A-Share Sentiment Indicator Rebounds, IPO Liquidity Pressure Fades, New Catalysts May Emerge in Mid-September

Overview

This report assesses the connections among A-share investor sentiment, IPO-related funding congestion, the global AI trade, domestic macroeconomic divergence, and policy expectations. Morgan Stanley's core view is that A-share sentiment has rebounded on a weekly basis and liquidity pressure from flagship IPOs is fading. If the global AI trade continues to stabilize and policy and external-relations catalysts emerge in mid-September, A-share market breadth could improve and the performance gap relative to Hong Kong stocks could narrow.

Core views

As of August 19, 2026, the weighted MSASI had risen 10 percentage points from August 12 to 41%, indicating an improvement in short-term A-share sentiment. However, the one-month moving average of the weighted MSASI, which smooths short-term volatility, declined 4 percentage points over the same period to 38%, indicating that the weekly rebound has not yet fully translated into a more stable medium-term trend. Market activity increased markedly: ChiNext turnover rose 13% to Rmb639bn, total A-share turnover increased 17% to Rmb2,513bn, and stock index futures turnover climbed 64% to Rmb575bn; the outstanding balance of margin financing and securities lending was unchanged at Rmb2,633bn. Over the same period, the 30-day RSI declined 7 percentage points, while consensus earnings-revision breadth remained negative, albeit with a slight improvement from the previous week. Therefore, the recovery in sentiment and trading activity has not yet been confirmed simultaneously by all technical and fundamental indicators. Regarding fund flows, southbound funds recorded net inflows of US$1.1bn from August 12 to 19, bringing net inflows since the beginning of August to US$2.1bn and year-to-date net inflows to US$48.6bn, equivalent to only 40% of the level in the same period last year. The report also notes that the Shanghai, Shenzhen, and Hong Kong stock exchanges stopped publishing daily northbound buy and sell data on August 19, 2024. The latest available daily northbound trading data are therefore as of August 16, 2024, limiting daily observation of the direction of northbound flows. The macroeconomic backdrop shows a more pronounced K-shaped divergence. Industrial value added grew 4.5% year over year in July, below the market expectation of 4.8%; fixed-asset investment declined 6.7% year to date, weaker than the expected 6.2% decline; and retail sales increased only 0.6% year over year, also below the 1.5% forecast. Weakness was concentrated primarily in domestic-demand-driven areas such as infrastructure investment, upstream production, housing, and consumption, while export-oriented high-tech manufacturing continued to strengthen, with July output growth accelerating to 12.3% from 9.6% in the second quarter. Morgan Stanley's China economics team consequently lowered its 3Q GDP tracking forecast by 10 basis points to 4.4% year over year. The report believes that if macroeconomic conditions weaken further, the likelihood of incremental policy fine-tuning in the autumn could increase; the envisioned equity-market rebound would have stronger support only after such policy fine-tuning is confirmed. The global AI trade is another major theme in the report's assessment of the A-share market's outlook. Because A-shares have substantial exposure to AI infrastructure and hard-technology industries, they have demonstrated unusually high sensitivity to global AI sentiment during this cycle, amplifying both the earlier rally and the correction following the summer sell-off. The report therefore believes that stabilization and renewed recovery in global AI-related trades would be an important catalyst for improving A-share market breadth and investor sentiment through year-end. Regarding recent large IPOs, the report does not believe they represent a persistent market-wide liquidity shortage. After the highly watched Unitree IPO completed its listing during the report week, near-term liquidity pressure should gradually fade. Although flagship projects including CXMT and Unitree temporarily created congested trading conditions, the crowding-out effect on funds is judged to be short-lived. Over the longer term, the report views such listings as evidence of the continued upgrading of China's capital-market ecosystem: the addition of high-quality hard-technology companies should help reshape the landscape of listed A-share technology companies, improve the quality of market assets, and attract broader categories of investors. In terms of market selection, Morgan Stanley has renewed its preference for A-shares over Hong Kong-listed stocks. Its reasoning is that if global AI-related trades recover, particularly in markets such as South Korea, Taiwan, China, and Japan, Hong Kong stocks could experience short-term profit-taking and fund rotation. Meanwhile, improving A-share market breadth could narrow the relative performance gap between A-shares and Hong Kong stocks. The report views mid-September as the next observation window for potential catalysts, focusing on whether China-US relations improve ahead of President Xi Jinping's visit to the US, whether the probability of China introducing fiscal stimulus rises, and whether Hong Kong-listed hyperscale cloud service providers and large language model companies release their latest AI developments. MSASI itself comprises 12 indicators covering ChiNext turnover, total A-share turnover, stock index futures turnover, northbound turnover, the outstanding balance of margin financing and securities lending, new account openings on the Shanghai Stock Exchange, the 30-day RSI of the CSI 300, the number of limit-up A-shares, the discount on CSI 300 futures, the put-call open-interest ratio for CSI 300 options, the one-month moving average of offshore passive-fund inflows into the CSI 300, and the three-month moving average of earnings-revision breadth for Shanghai A-shares. Each indicator is first normalized to 0–100 based on its highest and lowest values over the previous 100 days. Weights are then determined using the R² from a univariate regression between each indicator and the CSI 300's performance relative to its 100-day moving average. The weighted indicator is subsequently rescaled to 0–100 based on historical highs and lows since January 2024, with a separate one-month moving average used to observe the medium-term trend. The analysis uses data from January 2014 to the present because certain influencing factors, such as northbound Stock Connect, did not exist in earlier periods. Structural breaks, such as the 2015 changes to stock index futures regulation, are addressed by standardizing values relative to the previous 100-day range rather than using absolute turnover, thereby reducing the lack of comparability caused by institutional changes.

