Fading Large-IPO Pressure Lifts A-Share Sentiment, with the Next Round of Catalysts Potentially Arriving in Mid-September

Overview

Centered on Morgan Stanley's A-share Sentiment Indicator, MSASI, this report assesses changes in A-share liquidity, trading activity, and risk appetite following the completion of large IPO listings. The report believes that sentiment has rebounded on a weekly basis and that the IPO crowd-out effect is more likely to be temporary; if the global AI trade continues to stabilize and domestic policy sees incremental adjustments, the performance gap between A-shares and Hong Kong stocks may narrow.

Core views

First, immediate A-share sentiment improved significantly from August 12 to 19, although medium-term trend indicators continued to lag. As of August 19, the weighted MSASI rose 10 percentage points from the previous observation date to 41%, while the weighted MSASI's one-month moving average declined 4 percentage points to 38%. Trading activity provided the main support: ChiNext turnover increased 13% to RMB639 billion, overall A-share turnover rose 17% to RMB2.513 trillion, and stock index futures turnover increased 64% to RMB575 billion; the margin financing balance remained unchanged at RMB2.633 trillion. Meanwhile, the 30-day RSI fell 7 percentage points, and the net breadth of earnings estimate upgrades versus downgrades remained negative, improving only marginally from the previous week. Therefore, the report describes a rebound in immediate trading sentiment rather than a synchronized strengthening across all technical and fundamental indicators. Southbound net inflows totaled US$1.1 billion from August 12 to 19, US$2.1 billion month to date, and US$48.6 billion year to date, equivalent to 40% of the level during the same period last year. Second, the macro backdrop continues to exhibit a more pronounced K-shaped divergence, which both constrains the market and increases the likelihood of additional policy support in the autumn. Industrial production increased 4.5% year over year in July, below the market expectation of 4.8%; fixed-asset investment declined 6.7% year over year year to date, weaker than the expected 6.2% decline; and retail sales grew only 0.6% year over year, below the 1.5% expectation. Weakness was concentrated mainly in domestic-demand areas such as infrastructure investment, upstream production, housing, and consumption, while export-oriented high-tech manufacturing continued to strengthen, with year-over-year output growth accelerating to 12.3% in July from 9.6% in the second quarter. Morgan Stanley's China economics team therefore lowered its third-quarter GDP tracking forecast by 10 basis points to 4.4% year over year. The report believes that further macroeconomic weakening could increase the probability of incremental policy fine-tuning in the autumn; only confirmation of policy adjustments could become a substantive catalyst for an equity market rebound. Third, A-shares exhibit unusually high sensitivity to global AI trade sentiment because of their substantial exposure to AI infrastructure and hard-technology industries. This structure amplified the earlier rally and also magnified the pullback following the summer sell-off. The report therefore judges that stabilization and renewed gains in global AI-related trades would become an important driver of improved A-share market breadth and investor sentiment before year-end, with particular attention required on the recovery of AI trades in markets such as South Korea, Taiwan, China, and Japan. In other words, an A-share rebound depends not only on domestic liquidity but is also influenced by global technology risk appetite transmitted through hard-technology sectors. Fourth, the report believes that trading congestion triggered by recent large IPOs such as CXMT and Unitree does not imply a persistent market-wide liquidity shortage. With Unitree completing its listing this week, the main recent source of liquidity pressure should gradually fade. In the short term, the concentrated listing of large projects can attract capital and cause trading congestion; in the long term, the entry of flagship hard-technology companies into the A-share market is viewed as evidence of the continued upgrading of China's capital-market ecosystem, helping reshape the listing landscape for technology companies, improve A-share asset quality, and attract broader types of investors. The report therefore distinguishes large IPOs' short-term funding disruptions from their long-term improvement of market quality. Fifth, in relative market selection, Morgan Stanley has recently returned to preferring A-shares over Hong Kong stocks. Its rationale is that a recovery in the global AI trade in markets such as South Korea, Taiwan, China, and Japan could trigger short-term profit-taking in Hong Kong stocks and drive capital rotation away from that market; meanwhile, easing IPO pressure and improving A-share market breadth are expected to narrow the relative performance gap between A-shares and Hong Kong stocks. The report identifies mid-September as the observation window for the next group of potential catalysts, specifically including improving China-US relations ahead of President Xi Jinping's visit to the United States, an increased probability of Chinese fiscal stimulus, and the release of the latest AI developments by Hong Kong-listed hyperscale technology companies and large-model companies. Finally, MSASI itself is a weighted composite index comprising 12 sentiment and market-activity indicators, including ChiNext turnover, A-share turnover, stock index futures turnover, northbound turnover, margin financing balances, new Shanghai Stock Exchange accounts, the CSI 300's 30-day RSI, the number of limit-up stocks, the CSI 300 futures discount, the ratio of CSI 300 call to put option open interest, the one-month moving average of offshore passive fund flows into the CSI 300, and the three-month moving average of Shanghai A-share earnings estimate revision breadth. Each series is first normalized to 0–100 based on its rolling 100-day high and low, and then weighted according to the R² obtained from a univariate regression against the CSI 300's performance relative to its 100-day moving average. The composite result is rescaled again to 0–100 based on historical highs and lows since January 2024, and a one-month moving average is calculated to distinguish immediate sentiment fluctuations from a smoother medium-term trend.

