External Disruptions Persist! Next Week, Patient Waiting for A-Share Stabilization Signals

Why did the Middle East situation unexpectedly boost the ChiNext Index amid AI questions?

This week, the market showed significant structural divergence amid external shocks and internal support. Major stock indexes fluctuated, with the Shanghai Composite down 3.38%, losing the 4,000-point mark; the STAR Market 50 fell 4.03%; while the ChiNext Index rose 1.26%, hitting a four-year high during the session. The average daily trading volume of A-shares was 2.21 trillion yuan, down 287.2 billion yuan from last week.

Geopolitical risks became the main factor suppressing market risk appetite this week. The Middle East situation continued to escalate over the past week. On March 18, energy facilities in Saudi Arabia, Qatar, the UAE, and other countries were attacked, causing varying degrees of damage to critical infrastructure, triggering sharp volatility in the international energy markets. Brent crude futures briefly surpassed $112 per barrel, and US gasoline prices increased over 20% compared to a month ago.

Meanwhile, on March 19, the Federal Reserve’s FOMC meeting kept the benchmark interest rate unchanged. The dot plot indicated only one rate cut this year. The number of officials advocating “zero rate cuts” increased from 4 to 7. The Fed’s statement explicitly mentioned that “the evolving situation in the Middle East poses uncertainties for the US economy.” This statement boosted market expectations of no rate cuts this year, putting valuation pressure on high-growth tech stocks.

However, the domestic market demonstrated strong policy resilience and structural opportunities. The People’s Bank of China held an expanded meeting, reaffirming the continuation of moderately easing monetary policy and maintaining financial market stability. The CSRC held a symposium with investment institutions to gather opinions on deepening reforms and enhancing market stability. Data from the Ministry of Finance showed that securities transaction stamp duty increased 1.1 times in January-February year-on-year, indirectly indicating increased market activity.

In the face of structural divergence, the strength of the ChiNext Index is particularly notable. It rose 1.26% this week against the trend, mainly supported by new energy giants like CATL, Sungrow, and EVE Lithium. The photovoltaic equipment sector was active, with companies like Chuanghang New Energy up over 85% since March, and Guosheng Technology up over 61%. This is closely related to the spotlight on energy security amid Middle East oil supply disruptions, with autonomous and controllable new energy sources gaining favor. Fund flow data shows that the entire week, over 20.2 billion yuan of main funds flowed into power equipment, over 14.8 billion yuan into communications, and over 14.2 billion yuan into utilities, indicating capital is concentrating on new energy and utility sectors that combine growth and defensive attributes.

In terms of industry performance, the communication sector led with a weekly increase of 2.10%, followed by banks with a modest 0.36% rise. The strength of the communication sector is driven by multiple factors: sustained demand for AI computing power, accelerated data center construction; the “14th Five-Year Plan” explicitly plans to build offshore wind power bases in the Bohai, Yellow, East, and South China Seas, increasing offshore wind communication needs; and breakthroughs in 6G technology development benefit related companies. The defensive nature of the banking sector, characterized by high dividends, also contributed to its resilience—during times of declining risk appetite, stable cash flow and high dividend-paying banks become safe havens.

Conversely, cyclical sectors faced significant correction pressure. Non-ferrous metals fell 11.82%, basic chemicals dropped 10.53%, and steel declined 10.29%, making them the hardest hit this week. This is due to multiple factors: hawkish Fed signals dampening commodity price expectations, concerns over global economic slowdown suppressing industrial metal demand, and Middle East tensions pushing energy costs higher, squeezing chemical companies’ profits. The Hong Kong materials sector also plunged 11.26%, resonating with the cyclical sectors in A-shares.

Looking ahead, strategies should distinguish between short-term and medium-to-long-term.

In the short term, the market may continue to fluctuate amid external disturbances. Geopolitical risks remain the main short-term disruptor. Such shocks are mostly sentiment-driven; if the situation does not escalate further, the market typically stabilizes and rebounds within 1-2 weeks, with an average maximum retracement of about 20 days. However, current market confidence and buying momentum still need to improve. If the market cannot recover quickly, it may continue testing support levels.

Technically, the Shanghai Composite has broken below the 4,000-point level. Attention should be paid to whether it can regain this level in the short term. As the quarter-end approaches, liquidity may fluctuate temporarily. Investors are advised to control positions prudently, wait for signs of market recovery, and closely monitor Middle East developments and domestic policy trends.

In the medium to long term, as valuation repairs are largely complete, corporate earnings growth will become the key variable for the next phase of A-share performance. Earnings realization is replacing mere thematic hype as the core criterion for stock selection. The long-term revaluation of Chinese assets remains intact despite external shocks. The core drivers of the current A-share rebound are the reconstruction of the international order and domestic industrial innovation trends.

In industry allocation, sectors with pricing power and competitive advantages—such as chemicals, non-ferrous metals, electrical equipment, new energy, and AI infrastructure-related areas like communications and optical modules—are the focus. In Hong Kong stocks, attention can be given to technology leaders, innovative pharmaceuticals, and high-dividend stocks.

For investors, it is advisable to stay cautious in the short term, prioritize defense, and avoid blindly chasing gains or selling in panic. In the medium to long term, focus on earnings certainty and industry trends, and look for opportunities in high-quality sectors during market corrections.

Note: Markets carry risks; investment should be cautious. This article is based on publicly available information and does not constitute investment advice.