Market Risk Appetite Declines, Institutions Say A-Shares' Downside Is Limited

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On March 23, the A-share market saw a broad decline, with the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index all dropping over 3%. Over 5,100 stocks in the A-share market declined, with more than 130 hitting the daily limit down. Sectors such as gold, OLED, and liquid-cooled servers experienced significant adjustments, while coal and other sectors rose. Market turnover reached 2.45 trillion yuan, an increase from the previous trading day.

As market risk appetite decreases, cautious sentiment among investors rises. As of March 20, the margin financing balance in the A-share market was 26.3229 trillion yuan, and the securities lending balance was 26.1484 trillion yuan, with financing balances decreasing by 18.418 billion yuan last week. On March 23, net outflows of over 79 billion yuan were observed in the main funds of Shanghai and Shenzhen markets, with some broad-based ETFs seeing increased trading volume.

Analysts believe that the room for further sharp declines in the A-share market is limited, but external shocks could still trigger phased volatility. Confirming the bottom range will require time to exchange for space. A broader rebound in PPI, price transmission, and the recovery of corporate profitability are expected to be key directions with both expectations and growth potential this year.

● Reported by Wu Yuhua

A-Share Market Declines Across the Board

On March 23, Asia-Pacific stock markets declined across the board, with the Nikkei 225 down over 3% and the Korea Composite Index down over 6%.

The A-share market also experienced a broad decline, with the Shanghai Index briefly falling below 3,800 points during the session. The Shanghai Composite, Shenzhen Component, and ChiNext Index all fell over 4% at one point. By the close, the Shanghai Index dropped 3.63%, the Shenzhen Composite fell 3.76%, the ChiNext Index declined 3.49%, the STAR Market Composite decreased 4.93%, and the Beijing Stock Exchange 50 Index fell 5.48%, with the Shanghai Index closing at 3,813.28 points.

Large and small-cap stocks declined together, with the Shanghai 50 Index and CSI 300 Index falling 3.17% and 3.26%, respectively. Small-cap indices such as the CSI 1000, CSI 2000, and Wind Micro-cap Index declined 4.81%, 5.39%, and 6.42%, respectively.

In terms of individual stocks, 305 stocks in the A-share market rose, with 38 hitting the daily limit up, while 5,172 stocks declined, with 133 hitting the limit down.

Market turnover increased, with the total trading volume reaching 2.45 trillion yuan, up 145.3 billion yuan from the previous day. Specifically, the Shanghai market’s turnover was 1.0862 trillion yuan, and the Shenzhen market’s was 1.3453 trillion yuan. Since February 24, the A-share market has maintained trading volumes above 2 trillion yuan for 20 consecutive trading days.

Sector-wise, sectors such as gold, OLED, and liquid-cooled servers saw significant declines. Among the primary industries in Shenwan’s classification, only coal and petrochemical sectors rose slightly, by 0.20% and 0.06%, respectively. Other industries declined, with social services, beauty and personal care, and agriculture, forestry, animal husbandry, and fishery sectors leading declines of 6.41%, 6.02%, and 5.56%.

In the coal sector, Yun Coal Energy and Liaoning Energy hit the daily limit, Shanxi Coking Coal rose over 9%, Zhengzhou Coal & Electric Power increased over 6%, and Pingmei Shares gained over 5%. In petrochemicals, Hengyi Petrochemical and Bomin Tech hit the daily limit, while Lanjing Holdings rose over 6%.

Recently, the A-share market has continued to adjust, with risk appetite declining. From March 19 to 23, over 4,700 stocks declined for three consecutive trading days.

Cheng Liang, fund manager at 33 Degrees Capital, stated that escalating geopolitical tensions are the trigger for the market correction. The market has shifted from an “uptrend thinking” to “stagflation trading.” Rising oil prices have raised concerns about imported inflation, suppressing growth stock valuations, while profit-taking from earlier gains has increased market pessimism and risk aversion.

Cautious Capital Flows

From a capital perspective, as the A-share market continues to decline, investor caution is increasing.

Wind data shows that as of March 20, the margin financing balance was 26.3229 trillion yuan, and the securities lending balance was 26.1484 trillion yuan, with last week’s financing balance decreasing by 18.418 billion yuan.

