A-Shares Rebound in August But Face Critical Test as Earnings Flood Begins

A Calm Before the Earnings Storm

China’s A-share market entered August with a tentative recovery. After a July marked by sharp sector divergences and a broad sell-off in technology, the market found its footing on gently expanding volumes. Risk appetite edged higher, but the real test — the mid- to late-August flood of half-year earnings reports — looms as the ultimate arbiter of whether the rebound has legs.

The July correction left many asking whether the negative forces behind the sell-off had been fully priced in. The overall economy offered mixed signals: the official manufacturing Purchasing Managers’ Index (PMI) slipped to 49.2 in July, while the non-manufacturing PMI fell to 49.0, both pointing to contracting activity. Yet the latest Politburo meeting acknowledged the pressures while stressing that the economic structure is still improving, and signaled that existing policy tools would be used more forcefully — raising expectations of marginal policy easing in the months ahead.

Overseas, the conflict in the Middle East remains a wildcard, though markets seem to be growing numb to it. The bigger shock came from the US tech sector, where a sell-off rippled through global growth stocks. Great Wall Fund’s equity managers note that tech has suffered one of its worst monthly drops on record in July, and while a technical bounce is possible in the short term, a genuine recovery in sentiment probably requires fresh, positive surprises from the AI story — or time to heal the damage in fund flows.

How Great Wall Fund Managers Are Reading the Rebound

AI Hardware’s Brutal July and a Cloudy Path Ahead

The sharp fall in AI hardware names — with the sector’s single-month slide approaching historic extremes — has fractured the consensus around the AI investment narrative. Fund manager Su Junyan believes the one-way rally in AI hardware and upstream semiconductor stocks may have run its course for now. The market is increasingly focusing on structural, rather than blanket, opportunities within AI. The key, he says, will be new catalysts: large-model upgrades, progress in AI applications, and the pace of bond issuance by cloud providers to fund capacity expansion.

Despite the pullback, some managers see value emerging. For quality AI names, the post-crash valuations have fallen to reasonable or even low levels based on next-year earnings expectations, especially given that demand visibility for 2027 remains relatively clear. The sell-off was driven more by a “strong reality, weak expectation” dynamic — the market doubts the sustainability of long-term capital expenditure — than by a genuine collapse in near-term fundamentals.

The Rotation Trade and the ‘Fill the Pit’ Dynamic

The extreme polarization of the first half is giving way to a rebalancing. Many non-tech sectors that were left behind during the AI frenzy have already completed a round of “filling the pit” — recovering to more normal valuations. However, Tan Xiaobing, a fund manager at Great Wall, warns that further upside in these names now requires clear evidence of a fundamental turnaround, not just a relief rally. Cyclical and high-dividend stocks also face headwinds: the former because of a still-weak macro backdrop, and the latter because their own rapid price gains have compressed dividend yields, dulling their appeal.

Healthcare and Innovation Drugs Hunt for Certainty

In the healthcare space, manager Liang Furui sees a market that is choppy, lacking fresh catalysts, and struggling with fragile liquidity. The approval timeline for innovative drugs remains lengthy, and the capital market’s patience is thinning. Yet he highlights that some larger pharmaceutical companies are now entering a phase of rapid earnings delivery. His focus is now squarely on firms that can demonstrate a high degree of certainty in their R&D pipeline milestones and a clear acceleration in profit growth over the next six to twelve months. Tan Xiaobing adds that the long-term case for healthcare remains intact: an ageing society and continuous advances in medical technology provide a floor of demand that few other sectors can match.

Key Dates and Signals to Watch Through August

Investors looking to navigate the coming weeks should focus on a handful of concrete signposts drawn directly from the fund managers’ commentary:

• Mid-to-late August earnings flood. The half-year reporting season will be the single most important factor in validating — or invalidating — the recent rebound. Pay attention to whether results from both tech and cyclical names confirm the market’s growth assumptions.
• AI ecosystem catalysts. Watch for announcements around major large-language model updates, progress in downstream AI applications, and any news on cloud providers’ financing activities (particularly bond issuance), which would signal sustained infrastructure spending.
• Key macro data. The July PMI weakness means August’s high-frequency data and any concrete signs of the promised policy easing will directly affect sentiment toward cyclical and dividend stocks.
• Global risk events. Geopolitical developments in the Middle East and the stability of the Korean market (a recent source of contagion risk) could transmit volatility to A-shares via commodity prices and risk-off flows.
• Innovative drug pipeline updates. For investors in healthcare, the semi-annual results and any incremental news on drug approval timelines at major pharma firms will be critical in determining whether the current choppy trading resolves into a sustained uptrend.