A-shares enter the bottom "strike zone," foreign capital optimistic about Chinese assets' certainty

China has formed an energy supply mix of “coal as the foundation, oil and gas supplementation, and non-fossil fuel uplift,” creating a solid industrial production base.

Although facing “Black Monday,” many institutional analysts believe that China’s stock market is likely to hit an important bottom and “bouncing zone,” with new energy industries expected to become “mid-term winners.”

On March 23, Asia-Pacific markets plunged sharply, and A-shares also experienced deep adjustments. However, according to Xinhua News Agency, U.S. President Trump posted news about talks with Iran on social media on the 23rd. Subsequently, international oil prices plummeted during trading.

Foreign institutional experts say they remain optimistic about this year’s A-share trend and continue to increase their holdings in the Chinese market. Industry insiders believe that geopolitical conflicts will not change the long-term positive fundamentals of A-shares. Besides China’s economic resilience and moderate, controllable inflation levels, the country’s new energy-related industries are considered a major support for future A-share performance.

Zhang Wei, Chief Macro Analyst at Caitong Securities, believes that the impact of geopolitical conflicts on the crude oil supply chain is not just a simple cost increase but an extreme stress test on the global manufacturing industry’s underlying supply capacity. China has formed a “coal as the foundation, oil and gas supplementation, and non-fossil fuel uplift” combination, establishing a stable industrial base.

The strategy team at Bank of China Securities also states that, amid the high uncertainty of the US-Iran conflict, the importance of energy structure transformation is even more prominent. On one hand, power generation from photovoltaics and wind power is less affected by geopolitical conflicts and fossil fuel prices; on the other hand, increasing penetration of new energy vehicles can help reduce dependence on oil, while energy storage systems can smooth out new energy volatility and enhance absorption capacity.

Energy structure determines China’s economic resilience

On March 23, the four major indices of the A-share market all opened with gaps lower, rebounded slightly in the first half-hour, then oscillated downward, with the decline widening. The Shanghai Composite Index held the 3,800-point level at the close.

By the end of the day, the Shanghai Composite fell 3.63%, closing at 3,813.28 points; the Shenzhen Component Index dropped 3.76%, closing at 13,345.51 points; the ChiNext Index declined 3.49%, closing at 3,235.22 points; the STAR Market Composite Index fell 4.93%, closing at 1,587.68 points.

Analysts say that, on one hand, geopolitical conflicts caused international crude oil prices to soar, intensifying global concerns about stagflation (“economic stagnation + inflation”); on the other hand, overseas liquidity expectations sharply deteriorated: the Federal Reserve’s hawkish stance strengthened, market expectations for rate cuts fell short, leading to a rapid rise in U.S. Treasury yields, which significantly suppressed valuations of high-growth tech stocks globally. Under these negative factors, panic selling surged, and sectors with large previous gains became major targets for capital outflows.

Despite the sharp decline in A-shares on the 23rd, the coal, oil, and natural gas sectors stood out, with Yun Coal Energy (600792.SH) and Liaoning Energy (600758.SH) hitting the daily limit, and Shanxi Coking Coal (000983.SZ) rising 9.42%. The auto sector was relatively resilient, with Haima Auto (000572.SZ), BYD (002594.SZ), and Yutong Bus (600066.SH) rising 5.23%, 4.46%, and 3.02%, respectively.

Looking at individual stocks, 305 stocks rose against the trend, with the largest numbers coming from photovoltaic equipment (21 stocks), power (20 stocks), batteries (17 stocks), coal mining (14 stocks), and auto parts (11 stocks).

From the perspective of main capital flows, Wind data shows that on March 23, the secondary industries of passenger cars, packaging and printing, and coal mining received net main capital inflows of 1.631 billion yuan, 711 million yuan, and 605 million yuan, respectively. In terms of individual stocks, GCL System Integration (002506.SZ), BYD, and Shunhao Holdings (002565.SZ) each received net inflows exceeding 1.1 billion yuan; Tori New Energy (002218.SZ), Silver J (300085.SZ), and Haima Auto also saw net inflows over 400 million yuan.

Institutional analysts believe that the counter-trend rise of coal mining stocks is driven by geopolitical conflicts pushing up energy prices, with main coal futures hitting the daily limit, and increased substitution demand in the coal chemical sector due to rising oil and gas costs.

“Greater geopolitical risks lead markets to shift from efficiency to safety,” said Dongfang Securities. The importance of energy independence and controllability is increasingly emphasized. New energy power generation is not only low-carbon but also a self-controlled energy source with virtually zero external dependence. Under this broad context, energy security is expected to become a market mainline, with photovoltaic equipment being a key focus based on comprehensive risk considerations.