Specifically, during the five trading days last week, the financing balance increased by 9.74 billion yuan on March 16, decreased by 9.007 billion yuan on March 17, increased by 2.543 billion yuan on March 18, decreased by 4.286 billion yuan on March 19, and decreased by 17.408 billion yuan on March 20. Notably, net selling of financing occurred significantly on March 20.

Industry-wise, among Shenwan’s 31 primary industries, 8 saw increases in financing balances last week, with electronic, basic chemical, and steel sectors leading, with net inflows of 2.239 billion, 1.619 billion, and 547 million yuan, respectively. Conversely, sectors such as non-ferrous metals, defense military, and petrochemicals experienced net outflows, with 4.994 billion, 2.666 billion, and 2.321 billion yuan, respectively.

In individual stocks, last week, 79 stocks saw net increases in financing of over 1 billion yuan, led by Cambrian, Baofeng Energy, CATL, Zhongji Xuchuang, and Byte Storage, with net inflows of 1.548 billion, 1.527 billion, 1.36 billion, 1.245 billion, and 1.052 billion yuan. Conversely, 118 stocks experienced net outflows exceeding 1 billion yuan, with Dongshan Precision, Tongkun Shares, China Tungsten, CNOOC, and Sunshine Power leading, with net outflows of 1.296 billion, 1.234 billion, 1.002 billion, 632 million, and 617 million yuan.

Regarding main funds, Wind data shows that on March 23, net outflows in Shanghai and Shenzhen main funds totaled 79.483 billion yuan, with the CSI 300 main fund net outflow of 23.725 billion yuan. There were 1,491 stocks with net main fund inflows and 3,692 stocks with net outflows.

In industry sectors, only light industry manufacturing and coal saw net main fund inflows, with inflows of 544 million and 473 million yuan, respectively. Among the 29 sectors with net outflows, electronic, computer, and electrical equipment sectors experienced the largest net outflows, at 19.922 billion, 7.581 billion, and 6.729 billion yuan.

On the stock level, 42 stocks saw net main fund inflows exceeding 1 billion yuan, led by GCL System Integration, BYD, and Shunhao Shares, with inflows of 1.366 billion, 1.36 billion, and 1.171 billion yuan. Meanwhile, 209 stocks experienced net outflows over 1 billion yuan, with Shenghong Technology, Sunshine Power, and Huagong Tech leading, with outflows of 1.432 billion, 1.366 billion, and 1.237 billion yuan.

Notably, some broad-based ETFs saw increased trading volume on March 23. The Huatai-PineBridge CSI 300 ETF traded 6.799 billion yuan throughout the day, and the E Fund CSI 300 ETF traded 1.389 billion yuan, both significantly higher than the previous day.

Limited Room for Further Sharp Decline

Zhao Xiang, Chief A-Share Strategist at CITIC Securities, stated that “facing great uncertainty, the market has seen some reduction in positions in the short term, with previously strong stocks experiencing larger declines.” Overall, the past three months can be viewed as a market rotation driven by expectations and narratives during the spring rally and phase cooling. It is not a definitive trend for the entire year. The broader rebound in PPI, price transmission, and corporate profit recovery are expected to be key directions with both expectations and growth potential this year, with April being a critical point for observation.

Zhang Xia, Chief Strategy Analyst at China Merchants Securities, noted that based on technical patterns and sentiment indicators, the current decline in A-shares is in its latter stages, with limited room for further sharp drops. However, external shocks could still trigger phased volatility, and confirming the bottom will require time to exchange for space. The key signal for a bottom is when the market stabilization mechanisms start to take substantive action.

Yang Chao, Chief Strategy Analyst at China Galaxy Securities, said that ongoing geopolitical conflicts and their evolution remain highly uncertain, and short-term disruptions to global risk assets are unlikely to subside quickly. He expects global equity markets to continue high volatility. However, under the “domestic-led” logic, the downside for A-shares is relatively limited, and the market is likely to digest external pressures through oscillation and sector rotation.

Regarding market allocation, Cheng Liang suggests defensive positioning in coal, oil, energy storage, photovoltaics, lithium batteries, and hydrogen energy sectors. The energy security premium has increased amid the AI industry cycle and geopolitical tensions, making energy stocks a long-term investment value. For offensive strategies, focus on AI computing power, semiconductors, and related sectors.