Shanghai Composite Index Barely Holds 3800 Points, What Has Changed and Remains Unchanged Now? | Daily Research Selection

On March 23, the Shanghai Composite Index narrowly held the 3,800-point level. Investors are concerned about: what is the market worried about? When will the correction end? How should we respond in the future? Here is the latest institutional analysis.

Recently, the Middle East situation has escalated again. Against this background, the geopolitical risk has shifted from a “disturbance” to a “long-term” pricing logic, becoming the main factor driving the adjustment of A-shares.

Tensions in the Strait of Hormuz not only pushed up crude oil prices but also directly impacted global liquidity expectations: the Federal Reserve’s rate cut window has been further compressed, the US dollar has temporarily strengthened, and the valuation anchors of risk assets have loosened. Market concerns are not only about short-term oil prices spiking but also about a long-term macro scenario of “high oil prices, high inflation, and high interest rates.” For A-shares, this means the “weak dollar, loose monetary policy” logic that supported the market over the past year is facing challenges. The market is experiencing a painful transition from “rising valuations” to “earning performance.”

Changes in the external environment have directly triggered internal market capital behaviors. Some institutions have observed that the funds supporting previous gains have begun to withdraw en masse. Sector ETFs, especially in non-ferrous metals, chemicals, and computing, have seen significant shrinkage in holdings. Absolute return funds are passively reducing positions to avoid net value declines. "Fixed income +” products, which were an important source of incremental funds, are also beginning to face redemption pressures.

Of course, markets in transition still have some “unchanging” genes: First, the central bank emphasizes maintaining financial market stability, and the overall policy direction to safeguard the healthy development of the capital market remains unchanged; second, the medium- to long-term liquidity pattern remains stable and improving, with residents’ wealth transfer and long-term funds entering the market resonating, making the supply of medium- and long-term funds in A-shares more certain. Therefore, the current market decline should be understood as a “stress test” under external risk shocks, rather than a complete reversal of internal logic.

Looking ahead, in the short term, the market may follow a path of “oversold—policy support—rebound,” then most likely enter a range-bound oscillation, with sector rotation remaining the main theme. If new mainline opportunities emerge (such as energy storage or optical communication sector recovery), the market may challenge the upper limit of the oscillation range; if the rebound faces resistance, it could test the lower bound again. Investors are advised to control positions in the short term, adopt a cautious approach, and wait for the rebound point. In the medium to long term, most broad-based indices are currently at high valuations, and the relative attractiveness of equity assets is low. The market may enter a prolonged period of consolidation.

In terms of allocation, the key task now is “resisting volatility” and “seeking certainty.” Based on institutional views, three areas are recommended: first, sectors benefiting from high oil prices and energy security logic, such as coal chemical, coal, and those revalued in the global energy transition, including new energy, energy storage, and nuclear power; second, high-dividend assets with stable cash flow, such as banks, hydropower, and utilities; third, sectors less sensitive to geopolitical and oil price fluctuations, with upward cyclical prospects, such as energy storage chains and domestically produced AIDC chains.

Risk warnings: the risk of further escalation of geopolitical conflicts; the risk of unexpected global inflation and liquidity tightening; the risk of domestic policy implementation falling short of expectations. The above views are from recent research reports by Galaxy Securities, Shenwan Hongyuan, Great Wall Securities, GF Securities, and CITIC Construction Investment, and do not represent the platform’s stance. Investors should be aware of investment risks.

Author: Nie Linhao, Liu Yuxi

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