📝What Happened?
Following Monday’s volatility, A-shares saw a sharp correction on Tuesday, resonating with global market slump. The Wind All A Index fell 2.97%.
The United States and Isaral's war on Iran, starting last Saturday, has sent the price of oil & petrochemicals, coal, and transportation soaring. In contrast, risk-sensitive sectors and those with strong recent gains — including defense, non-ferrous metals, TMT, and Hong Kong tech — led the downslide.
📈How big is the impact?
We believe recent developments suggest this is not the short-lived “shock event” investors had anticipated over the weekend. Escalating retaliation from Iran (missile hitting key U.S. and Israeli targets) and the continued closure of the Strait of Hormuz have all exceeded expectations.
Markets are now trading a global inflation narrative driven by oil supply disruption. Economies highly dependent on Middle Eastern crude shipped via maritime routes — including Japan and South Korea — are likely to face growth headwinds, while the sharp sell-off in equities intensified risk aversion and triggered a broad-based global decline.Elevated inflation could undercut the Federal Reserve’s liquidity flexibility, posing a headwind to global risk assets.
📈Domestic Factors
Ahead of and during the Spring Festival holiday, investors positioned for the traditional “Spring Rally” and policy expectations surrounding the National Two Sessions. Historically, this period often sees strong performance.
However, once the meetings officially begin and policy expectations are largely priced in, March tends to see mediocre returns. At this critical policy juncture, collective profit-taking or even stampede led to the market pullback.
Technically, A-shares recently approached January highs, but the momentum — both in volume and velocity terms— is weaker than that in January. This divergence prompted technical investors to lock in gains, reinforcing adjustment expectations.
🔍 Short-Term Outlook: Volatility Likely
In the near term, we believe the market is likely to enter a period of weekly or multi-week volatility and consolidation. From the perspective of the Iranian government, negotiations seem unlikely in the short run, suggesting limited prospects for a near-term turnaround.
From a domestic perspective, earlier gains have left pockets of structural selling pressure, and risk appetite, once affected, will require time to recover.
That said, Tuesday’s rapid decline suggests risk has been digested relatively quickly. Further downside may be limited, with a higher probability of range-bound volatility rather than sustained decline.
📈 Medium-Term View: Valuation Expansion Cycle Intact
The broader uptrend remains in a valuation expansion phase. The underlying bullish logic has not changed.
- Continued RMB appreciation brings incremental capital inflows
- Low interest rates support equity allocation
- Development of new productive forces and industrial upgrading
- Ongoing upward re-valuation trend
Many investors remain constructive on 2026 equity opportunities, and some remain under-positioned. Pullbacks may provide re-entry opportunities and reinforce upside momentum.
Markets rarely move in a straight line. Consolidation allows for position rotation, cost rebalancing, and healthier trend formation. Staying aligned with the primary direction is more important than short-term fluctuations.
🎁 Positioning Strategy
- Investors with light positioning may consider gradually upping their bets on stabilization and lower volume pullbacks.
- Investors with existing holdings may optimize structure during volatility, focusing on core themes.
Maintain a “Technology + Cyclical Alpha” framework:
Key themes to watch:Semiconductor equipment, chips, oil & petrochemicals, AI, computer & software, gaming, power grid equipment.
Following the rapid run-up in cyclical plays, investors may consider locking in some gains and reallocating toward tech stocks that have meaningfully corrected. Additionally, consider allocating to select low-positioned, less crowded sectors.
Data source: Wind, as of March 3.
Disclaimer
Investment involves risk, including possible loss of principal. The information in the material reflects prevailing market conditions and our judgment as of the release date, which are subject to change without further notice.This material is for reference only and does not constitute investment advice.
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