates. Industrial and Commercial Bank of China, known as the “Universe Bank,” has a price-to-book ratio of 0.76 and a dividend yield of 3.79%. Agricultural Bank of China stands at 0.88 with a 3.61% dividend yield (as of October 12th closing prices, source: East Money).
Furthermore, the anticipated increase in US interest rates is forcing a reevaluation of tech stock valuations. Rising interest rates will decrease the present value of future profits, leading to a reevaluation of the pricing of high-valuation tech stocks. Even if a company’s long-term growth prospects remain unchanged, its stock price may fall due to valuation reassessment, prompting funds to shift towards more stable dividend-yielding bank stocks. This also helps understand the relative strength of bank stocks in the recent period.
In the third quarter of 2026, the ChiNext and ChiNext 50 Indexes plummeted by 27.80% and 30.70% respectively, while some bank stocks hit historic highs in September. The performance disparity between these two asset classes reflects the internal fund flow within the market.
Insurance funds initially valued the dividend characteristics of bank stocks but shifted towards tech stocks starting from July, only to withdraw from tech stocks and move back to bank stocks in September. This seesaw effect between bank and tech stocks indicates a potential fund reallocation scenario, highlighting the significance of day-to-day fluctuations in comparison to the possible underlying fund distribution.
In recent times, tech sectors such as artificial intelligence, semiconductors, computing power, and communication have gained market traction. However, once the market begins reevaluating valuations, profit realization rates, or external factors, stock prices may experience significant fluctuations.
In contrast, bank stocks’ investment logic leans more towards dividends, valuations, and profit stability. In times of decreasing market risk appetite, these two asset classes may naturally display different trends.
The significance of the tech industry is undisputed. Artificial intelligence, semiconductors, advanced manufacturing, and computing infrastructure have been identified by the Chinese government as the future directions of economic development.
Real estate is closely linked to the banking system. The ongoing real estate crisis poses a serious threat to both banks and household balance sheets.
In this context, maintaining real estate stability is crucial to stabilize the banking industry and prevent financial crises.
Therefore, the surge in bank stocks and the adjustment in tech stocks may reflect the market’s reallocating of risks rather than a direct requirement from any specific policy to pull funds out of tech stocks.
The recent divergence in the A-share market presents a clear observation: dividend assets such as bank stocks show relative strength, while tech stocks face pressure from valuation and fund preference changes.