Zhang Wei also analyzed that energy structure determines China’s stronger supply resilience. Compared to Japan, South Korea, and Germany—traditional manufacturing powers highly dependent on oil and gas imports—China has an advantage in building industrial cost “safety cushions.”

He further stated that China has formed a “coal as the foundation, oil and gas supplementation, and non-fossil fuel uplift” model. Non-oil and gas energy sources already account for a significant share, with domestic coal resources combined with nuclear, wind, and hydropower forming a solid industrial base. China’s diversified crude oil sourcing and deep technological reserves in coal chemical industry give it a stronger capacity to ensure raw material supply and hedge in extreme environments compared to competitors.

“When overseas economies face shutdowns due to rising energy costs and raw material shortages, China’s manufacturing, with its complete supply chain and stable delivery, is likely to take on global orders and reallocate,” said Zhang Wei.

In the context of global energy security, accelerating overseas expansion of new energy vehicles is also a major focus. Orient Securities believes that to ensure energy security, countries worldwide are expected to seek to reduce reliance on traditional energy sources, with new energy vehicles becoming an important part of strengthening national energy security strategies. China’s new energy vehicle exports and auto parts will accelerate, becoming a key long-term growth driver.

Chinese assets are “more certain”

Although some investors are concerned about energy price shocks and tightening financial conditions, both domestic and foreign institutions believe that short-term disruptions are unlikely to change the long-term trajectory of A-shares.

Fu Jingtao, Chief Strategy Analyst at Shenwan Hongyuan Research, believes that in the short term, the market may follow a process of “oversold—stabilize—policy support—rebound.” The market will likely remain in a range with sector rotations. During phases with new opportunities (such as short-term energy storage and optical communication driven by industry cycles), the market may challenge the upper limit of the oscillation range.

“Short-term, the market may enter a consolidation phase, but the fundamentals and policies still support it. The current Middle East conflict is expected to only impact the short-term rhythm, not the long-term positive trend of A-shares,” said the institutional expert.

Guotai Haitong Strategy team also states that the impact of micro trading shocks is expected to be short-lived, and the current position is not suitable for reckless selling. China’s stock market is likely to see an important bottom and “bouncing zone.” Chinese assets not only have relatively stable security conditions but also benefit from diversified energy reserves and growth, which are scarce globally.

Foreign institutions remain optimistic about the A-share market. “In the short term, our allocation in A-shares is more focused on energy, defensive ‘HALO’ assets at low levels, and sectors with independent growth logic,” said Jiang Xianwei, Senior Global Market Strategist at Morgan Asset Management China. Based on relatively high economic growth, clear policy directions, improving macro data, and industry restructuring, he remains optimistic about this year’s A-share outlook.

Liu Song, Chairman of Loomis Sayles China, said, “External factors like geopolitical conflicts have not changed our overall logic, but have prompted us to pre-allocate for the year.” He believes that China’s continued confidence in the market is rooted in its unique “certainty” amid high global volatility. Compared to many economies still grappling with high inflation, China’s resilience and moderate, controllable inflation levels are a rare advantage.

Looking ahead, Liu Song sees two main catalysts for market growth: first, the reallocation of global funds from high-valuation markets to undervalued areas, which could bring sustained foreign inflows into China; second, the recovery driven by moderate inflation, as China’s economy gradually emerges from deflation, with moderate price increases helping to activate economic vitality and support market growth.

Jiang Xianwei notes that historical data shows that market shocks caused by geopolitical conflicts tend to be shorter than recessions. He emphasizes monitoring sectors supported by domestic policies and overseas demand, such as AI-powered electricity, computing power collaboration, domestic policy-driven future industries, and supply-demand reversal opportunities in areas like domestic capital expenditure, domestic computing power, and cloud infrastructure.

Fu Jingtao also advises maintaining confidence and patience in the medium term. He notes that each major global shock in recent years has been an opportunity to reassess China’s supply chain capabilities. This round of China’s efforts to safeguard supply chain and energy security will be further validated, presenting a new opportunity for the market narrative to regain strength.

“Under this external environment, China’s new energy system and manufacturing cost advantages are crucial,” said Chen Guo, Deputy Director and Chief Strategist at Orient Securities Research Institute. “The current energy crisis and overseas stagflation risks put pressure on global markets, but China’s new energy sector is poised to become a ‘mid-term winner’.”