A-shock "V-shaped" reversal: Tech stocks surge, STAR 50 jumps nearly 8%

On July 21, the A-share market experienced a thrilling "V-shaped" reversal. In the morning session, the market came under pressure and fell, with major indices posting notable declines. However, in the afternoon, driven strongly by technology sectors such as semiconductors and CPO, market sentiment heated up sharply, indices quickly rebounded and closed at intraday highs. Among them, the STAR 50 index staged a "deep-V" move, after falling over 3% in the morning, it violently rallied to close nearly 8% higher, and the ChiNext index also surged over 6%. This rare reversal not only highlighted the resilience of tech stocks but also sparked widespread discussion about the subsequent market trend.

Intraday chart of the STAR 50 index on that day

I. Overall Market Performance: Deep-V Reversal Led by Tech

On that day, the three major A-share indices opened lower and then oscillated weakly. The Shanghai Composite Index once fell over 1%, the Shenzhen Component Index dropped nearly 2%, while the STAR 50 and ChiNext indices fell over 3% and 2% respectively. Pessimism pervaded the market, with investors worried about the pace of economic recovery and external uncertainties. However, after the afternoon open, a strong wave of buying suddenly emerged, especially in technology sub-sectors like semiconductors and CPO, which took the lead and drove a comprehensive market recovery.

By the close, the STAR 50 index ended up 7.89% at 1086.72 points, with an intraday amplitude of 11.26%; the ChiNext index closed up 6.42% at 2783.45 points; the Shanghai Composite Index also turned slightly positive, up 0.87%. Total turnover on the two exchanges expanded significantly, exceeding 1.5 trillion yuan, indicating active inflows of incremental funds. From a technical perspective, major indices bounced strongly off key support levels, showing clear short-term bottom signals.

II. Semiconductor Sector: Domestic Substitution Logic Validated Again

As the core engine of this rebound, the semiconductor equipment sector broke out first in the afternoon, with many stocks hitting the 20% daily limit. Companies such as Galcore, Joulwatt, Torrent, and Zhenbao Technology saw strong limit-up moves, driving the entire semiconductor chain upward. Dongwei Semiconductor, Dongxin Co., Changchuan Technology, Huahong Grace, and others also rallied, while main-board stocks like Aminocom, JCET, and Mulsanne also hit their daily limits.

In addition, industry giants including Cambricon, SMIC, Muxi, GigaDevice, and Montage Technology all gained over 5%, with Cambricon once up over 10% intraday and SMIC turnover exceeding 10 billion yuan. This collective surge was not accidental; it was supported by deep industry logic.

First, the pace of domestic substitution is accelerating. Recently, the third phase of the National Integrated Circuit Industry Investment Fund (Big Fund Phase III) officially launched, explicitly focusing on equipment and materials, providing long-term capital support for related companies. At the same time, the U.S. continues to tighten restrictions on China's semiconductor industry, prompting domestic downstream customers to accelerate localization verification and adoption, leading to a significant increase in equipment orders. According to broker reports, new orders for domestic semiconductor equipment companies in the first half of 2025 grew over 40% year-on-year, with some leading firms achieving growth rates above 100%.

Second, earnings expectations are improving. As downstream wafer fab capacity utilization recovers and advanced process expansion demand is strong, equipment companies face both volume and price increases. SMIC's previously released first-quarter report showed capacity utilization rebounded to over 85%, and capital expenditure plans were raised 30% year-on-year. This signal directly boosted market expectations for the equipment side. Leading companies like AMEC and AMS expect first-half net profit to grow over 50% year-on-year.

Moreover, valuations are at historical lows. After deep adjustments earlier, the semiconductor sector's overall P/E ratio has fallen below the five-year average, and valuations of some high-quality stocks are even below the reasonable range matching their growth. Strong fundamentals combined with low valuations have attracted a large amount of medium- to long-term capital to accumulate positions.

III. CPO Concept: AI Computing Demand Catalyzes New Theme

Echoing the semiconductor sector, CPO (Co-Packaged Optics) concept stocks also staged a strong rebound in the afternoon. The bellwether Zhongji Innolight once surged over 13%; Lupotek, Lianxun Instruments, JPT, and Lintel Technology followed, with the overall sector ranking among the top gainers.

CPO, as an advanced technology in optical communications, is seen as a key solution to the bandwidth bottleneck in AI data center interconnects. With the continuous explosion in global AI large-model training and inference demand, the need for high-speed optical modules in computing clusters is growing exponentially. Industry data shows that global shipments of 800G optical modules are expected to exceed 10 million units in 2026, while CPO technology penetration is projected to rise from less than 5% in 2024 to over 20% in 2026.

More importantly, domestic manufacturers have gained global competitiveness in this field. Zhongji Innolight, as a global optical module leader, is already supplying its 800G products in volume to North American cloud providers, and its CPO prototype products have passed customer verification. Recently, the company announced a breakthrough in 1.6T optical module R&D, which could enter mass production next year. This provides solid earnings support for the stock price.

Additionally, positive signals emerged from the policy front. The Ministry of Industry and Information Technology recently explicitly called for accelerating high-quality development of computing infrastructure and supporting key technology breakthroughs in the optical communication industry. This further strengthened market optimism about the commercialization of cutting-edge technologies like CPO.

IV. Capital Games and Market Significance: Short-term Rebound or Trend Reversal?

This V-shaped reversal is not an isolated event; it occurred after global tech stocks underwent a phased correction and A-share turnover was low. Looking at capital flows, northbound capital net purchases exceeded 80 billion yuan in the afternoon, accelerating into the close, with both Shanghai and Shenzhen Connect showing significant net buying, indicating increased foreign willingness to allocate to A-share tech leaders. At the same time, margin balances showed signs of stabilizing and rebounding, with leveraged funds beginning to re-add positions.

From a market psychology perspective, the morning sharp fall breached important psychological levels, while the afternoon strong rally demonstrated the determination of the national team, industrial capital, and mutual funds to support the market. Some analysts suggest that this rebound may be related to a combination of national policies to support the capital market. On July 20, the State Council General Office issued the "Opinions on Further Optimizing the Basic Systems of the Capital Market," which included improvements to trading systems and enhancing listed company quality, stabilizing market expectations.

However, it must also be noted that a single-day reversal does not fully confirm a bottom. Historically, rapid rebounds after sharp declines in A-shares are often followed by subsequent consolidation. The macroeconomy still faces challenges such as insufficient effective demand and overcapacity in some industries, requiring observation of the pace of corporate earnings recovery. Therefore, investors should remain rational and avoid chasing highs.

V. Future Outlook: Tech Remains Core Theme

Overall, this A-share V-shaped reversal reflects a recovery in confidence in tech leaders. Sectors such as semiconductor equipment and CPO benefit from the triple logic of domestic substitution, AI demand, and policy support, offering strong medium- to long-term growth. In the short term, indices may face profit-taking pressure after the rebound, but the allocation value of quality tech stocks has significantly increased after the adjustment.

Going forward, investors should focus on the following factors: first, marginal changes in the US-China tech tug-of-war; if relaxed, companies with larger overseas exposure would benefit; second, the pace of domestic policy implementation, especially the specific directions of Big Fund Phase III; third, incremental demand from increased AI application penetration. Additionally, with the semi-annual report season approaching, sub-sector leaders with earnings surprises are likely to command a premium.

In conclusion, the July 21 V-shaped reversal is a strong repair after market sentiment hit an ice point and a concentrated manifestation of the long-term logic for tech stocks. Although the market will not rise in one go, structural opportunities have already emerged. Laying out quality tech stocks in the midst of volatility may be just the right time.