UBS: The limited pullback in A-share downside risks stemmed from the concentrated release of congestion in the technology sector

The Zhitong Finance App learned that Meng Lei, a Chinese stock strategy analyst at UBS Securities, published an A-share strategy report saying that the downside risks facing the A-share market are currently limited due to ETF inflows and A-share profits still in an upward cycle. The recent pullback is due more to investors' centralized release of previously high transaction congestion in the technology sector, and public funds are also facing pressure to “redeem the capital.”

Meng Lei pointed out that since 2024, every time the Shanghai Composite Index quickly pulls back below the key point, ETFs will continue to receive net inflows. The recent net inflows were distributed between the Shanghai and Shenzhen 300 ETF, the China Securities 500 ETF, the China Securities 1000 ETF, the GEM Index ETF, and the Science and Technology Innovation 50 ETF.

He said that the current weekly turnover of the big tech sector in the total A-share market has fallen back to the level at the beginning of April this year. The trading congestion level of the individual stocks with the highest turnover declined sharply at the same time, indicating that tail risk and trading congestion have basically been released. The probability of a rapid return of OTC capital in the short term is low, as it will still take time to fix its risk appetite.