A股 falls below 3,900 points before Mid-Autumn holiday; analysts cite external jitters and sentiment

September 27 — On the last trading day before the Mid-Autumn Festival holiday, China's A-share market experienced a pullback. The Shanghai Composite Index fell 1.22%, losing the 3,900-point mark; the Shenzhen Component Index dropped 2.34%; the ChiNext Index declined 2.68%; and the STAR 50 Index slid 2.35%. Total trading volume on the two exchanges stood at approximately 1.65 trillion yuan.

Market participants are closely watching the reasons behind the adjustment, with some investors adopting a cautious stance.

External Volatility and Sentiment Amplification Key Drivers

Multiple market experts believe the primary cause of this correction remains repeated external market volatility and disruptions, while the inherent stability and long-term positive trend of the capital market remain unchanged.

External factors and amplified sentiment are the main drivers of this round of adjustment.

From an external perspective, recent U.S. economic data has been strong. The preliminary U.S. September PMI came in at 58.4, significantly above market expectations, fueling concerns about an overheating economy. This has increased the probability of further Federal Reserve rate hikes, pushing U.S. Treasury yields sharply higher: the 10-year yield hit a 19-year high, while the 30-year yield rose to its highest level since 2004.

The rapid rise in long-end yields has lifted the global risk-free rate benchmark, suppressed risk asset valuations, triggered a sell-off in global bond markets, and reduced cross-border capital risk appetite. Meanwhile, recurring geopolitical tensions in the Middle East have pushed international oil prices back to around $100 per barrel, reigniting inflation concerns. As a result, all three major U.S. stock indices fell overnight, and Asian markets broadly came under pressure.

Notably, the decline in A-shares was significantly larger than that in overseas markets. While major foreign indices fell by around 1% during the same period, all three major U.S. indices have since recovered during the Mid-Autumn holiday. This divergence — where foreign markets fell slightly and then rebounded, while A-shares experienced a sharp drop — suggests that, in the absence of significant changes in fundamentals, the A-share correction was largely driven by amplified sentiment.

Market experts point out that when external disruptions intensify, some investors' confidence still needs to be restored, making them prone to panic and herd behavior during short-term fluctuations. On a deeper level, consensus on the long-term value of Chinese assets has yet to be fully solidified. Once external shocks occur, sentiment can easily be magnified amid disagreement, exacerbating short-term volatility.

Fundamentals Remain Stable, Supporting Corporate Earnings

Looking at fundamentals, China's economy has maintained stable operations despite external pressures. In the first half of the year, GDP grew 4.7% year-on-year. In August, value-added industrial output rose 5.2%, the services production index increased 4.1%, and total goods imports and exports grew 19.8%. From January to August, total retail sales of consumer goods and services rose 2.5% year-on-year, with service retail sales up 4.9%. The overall economy is showing stable operation with structural improvements toward innovation and quality.

The profitability of listed companies continues to recover, providing direct value support to the market. According to data from the China Association of Public Companies, in the first half of 2026, A-share listed companies generated total operating revenue of 37.76 trillion yuan, up 7.6% year-on-year, and net profit of 3.58 trillion yuan, up 19.5%. Three-quarters of A-share companies reported profits.

On the Shanghai Stock Exchange, 2,318 listed companies achieved total operating revenue of 26.22 trillion yuan, up 6.3% year-on-year, and net profit of 2.82 trillion yuan, up 17.6% — the fastest growth rate since 2022. Nearly 80% of these companies reported profits.

Policy Support and Long-Term Capital Inflows

Earnings resilience is underpinned by strong policy and capital support. The July Politburo meeting made clear the implementation of a more proactive fiscal policy and a moderately accommodative monetary policy, with increased counter-cyclical adjustments.

On September 19, the People's Bank of China's third-quarter 2026 monetary policy committee meeting further emphasized continuing a moderately accommodative monetary policy, strengthening counter-cyclical adjustments, maintaining ample liquidity, and ensuring stable financial market operations.

PBOC data shows that at the end of August, broad money supply (M2) grew 7.5% year-on-year, and aggregate social financing grew 7.2%. In August, the weighted average interbank lending rate and the weighted average pledged repo rate were 1.38% and 1.4%, respectively, both at historical lows. Facing external interest rate fluctuations, China's substantial foreign exchange reserves provide a solid buffer — as of end-August 2026, reserves stood at $3.4383 trillion, remaining the world's largest for an extended period.

On the capital front, efforts continue. In terms of dividends, based on half-year report data, 867 A-share companies have announced interim cash dividend plans, with total proposed payouts reaching 716.71 billion yuan — both the number of companies and the payout amount hitting new highs.

Patient capital, represented by long-term funds, continues to enter the market, solidifying the market's foundation. As of end-August, the total number of ETFs listed and traded domestically reached 1,647, with a total scale of 4.96 trillion yuan. As of end-June, long-term and medium-term capital holdings accounted for nearly 50% of the total scale of Shanghai-listed ETFs, up 13 percentage points from end-2025.

Industry experts suggest that external interest rate fluctuations are merely short-term variables, and while amplified sentiment has increased short-term volatility, the sound and positive trends in fundamentals, policy, and capital remain unchanged. Facing short-term fluctuations around the holiday, investors should remain rational, strengthen confidence, and view the investment value of China's capital market from a medium-to-long-term perspective.

(Source: Dahe Caifang)