CICC: The Current Stage May Represent a Relative Medium-Term Low Point for A-Shares, Deep Pullback Has Created Favorable Positioning Opportunity

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Market deep correction amid external shocks, with the Shanghai Composite Index briefly falling below key levels. On March 23, the A-share market experienced a sharp decline, with the Shanghai Composite, Wind All A Index, and ChiNext Index dropping 3.6%, 4.1%, and 3.5%, respectively. The Shanghai Index temporarily broke below the 3,800 mark during trading. The Asia-Pacific stock markets also saw widespread declines, with South Korea’s Kospi plunging 6.5%, and Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index falling similarly to A-shares. Style and sector performance in A-shares also showed clear “valuation cut” characteristics: small and micro-cap stocks with higher valuations underperformed, with the Wind Micro Cap Index and CSI 2000 Index falling 6.4% and 5.4%, respectively—more than the broader market. Sectors with inflation and energy substitution logic, such as oil and petrochemicals, coal, electricity, batteries, and power grid equipment, as well as high-dividend defensive stocks and sectors with strong fundamentals like optical communications and PCB, showed resilience; consumer services and software sectors led declines.

What is the market worried about? What is it trading? We believe the sharp correction was mainly driven by escalating tensions in Iran, with recent geopolitical conflicts not easing but intensifying. According to media reports, on March 21, U.S. President Trump demanded Iran open the Strait of Hormuz within 48 hours, or face strikes and destruction of its power plants. Iran responded that if such threats were carried out, it would immediately take four punitive measures, including fully closing the Strait of Hormuz. Since the U.S.-Iran conflict and the Strait’s blockade, crude oil prices have surged, fueling concerns about stagflation and recession, leading global trading behavior. From late February to now, the dollar index has risen, oil prices have climbed, and most risk assets globally have weakened, with gold prices also experiencing significant declines.

Market logic has shifted from initial emotional shocks to concerns over macro and fundamentals. Early in the conflict, we published a report titled “How Will Iran’s Situation Affect Chinese Assets?” analyzing 14 major geopolitical conflicts since 2000 and their subsequent impacts. We concluded that initial market reactions to geopolitical escalation typically manifest as emotional shocks and risk premium jumps, characterized by increased volatility and capital reallocation from equities to safe assets. After these emotional shocks subside, focus will gradually shift to fundamentals and policy directions, with real changes in global supply chains and macro environments becoming the main drivers. Recent market concerns in these areas include: 1) Cost shocks and profit divergence—China, as a major energy importer, faces rising energy costs that directly or indirectly pressure most industries. If these impacts spread globally, they could affect China’s export demand. Oil price surges have heightened attention, influencing profit expectations for non-financial sectors in A-shares; 2) The linkage between macro inflation and interest rates—rising oil prices boost inflation expectations, affecting the Federal Reserve’s monetary policy pace and direction. Historical experience shows that an early end to global easing cycles can suppress equity market performance.

At this point, should you buy or sell?

Short-term rebound is possible, but attention should be paid to evolving conflicts and liquidity conditions in A-shares. Recent news indicates a significant development: media reports say Trump on March 23 stated that the U.S. and Iran have had “very good and productive” talks over the past two days, and the U.S. will “delay strikes” on Iranian power plants by five days. Iran’s foreign ministry later denied any dialogue with the U.S. took place. These developments led to rapid declines in oil prices, narrowing of gold’s losses, and a rebound in U.S. stocks. Short-term, these events may trigger a rebound in A-shares, but ongoing developments and liquidity conditions—such as redemption pressures—must be monitored. From a market stabilization perspective, it’s important to guard against negative feedback from liquidity issues impacting the index.

Currently, A-shares may be at a mid-term low point, with the deep correction creating a good opportunity for positioning. Although short-term trends remain uncertain, after the adjustment, risks in the A-share market have been further released. We believe valuations are relatively reasonable; as of March 23, the earnings yield of the CSI 300 index compared to the 10-year government bond yield shows an equity risk premium of 5.5%, placing it at the 42nd percentile since 2010. The dividend yield of the CSI 300 is 2.7%, indicating a favorable risk-return profile. On a medium-term basis, macro conditions have not fundamentally changed, supporting the logic of “stability and progress” in A-shares. The release of risks and correction may present good allocation opportunities. China’s manufacturing advantage remains clear, and AI is currently in a phase of new technological iteration and application deployment. The demand for energy and costs in training new models is growing exponentially, supporting upstream demand and driving product price increases and profit improvements for related listed companies.

In terms of allocation, focus on several main themes: 1) Growth sectors benefiting from AI deployment, such as optical communications and storage; renewable energy-related batteries and energy storage; 2) Cyclical resource stocks—considering capacity cycles and supply-demand dynamics, focus on segments with supported price increases and performance certainty, such as power grids and chemicals; 3) High-dividend stocks may still perform well in the short to medium term, so pay attention to cash flow matching.

[1]https://www.news.cn/world/20260322/23dff4f4700b49129abe002090514fac/c.html

[2]https://www.news.cn/20260322/a06c30c850c4492c8dbe8f78bc4e3a02/c.html

[3]https://www.news.cn/20260323/1a149482b03648f49bd9be22a5f155be/c.html

[4]https://www3.xinhuanet.com/world/20260323/d5761496f81a45dcab700276e7dae8a1/c.html

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Editor: Ling Chen