Two Indicators Tracking Tech Crowding Unwind: IV Decline and Large-Small Cap Valuation Gap Widening
Nashnova编辑部
China's active equity funds pushed tech allocation to a record 62.3%, but two gauges — implied volatility and the small-large cap valuation spread — now signal the crowded trade is unwinding, with capital rotating into small- and micro-caps.
How crowded was the tech trade?
By mid-2026, active equity mutual funds had allocated roughly 62.3% to tech sectors, up 24.81 percentage points in a single quarter — the highest since records began in 2010.
This means → more than six out of every ten yuan in active funds were parked in tech, an extreme level of concentration.
In the second half, the STAR 50 index fell 25.9% in July and the ChiNext index dropped 23%, sparking debate over whether the crowded trade has begun to unwind.
What is implied volatility saying?
Implied volatility — the options market's pricing of expected future swings — reflects how similar investors' holdings are: the more alike, the more sensitive the market is to shocks, and the higher IV climbs.
STAR 50 ETF and ChiNext ETF IV have both broken below their 60-day moving averages, yet the first sharp down-candle appeared on July 31; IV did not fall fast during July itself.
This means → the real rapid decline happened in early August. By the IV measure, the substantive unwinding of the tech crowd started in August, not July.
Where is the money going — dividends or small-caps?
Some observers misread July's rally in dividend indices as the destination of outflows from tech. In reality, dividends and growth are complements; the true competitor to growth stocks is small- and micro-caps.
In plain terms = growth stocks and small-caps both trade on "elasticity" and both benefit from monetary easing — they compete on the same track.
The small-cap index bottomed on July 21, broke above its 20-day moving average on July 31, and has since rebounded to early-June levels.
What signal is the valuation spread sending?
The small-large cap valuation gap printed its "second foot" on July 30 and has climbed steadily since, now reaching 22.05%.
This reflects a live reallocation: since August, capital chasing "elasticity" has been shifting from tech into small- and micro-caps — the direct driver of the widening spread.
Value sectors currently lack the "elasticity" attribute; unless a new consensus forms around the property market, they will not become a rotation destination.
What numbers to watch next?
If STAR 50 ETF IV drops further toward 33, it would signal that a larger wave of capital has already exited tech.
The valuation spread, at 22.05%, is still well below its historical midpoint of 30% — the small-cap relative trade may have further to run.
The key verification window arrives in late August when mutual-fund holding data are disclosed; if the PBOC delivers third-quarter easing, small- and micro-cap performance could benefit further.
Content is for reference only, not financial advice.