The recent volatility in the technology sector is fundamentally a normal digestion following a period of elevated valuations and high concentration, representing an intrinsic self-optimization of the market structure. This movement does not have a necessary causal link to the adjustment of mutual fund benchmarks.

The significant correction in the AI (artificial intelligence) hard technology industrial chain, led by the semiconductor sector, has drawn market attention. Some perspectives attribute the decline to "regulatory efforts to rectify style drift in funds, with nearly 200 funds adjusting their performance benchmarks starting June 1st." However, industry sources clarify that this interpretation is a significant misreading.

The so-called "June 1st deadline" actually marks the formal legal enactment of revised fund contract clauses for the first batch of fund companies adjusting their benchmarks, not a deadline for forced portfolio realignments. More importantly, this adjustment adheres to the principle of "adjusting the benchmark, not the portfolio." It does not involve mandatory selling and includes a buffer period of up to one year. In terms of scale, the adjustments are insufficient to cause a substantial impact on the market.

Market observers believe the recent fluctuations in the tech sector are a natural correction after a buildup of high valuations and concentration, part of the market's internal structural self-optimization, with no necessary causal link to fund benchmark adjustments. Investors should rationally assess the relationship between system improvements and market volatility, avoiding simplistic attributions and emotional decision-making.



Is the Mutual Fund Benchmark Adjustment Causing a Sell-off? A Misinterpretation

The hard tech sector, represented by the Sci-Tech Innovation 50 Index, has experienced adjustments for two consecutive days. The index fell 5.04% on May 29th and another 5% on June 1st. Concurrently, the "old economy" sectors showed overall activity. By the close on June 1st, the full market turnover reached 2.9 trillion yuan, with 3,774 stocks rising. The Dividend Index led gains with 3.39%, and the Wind Microcap Stock Index also rose over 3%.

The semiconductor industrial chain saw a deep correction, with advanced packaging and photolithography equipment leading the decline. Previously hot themes like optical and optoelectronic concept stocks and computing hardware also fell significantly. Meanwhile, sectors like coal, media, and beauty & personal care led the gains.

The seesaw dynamic between "new economy" and "old economy" sectors has heightened market focus on a potential style shift, also fueling concerns that rectification of fund style drift caused the semiconductor sector's sharp decline. In reality, the so-called "June 1st forced selling deadline" does not exist.

On January 23, 2026, the China Securities Regulatory Commission (CSRC) issued the "Guidelines for Performance Benchmarks of Publicly Offered Securities Investment Funds," effective from March 1st. In April, 12 fund companies including E Fund, ChinaAMC, and Fullgoal Fund were the first to disclose adjustment plans. Starting June 1st, they revised the fund contracts for 195 existing funds under their management, involving a scale of approximately 391 billion yuan.

Industry sources clarify that June 1st is merely the legal effective date for the revised contract clauses, not a deadline by which fund managers must complete portfolio adjustments. In fact, the "Guidelines" issued in January set a one-year implementation transition period for adjusting performance benchmarks of existing products, running from March 1, 2026, to March 1, 2027.

In this round of adjustments, several fund companies stated in their announcements that the overarching logic is "adjusting the benchmark, not the portfolio." The aim is to align the performance benchmark with the fund's actual investment direction to better reflect its product positioning and investment style, not to force the fund's operations back to its original benchmark.

Taking Xingzheng Global Fund as an example, it announced benchmark adjustments for 12 funds on April 30th, explicitly stating that the main adjustment logic was based on the fund managers' actual portfolio levels and investment scope, with no portfolio realignment arrangements.

"The original intent of this arrangement is precisely to avoid causing unnecessary market disturbances," an industry observer noted. "Staggering the benchmark adjustments is also for a prudent transition, allowing the first batch of fund companies to test the waters."

Regarding the market's focus on consumer-themed funds investing in technology, fund contracts show that the definition of "consumer" investment scope is quite broad, encompassing automobiles, electronics, communications, computers, etc., all falling under optional consumption. Therefore, the technology stocks held by most fund managers inherently comply with the contract terms, lacking a legal basis for forced portfolio adjustments.

