The Shanghai Composite Index fluctuates and falls back below the 60-day moving average; when will A-shares stabilize in the short term?

How does geopolitical risk increase risk aversion in the A-share market?

On Tuesday, the three major A-share indices fluctuated and declined.

As of the close on March 17, the Shanghai Composite Index fell 0.85%, closing at 4,049.91 points, below the 60-day moving average; the ChiNext 50 Index dropped 2.23%, the Shenzhen Component Index declined 1.87%, and the Growth Enterprise Market Index decreased 2.29%. From the market sector perspective, hardware computing power chains and super-hard materials concepts saw sharp declines, while power generation equipment, chemicals, and agriculture sectors led the declines. Conversely, recent IPOs and large financials performed countercyclically and strengthened.

Regarding market trends, after-hours interviews with several public funds indicated that most believe the main reasons for Tuesday’s market correction are the rising global risk aversion caused by escalating geopolitical tensions and profit-taking pressure from previously hot sectors. Until geopolitical uncertainties are resolved, the A-share market is likely to remain volatile in the short term.

“One scenario is if the Shanghai Index can quickly recover the 60-day moving average on Wednesday and close above it without falling back below, then Tuesday might have been a trap for false breakout, and the index near the 60-day line still has a chance to stabilize,” said an institutional analyst. “If the Shanghai Index only makes a slight rebound on Wednesday and fails to recover the 60-day moving average, then we should be cautious of further declines testing the lower boundary of the large trading range.”

Rising risk aversion among funds

Liu Chong, senior market research analyst at Cinda Asia Fund, analyzed that recent tensions in the Middle East have caused international oil prices to surge sharply, raising concerns about global inflation and delaying expectations of Federal Reserve rate cuts. This has led to increased risk aversion among funds, with capital accelerating outflows. Meanwhile, sectors that previously experienced high gains have accumulated large profit-taking positions, with funds shifting from high-flying concept stocks to defensive sectors like banks.

“Under the influence of geopolitical uncertainties, global risk assets are showing high volatility. The ongoing geopolitical tensions remain central to the current global market narrative, with asset pricing reflecting concerns about economic stagnation and liquidity tightening driven by rising oil prices,” Liu Chong said.

Bosera Fund also believes that the market is gradually pricing in the prolonged duration of US-Iran conflicts, with crude oil prices likely remaining high. This could trigger a macro re-pricing chain: supply shocks leading to inflation, which in turn tightens financial conditions, affecting corporate profits, liquidity, and risk appetite. In the short term, caution is advised, and a balanced allocation strategy is recommended, with a focus on defensive assets such as dividends.

Beyond energy, China Universal Fund pointed out that ongoing disruptions in the Strait of Hormuz could also impact food security and other issues, making the effects on different sectors increasingly complex.

Tan Zhiming, fund manager at Jinxin Fund, further analyzed that Nvidia’s GTC conference, dubbed the “Spring Festival Gala of AI,” opened on March 16. The next-generation AI chip “Feynman,” expected to launch in 2028, and the associated optical communication technology upgrades, are long-term positive signals. However, these positive signals are overshadowed by macroeconomic concerns. “Due to US-Iran geopolitical conflicts and inflation worries, market risk appetite has significantly declined, with funds shifting toward highly pragmatic assets. Additionally, the optical module index has risen substantially since the beginning of the year, creating a phase of profit-taking pressure, which, combined with multiple factors, led to a sharp correction in related sectors.”

Grasping sector certainty amid macro uncertainty

Looking ahead, most public funds believe that until geopolitical uncertainties are resolved, the A-share market will likely remain volatile in the short term.

In the short term, Liu Chong believes that due to the pressure on global risk appetite and ongoing geopolitical tensions, the A-share market may continue to fluctuate. In the medium term, with proactive policies at the start of the 14th Five-Year Plan and the goal of “stability with quality improvement” by 2026, economic recovery is expected to continue. As the traditional economic peak season approaches, the improving price environment could support earnings recovery. Additionally, as annual and first-quarter reports are released, performance factors are expected to have a greater impact on the market, making quality growth sectors worth关注。

In terms of allocation strategies, consensus among public funds is shifting toward greater certainty.

Tan Zhiming believes that the market will return to fundamentals, with earnings certainty and realization becoming core themes. Investors are advised to buy on dips in the technology growth sector to seize long-term investment opportunities driven by industrial upgrades.

China Universal Fund recommends focusing on sectors that are relatively independent of current geopolitical conflicts, such as rising energy prices, energy security strategies, domestic demand, innovative pharmaceuticals, and semiconductors.

NuoAn Fund suggests paying attention to insurance, securities, and electricity sectors. From a short-term cyclical perspective, price increases remain a focus in Q1. The conflicts in Israel and Iran and the closure of the Strait of Hormuz are expected to temporarily raise oil prices, increasing costs for many cyclical commodities. Under this narrative, there are abundant structural opportunities in chemicals, oil and gas, and materials sectors.

Pengyang Fund indicates that short-term risk appetite is declining, and strategy should avoid overheated sectors with high valuations and bubbles, focusing instead on high-quality undervalued stocks and industries with clear growth trends. Currently, macro conditions do not present significant beta opportunities; patience is needed for new policies or existing policy effects. After this round of volatility, technology remains a long-term core allocation, with AI sectors offering buying opportunities during corrections. As the market gradually prices in war risks and high oil prices, investors should avoid speculative stocks driven by geopolitical catalysts.