A-shares shrink in volume and rebound. When will they bottom out and stabilize?

With expectations of a easing Middle East situation, U.S. stocks rebounded overnight. On March 24, A-shares saw a broad-based upswing; 5,136 stocks closed higher and 100 hit the daily limit. However, the intraday rebound showed a slight sense of “hesitation,” with limited gains across major indexes and sectors, relying more on late-session pull-ups; trading volume shrank by 352.3 billion yuan versus the previous trading day to 2.1 trillion yuan.

Market analysts said that during the session, the ChiNext Index fell by nearly 2.5% before barely turning positive at the close, reflecting that sell pressure on growth styles has not been fully released; meanwhile, with volume clearly contracting, the rebound appears to be a technical repair after a series of pullbacks rather than a trend reversal driven by incremental capital. At present, the core variable dominating A-shares is the transmission of external geopolitical risk into liquidity and risk appetite; it is expected that in the short term the market will enter a phase of “index consolidation with structural divergence.” Investors are advised to control position size, withstand volatility, and look for certainty.

5,136 stocks closed higher

A-shares opened higher and fluctuated, with a late-session rally expanding gains, but the overall rebound failed to match yesterday’s drop. The Shenzhen market performed particularly weakly today. Today, the Shanghai Composite Index closed up 1.78% at 3,881.28 points, the ChiNext Index closed up 0.5% at 3,251.55 points, and the Shenzhen Component Index closed up 1.43%. The STAR 50 Index closed up 2.33%, the Nasdaq-style North? 50 Index closed up 1.94%, while both the Shanghai 50 and the CSI 300 rose by more than 1%.

Trading volume shrank noticeably: the combined daily trading value of the Shanghai, Shenzhen, and Beijing markets was down by 352.3 billion yuan versus the previous trading day to 2.1 trillion yuan. Meanwhile, hedging sentiment among leveraged funds also warmed up. As of March 23, the balance of margin financing for the three markets fell to 2.62 trillion yuan.

On the board, shale gas, oil & gas resources, natural gas, coal chemical industry, coal, and Ningzu combination stocks were slightly down. Medical services, CROs, micro-cap stocks, textiles, and iron ore rebounded more strongly.

After a run of pullbacks, the non-ferrous metals sector rebounded today, with the cumulative decline narrowing to about 9% over the last five trading days. Youyuan New Materials, Lidiao New Materials, Rongjie Co., Yunnan Germanium, Chengcheng Mining Industry, and Haixing Co. all hit the daily limit.

Among 31 Shenwan first-level industries, coal and petroleum & petrochemicals were slightly down, while the rest all closed higher. Ten sectors rose by more than 3%, including environmental protection, textile and apparel, building materials, non-ferrous metals, steel, and biopharmaceuticals, among others.

Fourteen utility-stock names hit the daily limit; Disen Shares hit the “20cm” limit. Energy-saving Wind Power, Guangdong Power A, Kaikai New Energy, Huayin Power, Zhejiang New Energy, Greenfa Power, and others also hit the daily limit.

Across the whole market, a total of 5,136 stocks closed higher, with 100 stocks hitting the limit; 329 stocks closed lower, with 8 stocks hitting the limit. Looking at the most actively traded stocks, today only six stocks had daily trading value exceeding 10 billion yuan (10亿元): Zijin Mining rose more than 5%, while Sungrow Power and CATL both closed lower. Among power stocks, Kaikai New Energy hit the daily limit. In medical services, Yaoming Kangde rose nearly 7%. In semiconductors, Demingli rose nearly 9%.

“Bottoming out and stabilizing” still needs to be verified

How should one understand today’s broad-based rebound in A-shares? Has the market stabilized?

Hu Qicong, Fund Manager at Hengsheng Qianhai Fund, analyzed that the Middle East geopolitical situation has sent signals of easing; overnight, U.S. stocks and other overseas markets rose across the board, helping repair market sentiment. But in the early stage of the rebound, buyers’ willingness to go long still appears cautious, and short-term index performance may still see ups and downs.

Liu Youhua, Director of Research at Paili.com Wealth, told reporters from the International Finance News that the market is still in a period of consolidation and stabilization in the short term. Against the backdrop of the central bank maintaining the LPR unchanged and policy pacing becoming marginally less aggressive, expectations for further liquidity easing have cooled; at the same time, the Fed’s relatively hawkish remarks combined with inflation disturbances mean external constraints have not yet eased noticeably, so the repair of risk appetite will still take time.

“From historical experience, after a sharp selloff, if the first round of rebounds lacks volume support, it usually goes through a tug-of-war with further ups and downs.” Wang Zheng, General Manager of Shangyi Fund, said that at present one can only judge that at the index level the short-term risk has been released to some extent, but “bottoming out and stabilizing” still needs time to be verified; next, focus should be on whether trading volume can effectively expand and whether external disturbance factors are easing.

