The anticipated correction has finally arrived, with today's broad market decline particularly affecting technology sectors that had posted significant gains previously. However, large-cap stocks in banking and insurance sectors emerged as market stabilizers. Even in bull markets, substantial corrections occur, and new investors must be mentally prepared for such volatility.
Today, the market surged early before retreating throughout the session, with the STAR 50 and ChiNext indices experiencing notable declines. In afternoon trading, after brief consolidation, the market entered a unilateral downtrend with previously popular thematic stocks extending their losses. At market close: the Shanghai Composite Index fell 0.62% to 3,865.23 points; the Shenzhen Component Index dropped 2.54%; the ChiNext Index declined 3.99%; and the STAR 50 Index fell 4.26%.
On the decline side, technology stocks fell broadly with semiconductor industry chains collectively retreating: Yandong Microelectronics and Advanced Micro-Fabrication Equipment dropped over 10%, Tongfu Microelectronics hit the daily limit down, while SMIC, Changchuan Technology, and Hwatsing Technology fell over 7%, and Cambricon declined nearly 6%.
On the advancing side, traditional sectors including liquor, finance, and coal moved against the trend. The top four gaining sectors were: Insurance (2.77%), Coal (2.62%), Banking (2.54%), and Alcoholic Beverages (2.39%). Insurance stocks strengthened notably following New China Life's better-than-expected earnings guidance, with New China Life rising nearly 6%, while PICC and China Pacific Insurance gained over 3%.
Why Did the Stock Market Suddenly Correct?
Many new investors have entered the market this year, with many experiencing their first bull market and naturally facing their first market correction. Many investment novices wonder why the market suddenly corrected after continuous gains since April.
Looking at A-share history, the Shanghai Composite Index rarely posts positive monthly returns for five consecutive months or more. In the past 20 years, only during the 2006 and 2014 bull markets did the Shanghai Composite achieve five or more consecutive monthly gains. From May to September this year, the Shanghai Composite posted five consecutive positive months. From the perspective of long-term market patterns, corrections are necessary.
Additionally, this rally saw the Shanghai Composite rise from around 3,040 points to a peak of 3,936.58 points, reaching a 10-year high with gains approaching 30%. For the ChiNext Index, gains approached 100%, with star performers emerging in optical modules, semiconductors, and robotics sectors, with some stocks gaining over 300%. During this period, many investors achieved satisfactory returns and developed "cash-out-while-ahead" mentalities.
Particularly when the market challenged the critical 4,000-point level, many large funds felt compelled to take profits. Observing recent listed company announcements reveals a notable increase in major shareholder reduction notices.
For example, recent strong performer Eoptolink announced on September 30 that Chairman Gao Guangrong plans to reduce holdings by 11.43 million shares through inquiry transfer, cashing out approximately 4.18 billion yuan. Previously, on September 26, Accelink Technologies also announced reductions, with controlling shareholder Zhongji Investment planning to reduce holdings by no more than 5.5 million shares over the next three months, representing 0.49% of total share capital.
Meanwhile, any external environmental disturbances could serve as catalysts for market corrections.
Recently, the United States threatened to impose 100% tariffs on China. A spokesperson for China's Ministry of Commerce stated: "If there's a fight, we'll fight to the end; if there's talk, our door is open; the US cannot demand talks while threatening and intimidating with new restrictive measures."
Negative news also included: On October 12, Wingtech Technology announced that its core semiconductor asset Nexperia, which contributes tens of billions in revenue, suddenly faced dual restrictions from the Dutch government and courts. Affected by this news, Wingtech Technology's stock price hit the daily limit down on October 13 and opened limit down again today.
Reasonable Allocation to Address Corrections
Markets always contain uncertainty factors such as pandemics, wars, and trade wars that no one can predict. Therefore, from the first day investors enter the market, they must prepare for market "uncertainty."
First, establish relatively reasonable investment objectives, such as "achieving market average returns" or "slightly outperforming market average returns." The stock market creates "investment gods" while also destroying them, with many once-dominant legends having disappeared. Therefore, new investors shouldn't always think about catching big winners short-term with stocks soaring several times - this is purely luck. Learning to consistently earn 10% annually is more important.
Second, address market risks through allocation. Internationally, many long-standing investment masters discuss using allocation to address market "uncertainty" when sharing their investment experience. For example, index funds and dividend-themed funds can become part of asset allocation, avoiding full positions in single industries or individual stocks. During market corrections when panic prevails and popular stocks decline, dividend-concept stocks often rise - becoming preferred safe-haven assets.
No Need for Pessimism Looking Forward
How long will the correction last, and will style rotation occur? These are also investor concerns.
From brokerage research reports, multiple institutions indicate that short-term external environmental uncertainty increases suppress market risk appetite, but this impact may be far lower than April levels. From medium to long-term perspectives, core factors driving this rally remain unchanged, with corrections in the slow bull trend potentially offering opportunities to accumulate on dips. Guangfa Securities Chief Strategy Analyst Liu Chenming believes this is likely another typical "TACO trade," with historical patterns showing short-term declines providing good buying opportunities. Current market conditions differ from April in that domestic "loose monetary + loose fiscal" dual-loose tone is clearer, and investors have fresh memories and experience dealing with April's "TACO trade."
The so-called "TACO trade" (Trump Always Chickens Out) refers to when markets plunge under US President Trump's policy threats, investors bet he will ultimately back down, followed by market rebounds allowing investors to profit through buying dips.
"Compared to the April 7 correction, current index levels are higher but magnitude may be lower - no need for pessimism," believes Shenwan Hongyuan Research A-share Strategy Chief Analyst Fu Jingtao. Guosen Securities Strategy Chief Analyst Wang Kai similarly believes A-share medium-term positive logic remains unchanged. He stated that while overseas trade uncertainty brings emotional disturbance, policy hedging expectations still provide optimistic prospects.