Analysis framework

The report first uses the weighted MSASI and its one-month moving average to assess short- and medium-term sentiment, and then breaks down changes in turnover, financing, RSI, earnings estimate revisions, and capital flows. It subsequently combines these market signals with the funding crowd-out from large IPOs, the global AI trade, Chinese macroeconomic data, and potential policy stimulus to explain why A-share sentiment has rebounded and whether it can persist. Finally, through the logic of capital rotation between A-shares and Hong Kong stocks, it identifies the specific catalysts to monitor in mid-September. MSASI uses rolling normalization, historical explanatory-power weighting, and moving-average smoothing to reduce incomparability caused by differences in indicator scales, frequencies, and regulatory regimes.

Methodology notes

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  Weighted MSASI comprising 12 market-sentiment and trading-activity indicators

  The report combines multiple dimensions, including trading, leverage, technical indicators, capital flows, and earnings estimate revisions, into a single sentiment index so that fluctuations in any one indicator do not independently determine the overall assessment.

• Quantitative/Factor/Portfolio Theory

  Rolling 100-day min-max normalization

  Each indicator is rescaled to 0–100 based on its lowest and highest values over the most recent 100 days. This standardizes measurement scales and uses relative positioning rather than absolute turnover to address structural breaks such as regulatory changes.

• Quantitative/Factor/Portfolio Theory

  Indicator weighting based on univariate-regression R²

  The report performs univariate regressions of each indicator's position within its rolling range against the CSI 300's performance relative to its 100-day moving average and uses R² to determine weights, giving higher weights to indicators with greater historical explanatory power for market changes.

• Quantitative/Factor/Portfolio Theory

  One-month moving-average smoothing

  A one-month moving average is calculated for the weighted MSASI to reduce high-frequency noise and identify medium-term sentiment trends; the rise in the immediate index alongside a decline in the moving average this period indicates that the short-term rebound has not yet fully translated into medium-term improvement.

Asset mapping & comparison

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

• A-Shares

  The report has restored its strategic preference for A-shares over Hong Kong stocks and believes that easing IPO pressure, a recovery in the global AI trade, and policy catalysts could improve market breadth.

  Strengths

  High exposure to AI infrastructure and hard technology, recovering trading activity, and the potential for flagship technology-company listings to improve asset quality over the long term.

  Weaknesses

  The one-month sentiment moving average is still declining, the 30-day RSI has weakened, earnings estimate revision breadth remains negative, and domestic-demand-related macroeconomic data are weak.

