UBS: A-Share Deleveraging Nearing End as ETFs See Large Net Inflows
Alina Collins
UBS said in a July 22 A-share strategy report that margin balances have dropped RMB 312.4 billion from their peak of RMB 3.01 trillion, suggesting deleveraging is largely done; meanwhile, equity ETFs drew over RMB 367.4 billion in net inflows in just two weeks.
Why did tech stocks sell off so sharply?
UBS identified three pressures hitting at once: global tech volatility, short-term profit-taking, and historically crowded positioning in the sector.
This means → the selloff was not a fundamental breakdown but a crowding problem — too much money in the same trade amplified the downdraft.
UBS data show that "Big Tech" (electronics, telecom, computers, defense) hit record highs as a share of total A-share market cap and turnover in H1 2026.
Has the earnings recovery been derailed?
UBS says no. Full A-share earnings growth is projected to rise from 3.9% in 2025 to 11% in 2026.
Q1 2026 results already disclosed are even stronger: non-financial A-share net profit grew 11.8% year-on-year, versus just 0.8% for full-year 2025. In plain terms = one quarter's growth rate is roughly 15 times last year's full-year pace.
Tech upgrades are dramatic — consensus 2026 earnings for the ChiNext index have been revised up 33 percentage points year-to-date; the STAR 50 revision is 112 percentage points.
Who was buying during the selloff, and how was the flow different?
From July 6 to 20, total A-share equity ETFs recorded net inflows exceeding RMB 367.4 billion, with several broad-based ETFs seeing sharp spikes in daily turnover.
This means → capital did not flee — it re-entered at scale through ETFs.
Unlike the 2024–2025 episode, when inflows concentrated in CSI 300 ETFs, this round saw large-scale inflows across CSI 300, ChiNext, and STAR 50 ETFs. This reflects sustained confidence in the tech-growth thesis despite the correction.
How much leverage risk remains?
As of July 20, total A-share margin balances stood at RMB 2.70 trillion, down RMB 312.4 billion from the June 25 peak of RMB 3.01 trillion.
Big Tech margin balances fell from RMB 1.1 trillion to RMB 944.9 billion, a drop of RMB 152.7 billion.
UBS found that margin balances as a share of free-float market cap for Big Tech, ChiNext, and the STAR board show no material divergence from the broader market. In plain terms = leverage is not abnormally concentrated in tech — the STAR board ratio sits at 5.8%, within its historical range.
What signal did state capital send?
On the evening of July 19, China Chengtong and China Reform — two state-owned capital operators — both stated they are bullish on China's capital market and will increase A-share holdings.
Several insurance companies also pledged to support market stability.
This means → the policy "floor signal" has been made explicit, reinforcing the ETF inflow momentum.
What comes next?
UBS concludes that with margin balances falling rapidly, A-share deleveraging is likely largely complete.
Whether this call holds depends on one key variable — whether the earnings-upgrade trend is sustained in upcoming quarterly results.
In plain terms = the leverage overhang has mostly cleared; the market's next move hinges on whether companies actually deliver the profits.
Content is for reference only, not financial advice.