In the recent strong rally in the A-share market, Dongxing Securities stated that leveraged funds and retail investors have become the absolute main forces driving this round of market performance. Coupled with the joint efforts of speculative funds and foreign capital, market risk appetite has significantly increased.
On January 13, the strategy team at Dongxing Securities mentioned in their latest research report that although the central bank has cumulatively net withdrawn 1.66 trillion yuan due to the concentrated maturity of reverse repos after the New Year, it has not caused a substantial impact on market liquidity. Instead, interbank market funding rates have shown a downward trend, maintaining a loose pattern. Additionally, the appreciation of the RMB to the 6.98 level has provided a favorable monetary environment for equity assets.
In the first week of 2026 (January 3 to January 9), the A-share market saw a significant increase in trading volume, with the Wind All A Index rising by 5.1%, and the average daily trading amount surged by over 700 billion yuan to 2.85 trillion yuan.
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Dongxing Securities pointed out that during this increase in volume, the financing balance reached a historical high of 2.61 trillion yuan, accounting for 2.53% of the total A-share circulating market value, which is at the 96th percentile historically since 2021. Retail investor sentiment has warmed up, accelerating their entry, with a net inflow of 155.7 billion yuan characterized by small orders, marking the second highest point in nearly a year.
At the same time, the activity of speculative funds has also risen to a nearly six-month high, with the average daily trading amount of the top trading departments on the Dragon and Tiger List reaching 31.4 billion yuan. The &#34;bullish&#34; sentiment among foreign investors has increased, with the average daily trading amount of Stock Connect rising by 98.6 billion yuan to 327.2 billion yuan, and overseas passive funds turning into net inflows.
It is worth noting that as the index continues to rise, short-term volatility is at a relatively high level. Dongxing Securities pointed out that under the current volume level, maintaining high volatility is becoming increasingly difficult, and the market may face short-term consolidation to repair technical indicators. As of January 12, the volatility index of the Shanghai Composite Index has soared to a relatively high level of 95.2%.
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<h2>Macroeconomic Liquidity Maintains a Loose Pattern</h2>
The central bank's open market saw a large net withdrawal of 1.66 trillion yuan this period, mainly due to the concentrated maturity of reverse repos around the New Year. Among them, reverse repos amounted to 138.7 billion yuan, with a withdrawal of 1.7937 trillion yuan, resulting in a net withdrawal of 1.655 trillion yuan.
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Despite the large scale of net withdrawal, the funding situation has not tightened substantially. After the New Year, the demand for funds has decreased, maintaining a loose pattern, and money market rates have remained stable. The R007, DR007, and SHIBOR 1-week rates have decreased by 64bp, 51bp, and 50bp respectively
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The bond market is relatively under pressure against the backdrop of a &#34;good start&#34; in the stock market, with the overall curve steepening. The yield on 1-year government bonds fell by 4.9 basis points to 1.40%, while the yield on 10-year government bonds rose by 3.1 basis points to 1.98%, and the credit spread widened by 1.6 basis points month-on-month.
In the foreign exchange market, the renminbi exchange rate further appreciated, with the USD/CNY spot exchange rate rising to 6.98 yuan, and the interest rate differentials between the US and China for both 2-year and 10-year bonds narrowed.
<h2>Multiple Funds Collaborate to Boost Market Volume</h2>
The most significant feature of this round of market activity is the sharp increase in risk appetite, with financing funds becoming the most aggressive bullish force.
According to Dongxing Securities Co., Ltd., this period saw a substantial net inflow of financing funds amounting to 85.3 billion yuan, pushing the financing balance to 2.61 trillion yuan, a historical high. Currently, the financing balance accounts for 2.53% of the total A-share circulating market value, reaching the 96th percentile historically since 2021.
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From the perspective of industry flow, leveraged funds have shown a distinct aggressiveness. The electronics sector has become the preferred choice for increasing positions, with a weekly net inflow of 15.8 billion yuan. Additionally, net inflows in non-ferrous metals, defense and military industry, computers, non-bank financials, and power equipment all exceeded 5 billion yuan.
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Retail investors' sentiment has also been ignited. The net inflow of retail funds in the Shanghai and Shenzhen stock markets, characterized by small orders, reached 155.7 billion yuan, a significant increase of 64.1 billion yuan month-on-month, marking the second-highest net inflow in nearly a year. At the same time, the fund flow of retail investors through ETF channels has turned positive, indicating a dual increase in willingness to enter the market both directly and indirectly.
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In terms of speculative funds, the average daily trading amount of the top trading departments on the Dragon and Tiger List reached 31.4 billion yuan, with activity reaching a peak in nearly six months. The CSI 500, CSI 1000, and CSI 2000 outperformed large-cap stocks, reflecting the heightened short-term sentiment.
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The trading activity of northbound funds has rebounded compared to previous periods, with the average daily trading amount of the Stock Connect reaching 327.2 billion yuan, an increase of 98.6 billion yuan month-on-month. The trading amount accounted for 11.5%, an increase of 0.73 percentage points month-on-month
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Overseas passive funds turned into a slight net inflow, amounting to $6.7 million. Among them, the Invesco China Technology ETF turned into a net subscription, reaching $22.21 million, indicating a stronger short-term attractiveness in the technology sector.
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<h2>ETF Fund Flow Divergence</h2>
Dongxing Securities stated that unlike the unilateral long positions of leveraged funds, the fund flows in the ETF market show a clear structural divergence. Overall, stock ETFs experienced a slight net outflow of 390 million yuan, but broad-based ETFs and industry-themed ETFs performed distinctly differently.
<blockquote>
<ul>
<li>Broad-based ETFs faced a net outflow of 10.9 billion yuan. Among them, the previously popular CSI A500 related ETFs saw a net redemption of 13.1 billion yuan, and the dual innovation board (STAR Market, ChiNext) ETFs also encountered net redemptions.</li>
<li>In contrast, industry-themed ETFs received strong capital inflows, totaling a net inflow of 13.6 billion yuan. The cyclical and midstream manufacturing sectors became key allocation focuses, with increased subscription enthusiasm for ETFs in sub-sectors such as satellite industry, non-ferrous metals, and semiconductor equipment. The Southern CSI Shenwan Non-ferrous Metals ETF, Southern CSI 500 ETF, and Huatai-PB CSI 300 ETF ranked among the top for net inflows.</li>
</ul>
</blockquote>
In terms of public funds, the newly issued scale of equity funds slightly decreased month-on-month to 7 billion yuan, but the stock positions of actively managed equity funds overall rebounded, with the positions of equity hybrid funds increasing by 0.24 percentage points month-on-month

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SCS believes that in the continuous upward momentum of A-shares, leveraged funds and retail investors are the absolute main forces. The financing balance has reached a historical high, with significant increases in sectors such as electronics and non-ferrous metals; retail investor sentiment is high, accelerating market entry, and net capital inflow has reached a near one-year high. In addition, the activity of speculative funds has risen to a nearly six-month peak, foreign investment sentiment is warming up, and overseas passive funds have turned into net inflows, with multiple sources of funds jointly driving the market's continuous upward trend

A-shares continue to rise, who is making the effort?