Market expectations improve again, but the significant decrease in trading volume may limit the rebound potential.

(Source: Founder Securities Margin Trading and Securities Lending)

On March 24, the market bottomed out and rebounded throughout the day. The yellow and white lines showed a clear divergence, and the small-cap stock index surged more than 5%. Individual stocks displayed a broad-based rally, with nearly 5,200 stocks across the Shanghai, Shenzhen, and Beijing markets turning red. However, trading value for the day was only 2.1 trillion, shrinking by about 350 billion yuan compared with the previous trading day, and trading activity once again returned to a recent low level. On the day, northbound funds had total trading value of 289.86 billion yuan.

Hotspots spread clearly. Among them, green power concept stocks repeatedly turned active, with multiple stocks hitting limit-up. Defense industry stocks moved up collectively, the lithium battery sector rose, and other sectors such as pharmaceuticals and healthcare, as well as sports, were also among the top gainers. On the downside, only oil and gas stocks performed relatively weakly.

Judging from the market’s performance over the entire day, expectations of a market rebound improved notably. At the index level, the three major indices opened higher collectively in the morning and then once saw a pullback, but later in the afternoon they rebounded again, especially with a clear late-session surge. The Shanghai and Shenzhen indices both rose more than 1.4%, and the STAR Market 50 Index climbed more than 2% as well.

Analysts say that after the panic of “Global Black Monday,” and as the U.S. and Iran both issued calming remarks and mentioned a timetable for the end of the war, expectations for geopolitical risk weakened again. For the A-share market, which itself has no other risks, an oversold rebound is inevitable.

Meanwhile, on the hotspots front, sectors that had previously been adjusted by a larger margin—such as certain technology themes and rate-hike concepts tied to non-ferrous metals—also received opportunities for an oversold rebound.

However, trading volume shrank again to only slightly above 2 trillion, which plants a hidden risk in the upside space for the rebound.

Looking ahead, in the short term, market expectations are changing quickly due to repeated external geopolitical factors and the strengthening of market-stabilization efforts through internal policies. Short-term market volatility may increase, and trading activity will somewhat consolidate, but there is downside room with a floor. As long as there are signs of geopolitical factors easing, rebounds can happen at any time.

In terms of allocation strategy, given the tug-of-war between two major factors—Middle East geopolitical developments and domestic policy market-stabilization efforts—these have a huge impact on short-term hotspot performance, and the geopolitical factor is unlikely to be resolved within the short-to-medium term.

Going forward, hotspots may continue to rotate repeatedly among oil and gas and chemical sectors that benefit from geopolitical factors, as well as alternative energy sectors such as coal and power, and new energy. They may also rotate repeatedly with technology growth themes that domestic policy has emphasized supporting this year—such as semiconductors, embodied intelligence, and computing power—along with domestic consumption sectors with relatively solid fundamentals.

That is to say, the current hotspots’ persistence will generally be short, and the switching will be very fast—this will strongly test one’s ability to grasp the timing and rhythm of rebalancing.

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