Analysis framework

The report first uses MSASI and data on turnover, leverage, technical indicators, and earnings revisions to assess changes in A-share sentiment, and then uses southbound flows to observe cross-market fund movements. It subsequently compares July macroeconomic data with expectations to analyze whether the economy's K-shaped divergence could increase the probability of additional policy support. It then explains changes in A-share market breadth through two channels: the transmission of global AI sentiment and funding congestion caused by large IPOs. Finally, it establishes a preference for A-shares relative to Hong Kong stocks and identifies an event-driven catalyst window in mid-September. The quantitative section constructs a composite sentiment indicator using rolling normalization, historical regression-based weighting, and moving averages.

Methodology notes

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  MSASI Twelve-Indicator Weighted Sentiment Model

  The report combines 12 indicators covering trading activity, leverage, technical factors, derivatives, fund flows, and earnings forecasts into an A-share sentiment index, avoiding the use of a single indicator to represent overall market sentiment.

• Quantitative/Factor/Portfolio Theory

  100-Day Moving-Range Normalization and Regression R² Weighting

  Each indicator is converted to a 0–100 scale by subtracting its lowest value over the previous 100 days from the latest value and dividing the result by the difference between its highest and lowest values over the previous 100 days. The R² from a univariate regression between the indicator and the CSI 300's performance relative to its 100-day moving average is then used as the weight, giving greater weight to indicators with stronger historical explanatory power.

• Event-Driven Strategy and Behavioral FinanceFund Flow/Positioning Analysis

  Analysis of Turnover, Margin Financing and Securities Lending, Southbound Flows, and IPO Congestion

  The report uses turnover, the outstanding balance of margin financing and securities lending, cross-border fund flows, and the crowding-out of funds by large IPOs to assess market participation and liquidity pressure, distinguishing short-term congestion from a persistent liquidity shortage.

• Event-Driven Strategy and Behavioral FinanceEvent-driven analysis

  Mid-September Catalyst Window

  The report views changes in China-US relations, domestic fiscal stimulus, and AI updates from large Hong Kong-listed technology companies as events that could affect the relative performance of A-shares and Hong Kong stocks within the same time window.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China A-Shares

  The report believes that A-share sentiment is improving, IPO-related liquidity pressure is fading, and A-shares should again be preferred relative to Hong Kong stocks.

  Strengths

  Substantial exposure to AI infrastructure and hard-technology industries; listings of high-quality hard-technology companies should improve the quality of market assets and attract broader categories of investors.

  Weaknesses

  Domestic-demand-related areas of the economy remain weak, consensus earnings-revision breadth remains negative, and smoothed medium-term sentiment indicators have not yet rebounded in tandem.