From a scale perspective, even if some consumer-themed funds need to adjust holdings, the net selling volume shifting from the tech sector to the consumer sector would be very limited, far from enough to cause a systemic impact on the A-share market with daily turnover exceeding 3 trillion yuan.

Additionally, industry sources revealed that regarding how to anchor benchmarks and deviation for popular thematic sector funds in recent years, relevant rules have recently been circulated within the industry for feedback.



Why is the Tech Sector Correcting?

Setting aside the over-interpreted factor of fund benchmark adjustments triggering portfolio changes, several interviewed institutional figures believe the core driver of this tech sector correction is a natural valuation repair and capital reshuffle following the extreme crowding seen earlier.

This year, the tech sector, represented by semiconductors and AI hardware, has consistently been the strongest theme in the A-share market. As of June 1st, the price-to-earnings ratio of the Sci-Tech Innovation 50 Index reached approximately 166 times, sitting above the 95th percentile of its historical range over nearly the past decade, with a one-year gain of 144%. Valuations and gains for core indices like semiconductors and TMT, as well as hot sub-sectors like optical communications and AI computing, are at historically high levels.

On the trading front, the total turnover for the Shanghai and Shenzhen markets on May 28th was 2.98 trillion yuan, with the TMT sector accounting for over 45% of that, indicating a significant rise in trading concentration. As market sentiment continued to heat up, leverage also expanded rapidly. Since May, within the 134 Shenwan secondary industries, the margin financing balance for the semiconductor sector reached 289.7 billion yuan, and for communication equipment, 145.2 billion yuan. These two sectors alone accounted for 15% of the total market scale. The leverage density in the semiconductor sector reached 3.4%, significantly higher than the 2% to 2.5% average in traditional industries.

"Under such a highly concentrated capital structure and leverage level, concentrated profit-taking is a normal phenomenon in market operation," a seasoned observer analyzed. When 50% of the A-share market's trading volume is concentrated in 5% of the hottest stocks, trading congestion has reached a historical peak, often leading to an unexpected short-term trading inflection point.

From an institutional perspective, several brokerages characterize the current adjustment as "digestion after high-congestion trading," not the end of the trend. Kaiyuan Securities analysis suggests the current market adjustment is essentially digestion following highly congested trading. After entering the "third stage of a bull market," the market begins to select directions that truly possess profit realization and accelerating momentum.

China Galaxy Securities points out that after May's market experienced tech corrections and value sector rebounds, funds in June are expected to flow back towards high-growth sectors with strong momentum. However, with short-term trading congestion already high, the market may enter a phase of "consolidation and internal differentiation."

Meanwhile, the global AI industry logic remains robust. South Korea's KOSPI index, home to global leaders in the memory industry, has continuously hit record highs. The S&P 500 has also reached new highs. Dell's shares surged over 40% in after-hours U.S. trading due to better-than-expected earnings data. Some views hold that the A-share tech sector's correction is more an issue of capital structure than a fundamental change in the industry logic.

Furthermore, sectors like consumption, finance, coal, and utilities, which are at relatively low levels, have become attractive in valuation after their prolonged earlier adjustments. Capital rebalancing between high-growth and low-value sectors is also part of the market's spontaneous correction process.

"Technology empowers traditional industries; it doesn't completely replace them. Technological development also drives demand in mature industries. A typical example is that AI is not just a chat tool; technologies like autonomous driving and robotics will drive demand in traditional industrial chains like automotive and manufacturing. This is the direct pull of 'physical AI' on traditional industries," Cao Mingchang, General Manager and Investment Director of Puqiao Asset Management, explained. New assets (like tech) rely on high-growth expectations, while old assets (like relatively mature or traditional industries) depend more on stable cash flows and profitability recovery coupled with valuation repair after industry consolidation.

"Old assets often have extremely low valuations during the most intense competition phase. But once the landscape stabilizes, they can not only enjoy performance recovery but may also experience valuation repair."