A-shares on a continuous rise—who is driving the momentum?
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In the recent strong bullish surge in the A-share market, Dongwu Securities stated that leveraged funds and retail funds have become the absolute main drivers of this round of the rally. Coupled with the efforts of hot money and foreign capital, the market's risk appetite has significantly increased.
On January 13, the Dongwu Securities strategy team stated in its latest research report that although the central bank cumulatively withdrew a net amount of 1.66 trillion yuan due to the centralized maturity of reverse repos after the turn of the year, it did not have a substantial impact on market liquidity. Instead, interbank market funding rates declined, the easing situation continued, and with the appreciation of the RMB exchange rate to the 6.98 level, a favorable monetary environment was provided for equity assets.
In the first week of 2026 (January 3 to January 9), the A-share market surged with volume, with the Wind All A Index rising 5.1%, and the average daily transaction amount jumping by more than 700 billion yuan to 2.85 trillion yuan compared with the previous week.
Dongwu Securities pointed out that during this surge, the margin balance reached a record high of 2.61 trillion yuan, accounting for 2.53% of the circulating market value of the entire A-share market, at the 96th historical percentile since 2021. Retail sentiment has heated up, accelerating entry into the market, with a net inflow of 155.7 billion yuan (via small orders), marking the second highest point in nearly a year.
At the same time, the activity of hot money also climbed to a new high in nearly half a year, with the average daily transaction amount of top brokerage branches on the Dragon and Tiger List reaching 31.4 billion yuan. Foreign capital's "long" sentiment rose, average daily transaction volume through Stock Connect rebounded by 98.6 billion yuan to 327.2 billion yuan, and overseas passive funds shifted to net inflows.
It is worth noting that with the index advancing continuously, short-term volatility is now at a relatively high level. Dongwu Securities pointed out that at the current turnover level, it is becoming increasingly difficult to maintain high volatility, and the market may face short-term consolidation to repair technical indicators. As of January 12, the volatility indicator for the Shanghai Composite Index has soared to a short-term relative high of 95.2%.
Macro Liquidity Remains Loose
The central bank conducted a large-scale net withdrawal of 1.66 trillion yuan in the open market this period, mainly due to the centralized maturity of reverse repos before and after the turn of the year. Among them, 138.7 billion yuan of reverse repos were injected, 1.7937 trillion yuan were withdrawn, resulting in a net withdrawal of 1.655 trillion yuan.
Although the net withdrawal was large, the funding side was not materially tightened. After the turn of the year, funding demand dropped, the easing situation continued, and money market rates remained stable. The R007, DR007, and 1-week SHIBOR rates dropped by 64bp, 51bp, and 50bp respectively.
Against the backdrop of a "red start" in the stock market, the bond market came under relatively more pressure, and the yield curve steepened overall. The 1-year government bond yield fell 4.9bp to 1.40%, while the 10-year government bond yield rose 3.1bp to 1.98%. The credit spread widened by 1.6bp from the previous period.
In the foreign exchange market, the RMB exchange rate appreciated further, with the USD/CNY spot rate appreciating to 6.98. Both the 2-year and 10-year China-US interest spreads narrowed.
Multiple Sources of Capital Drive Market Volume
The biggest feature of this round is the rapid rise in risk appetite, with financing funds taking the most aggressive long positions.
According to Dongwu Securities statistics, margin trading funds had a net inflow of 85.3 billion yuan this period, pushing the margin balance up to 2.61 trillion yuan, a new record high. The proportion of margin balance to the full market's circulating value has reached 2.53%, at the 96th historical percentile since 2021.
From the perspective of sector flows, leveraged funds showed clear offensiveness. The electronics sector became the top choice for increased positions, with a single-week net inflow of 15.8 billion yuan. In addition, non-ferrous metals, national defense and military industry, computers, non-bank finance, and power equipment all saw net inflows surpassing 5 billion yuan.
Retail investor sentiment has also been ignited. The net inflow of retail funds to Shanghai and Shenzhen markets, as characterized by small orders, reached 155.7 billion yuan, a sharp increase of 64.1 billion yuan week-on-week, and the net inflow scale set a near-one-year second high. At the same time, fund flows into ETFs through retail channels also turned positive, indicating a dual improvement in both direct and indirect market entry willingness.
For hot money, the average daily transaction amount of brokerage branches on the Dragon and Tiger List reached 31.4 billion yuan, the highest level in the past six months. The CSI 500, CSI 1000, and CSI 2000 all outperformed the weighted indexes, also reflecting soaring short-term sentiment.
Northbound trading activity rebounded compared to the previous period, with Stock Connect average daily trading volume at 327.2 billion yuan, a week-on-week increase of 98.6 billion yuan. The proportion of trading amount reached 11.5%, an increase of 0.73 percentage points week-on-week.
Overseas passive funds shifted to a slight net inflow, amounting to $6.7 million. Among them, Invesco China Technology ETF shifted to net subscriptions, amounting to $22.21 million, indicating that short-term interest in technology is stronger.
Divergent ETF Fund Flows
According to Dongwu Securities, unlike the one-sided buying of leveraged funds, ETF market fund flows showed clear structural divergence. Overall, equity ETFs saw a slight net outflow of 390 million yuan, but broad-based ETFs and industry-themed ETFs performed quite differently.
Broad-based ETFs suffered a net outflow of 10.9 billion yuan. Among them, the previously highly sought-after CSI A500-related ETFs saw a net redemption of 13.1 billion yuan, and STAR Market and ChiNext Board ETFs also experienced net redemptions.In contrast, industry-themed ETFs were enthusiastically received by funds, with a total net inflow of 13.6 billion yuan. The focus was on cyclical and midstream manufacturing sectors, with satellite industry, non-ferrous metals, and semiconductor equipment ETFs seeing a sharp increase in subscriptions. The Southern CSI SW Non-Ferrous Metals ETF, Southern CSI 500 ETF, and Huatai-Pinebridge CSI 300 ETF ranked among the top net inflows.
For public funds, the new issuance of equity-biased funds fell slightly to 7 billion yuan week-on-week, but active equity funds' overall stock positions rose, with hybrid equity funds' positions up 0.24 percentage points week-on-week.
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