  Comparison

  The report expects the performance gap between A-shares and Hong Kong stocks to narrow as A-share market breadth improves.

  Risks

  A-shares are unusually sensitive to global AI sentiment, potentially amplifying both rallies and corrections; large IPOs could still cause temporary funding congestion.

• Hong Kong-Listed Chinese Stocks

  As the relative comparison market for A-shares, the report believes that a recovery in the global AI trade could trigger profit-taking and outward fund rotation in Hong Kong stocks.

  Strengths

  Hong Kong-listed hyperscale cloud service providers and large language model companies could announce new AI developments during the next window.

  Weaknesses

  Under the report's global AI recovery scenario, Hong Kong stocks face short-term pressure from profit-taking and fund rotation.

  Comparison

  Morgan Stanley has shifted its relative preference back to A-shares and expects the performance gap between A-shares and Hong Kong stocks to narrow.

  Risks

  If the global AI trade recovers in markets such as South Korea, Taiwan, China, and Japan, Hong Kong stocks could experience near-term profit-taking.

Key data

• Weighted MSASI41%As of August 19, 2026, up 10 percentage points from August 12.
• One-Month Moving Average of Weighted MSASI38%Down 4 percentage points from August 12 to 19.
• ChiNext TurnoverRmb639bnUp 13% from August 12.
• Total A-Share TurnoverRmb2,513bnUp 17% from August 12.
• A-Share Stock Index Futures TurnoverRmb575bnUp 64% from August 12.
• Outstanding Balance of Margin Financing and Securities LendingRmb2,633bnUnchanged from August 12.
• Change in 30-Day RSIDown 7 percentage pointsThe measurement period was August 12 to 19, 2026.
• Net Southbound Fund InflowsUS$1.1bnFrom August 12 to 19, 2026; month-to-date net inflows were US$2.1bn and year-to-date net inflows were US$48.6bn, equivalent to 40% of the level in the same period last year.
• July Industrial Value Added4.5% YoYBelow the market consensus forecast of 4.8%.
• Fixed-Asset Investment-6.7% YTDWeaker than the market forecast of -6.2%.
• July Retail Sales0.6% YoYBelow the market consensus forecast of 1.5%.
• July Output Growth of Export-Oriented High-Tech Manufacturing12.3% YoYAccelerated from 9.6% in the second quarter.
• 3Q GDP Tracking Forecast4.4% YoYLowered by 10 basis points by Morgan Stanley's China economics team.

Impact & implications

The report believes that A-share trading activity and weekly sentiment indicators have improved, but moving-average sentiment, RSI, and earnings revisions have not yet strengthened in tandem. The current environment therefore resembles an early-stage recovery rather than a fully confirmed upturn. As flagship IPOs complete their listings, the short-term crowding-out of funds could diminish. If the global AI trade stabilizes and fiscal-policy or external-relations catalysts emerge, A-share market breadth could improve further. By comparison, Hong Kong stocks could face profit-taking and fund rotation, narrowing the relative performance gap between A-shares and Hong Kong stocks. Over the longer term, the listings of high-quality hard-technology companies are viewed as positive factors that improve the quality of A-share assets and the investor mix.

Risks

• The K-shaped divergence in China's economy could deepen further, with domestic-demand areas such as infrastructure, housing, and consumption remaining weak; the 3Q GDP tracking forecast has already been lowered to 4.4% year over year.
• Consensus earnings-revision breadth for A-shares remains negative, indicating that the improvement in trading sentiment has not yet been fully confirmed by earnings expectations.
• A-shares are unusually sensitive to global AI sentiment, a characteristic that can amplify rallies and has also amplified the correction following the summer sell-off.
• Large IPOs could still cause temporary liquidity congestion, although the report judges that this will not develop into a persistent market-wide liquidity shortage.

What to watch

• Watch whether China-US relations improve in mid-September ahead of President Xi Jinping's visit to the US.
• Watch whether the probability of China introducing fiscal stimulus increases and whether policy fine-tuning can be confirmed.
• Watch whether Hong Kong-listed hyperscale cloud service providers and large language model companies announce their latest AI developments.