  Comparison

  The report expects the relative 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; if related trades weaken again, market volatility may be amplified.

• Hong Kong Stocks

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

  Strengths

  AI developments from Hong Kong-listed hyperscale technology companies and large-model companies could provide a catalyst in mid-September.

  Weaknesses

  Faces potential profit-taking and capital outflow pressure.

  Comparison

  Morgan Stanley currently prefers A-shares over Hong Kong stocks.

  Risks

  If capital rotates from Hong Kong stocks into other AI-related markets or A-shares, the relative performance of Hong Kong stocks may come under pressure.

Key data

• Weighted MSASI41%As of August 19, 2026, up 10 percentage points from August 12.
• Weighted MSASI One-Month Moving Average38%Down 4 percentage points from August 12 to 19.
• ChiNext TurnoverRMB639 billionUp 13% from the previous observation date.
• Overall A-Share TurnoverRMB2.513 trillionUp 17% from the previous observation date.
• Stock Index Futures TurnoverRMB575 billionUp 64% from the previous observation date.
• Margin Financing BalanceRMB2.633 trillionUnchanged from August 12.
• 30-Day RSIDown 7 percentage pointsThe change period was August 12 to 19, 2026.
• Southbound Net InflowsUS$1.1 billionFrom August 12 to 19, 2026; US$2.1 billion month to date and US$48.6 billion year to date.
• Year-to-Date Southbound Inflows Versus Last Year40% of the same period last yearCorresponding to year-to-date net inflows of US$48.6 billion.
• July Industrial Production4.5% year over yearBelow the market expectation of 4.8%.
• Fixed-Asset Investment-6.7% year over year year to dateWeaker than the expected -6.2%.
• July Retail Sales0.6% year over yearBelow the market expectation of 1.5%.
• July Export-Oriented High-Tech Manufacturing Output12.3% year over yearAccelerated from 9.6% in the second quarter.
• Third-Quarter GDP Tracking Forecast4.4% year over yearMorgan Stanley's China economics team lowered the forecast by 10 basis points.
• Number of MSASI Underlying Indicators12Covering trading activity, leverage, technicals, capital flows, and earnings estimate revisions.
• MSASI Normalization WindowRolling 100 daysRescaled to 0–100 based on the highest and lowest values during the period.

Impact & implications

The report believes that short-term A-share liquidity and immediate sentiment have improved following the completion of large IPO listings, but the one-month moving average, RSI, and earnings estimate revision breadth have not yet simultaneously confirmed a trend reversal. If the global AI trade continues to recover and domestic fiscal stimulus or policy fine-tuning is confirmed, A-share market breadth may improve further and narrow the performance gap relative to Hong Kong stocks; listings of large hard-technology companies could improve A-share asset quality and investor composition over the longer term.

Risks

• A-shares are unusually sensitive to global AI trade sentiment; if related trades weaken again, the market pullback could be amplified.
• Persistent weakness in domestic demand, housing, infrastructure, and consumption, together with still-negative earnings estimate revision breadth, may limit the durability of sentiment improvement.
• The equity market rebound partly depends on confirmation of autumn policy fine-tuning or fiscal stimulus; failure to implement these policies would weaken the catalyst thesis.
• A recovery in the global AI trade could trigger profit-taking and capital rotation in Hong Kong stocks, pressuring their relative performance.

What to watch

• Watch for signs of improving China-US relations ahead of President Xi Jinping's visit to the United States in mid-September.
• Monitor confirmation of Chinese fiscal stimulus and incremental policy fine-tuning.
• Watch for the latest AI developments announced by Hong Kong-listed hyperscale technology companies and large-model companies.
• Track global AI-related trades, particularly whether the recoveries in South Korea, Taiwan, China, and Japan can be sustained.
• Observe whether A-share market breadth, the MSASI one-month moving average, and earnings estimate revision breadth can follow the improvement in immediate sentiment.