China A-share allocation strategy Report Interpretation

Overview

This China A-share strategy report argues that large ETF inflows have returned during the July correction, potentially providing market support, but that fragile risk appetite and declining turnover warrant a balanced, more defensive allocation until a clearer uptrend emerges.

Core views

Nomura highlights a marked return of ETF inflows after the July A-share correction. According to Wind, there have been 12 trading days so far in 2026 with net ETF subscriptions exceeding 20bn units, all occurring during the correction since July, compared with only four such days in 2025. The largest daily inflows cited were 61.44bn units on July 3, 59.23bn on July 20 and 50.45bn on July 17; these ranked second through fourth among daily inflows since the “9/24” rally began in 2024. The report interprets the renewed subscriptions as a combination of policy-backed stabilisation flows and allocation-driven capital returning after the market decline. The institution nevertheless views risk appetite as fragile. Turnover has faded, volatility remains elevated despite easing over the prior two weeks, and Nomura believes a sustained uptrend may take time to return. Total A-share turnover fell below CNY1.9tn on August 21, its lowest level since April 7, signalling greater investor caution. The report cites geopolitical risks, still-high US Treasury yields and the unwinding of crowded positioning built before July’s rapid correction as forces that could extend consolidation and liquidity-driven volatility. Nomura argues that the correction in global technology stocks reflects geopolitical and macro concerns and reduced crowding rather than deterioration in underlying industry trends. It therefore sees the pullback as a potential opportunity to build technology exposure, while recommending a more defensive portfolio stance until the recovery trend becomes clearer. Within technology, it favors hardware—particularly memory, optical communications, power-supply systems, liquid-cooling equipment and gas turbines—where AI-driven demand is expanding while capacity remains constrained. It also highlights domestic computing hardware, supported by policy tailwinds and robust industry demand. For defense, the report prefers banks with modest capital requirements that can sustain relatively high ROE and dividend yields. Low domestic interest rates, in its view, improve the relative appeal of dividend-paying stocks, whose lower-volatility characteristics may provide portfolio protection if risk appetite remains unsettled. It also points to selective opportunities in domestic consumption and the property chain after substantial valuation derating, and in non-ferrous metals and energy if a weaker US dollar and resilient inflation persist. Over the medium to long term, Nomura continues to favor structural opportunities associated with China’s industrial development; once a clearer market uptrend is established, it would put greater emphasis on technology and dividend stocks.

Analysis framework

The report combines ETF subscription and market-turnover data with an assessment of risk appetite, macro conditions, positioning and sector fundamentals. It then translates this market view into a balanced allocation framework, pairing growth-oriented technology exposure with lower-volatility dividend holdings and selected cyclical opportunities.

Methodology notes

• Industry AnalysisSupply-demand framework

  Technology hardware supply-demand analysis

  Nomura favors selected hardware areas because it sees AI-driven demand expanding while capacity remains constrained, supporting their industry backdrop.

Key data

• 2026 trading days with net ETF subscriptions above 20bn units12 daysAll occurred during the A-share correction since July, versus four such days in 2025.
• Largest cited daily ETF net inflow61.44bn unitsRecorded on July 3; the report also cites 59.23bn on July 20 and 50.45bn on July 17.
• Total A-share turnoverBelow CNY1.9tnOn August 21, the lowest level since April 7.

Impact & implications

The report sees ETF inflows as a potential stabilising force but not evidence of an immediate sustained rally. Its preferred positioning is balanced: retain exposure to structural technology themes while using dividend-paying banks and other defensive characteristics to mitigate continued volatility.

Risks

• Geopolitical tensions exceed expectations.
• The broader market declines further.
• Economic recovery is weaker than expected.

What to watch

• Whether A-share turnover and risk appetite recover enough to establish a clearer market uptrend.
• Geopolitical developments, US Treasury yields and the unwinding of previously crowded positioning.
• Whether AI-related demand remains strong while capacity stays constrained in the preferred technology hardware areas.
• Whether a weaker US dollar and resilient inflation support non-ferrous metals and energy.