Wang Zheng noted that today’s broad-based rebound in A-shares shows a typical repair-style rally, but the magnitude must be viewed dialectically: on one hand, the ChiNext Index rose only slightly by 0.5%. It once fell close to 2.5% intraday and then barely turned positive at the close, reflecting that sell pressure on growth has not been fully released. On the other hand, the two markets’ trading value shrank by about 350 billion yuan versus yesterday to 2.1 trillion yuan, with a decline of more than 14%. With volume clearly contracting, today’s rise is more a technical repair after consecutive adjustments rather than a trend reversal driven by incremental capital.

The Sun Suyu team from Sino-Union Macro said that after Trump announced a five-day pause on strikes against Iranian power infrastructure, the core demand is the reopening of the Strait of Hormuz and Iran giving up nuclear weapons; the bottom line is to “negotiate and if it doesn’t work within five days, continue.” The U.S. attitude shift is the most positive signal for Iran’s war situation to date. However, this move is largely intended to soothe market sentiment. At present, neither the U.S. Treasury nor Wall Street can tolerate “stagflation-without-recovery” and a resurgence of inflation. The 30-year U.S. Treasury yield of 5% may be an important observation point. Domestically, manufacturing resilience is strong and more immune to oil price volatility; moderate inflation is beneficial for profit recovery of listed companies, so investors can maintain a reasonable optimism.

Short-term hedging sentiment is hard to fade

What are the key variables currently affecting market confidence? Where will A-shares go in the short run?

Furong Fund said that geopolitical tensions in the Middle East continue to push up international crude oil prices, intensifying global concerns about inflation. Meanwhile, major developed economies are adopting increasingly hawkish stances on monetary policy, which leads to higher global risk-free rates and suppresses the pricing of high-valuation assets.

“The core variable currently driving A-shares is the transmission of external geopolitical risk into liquidity and risk appetite.” Wang Zheng said directly that tensions in the Strait of Hormuz have lifted the oil price’s central level, and concerns about “high oil prices, high inflation, and high interest rates coexisting for the long term” are rising. The Fed’s rate-cut expectations have been pushed back to September to October, the U.S. dollar has strengthened somewhat in stages, and the valuation anchor for global risk assets is facing re-pricing. This means the logic that supported A-shares over the past year—“a weaker dollar and more ample liquidity”—is encountering challenges, and the market is going through a painful transition from “rising valuation” to “earning performance.” Internally, fund behavior has also shown structural changes: ETF holdings in industries shrink, absolute return funds passively reduce positions, and fixed-income+ products face redemption pressure.

“In the short term, the market most likely will play out a path of ‘oversold rebound—range-bound consolidation.’ At the index level there may be fluctuations, entering a stage of ‘index consolidation and structural divergence.’” Wang Zheng believes the core strategy now should be “control position size, resist volatility, and look for certainty.”

Hu Qicong also admitted that in the short term, overseas technology industry trends and external risk factors will continue to dominate the market, including the Fed’s monetary policy direction, global liquidity changes, the Middle East situation, and international trade conditions. Hedging sentiment is unlikely to dissipate quickly. Although A-share markets are relatively independent, they are still hard to fully escape the influence of the external environment.

“Looking ahead in the short term, uncertainty in the Middle East conflict remains, and high-valuation assets will be hit more by tighter global liquidity. Considering that domestic policies release signals to stabilize the situation, there may be some game-playing in the market, but overall funds may still be in a wait-and-see state.” Fang Lei, Vice General Manager of Star Stone Investments, pointed out that from a medium-term perspective, after the recent pullbacks, the market at this level does not need to be overly pessimistic.

Recommendations: maintain a neutral-to-defensive posture

With external factors unstable, how should holdings be managed now? What directions should sector allocation take?

Liu Youhua expects that at the index level, it may continue to trade within a range; it will be hard for the market to form a trend-based upside move in the short term. Structurally, capital may continue to revolve around “defense and balanced allocation.” On one hand, high-dividend and low-valuation sectors still have allocation value in an uncertain environment; on the other hand, after mid- and small-cap and growth styles undergo adjustments, they need to wait for liquidity improvement or further confirmation of industrial catalyst signals. Overall, the market is still dominated by a stock-by-stock game of existing capital. But as risks gradually dissipate, medium-term structural opportunities are worth watching.

On position management, Wang Zheng recommends maintaining a neutral-to-defensive level. It is not advisable to chase and add risk during the rebound; investors can wait until the geopolitical situation becomes clearer and trading volume effectively expands before considering increasing risk exposure. For sector allocation, it is suggested to follow three threads: first, directions that benefit from the high oil price and energy security logic, including the power chain (thermal power, nuclear power, green power operators), coal chemical industry, and chemical products with pass-through pricing ability; second, high-dividend defensive assets with stable cash flow, such as banks, hydropower, and utilities—during phases of increased volatility they offer a haven premium; third, directions that are relatively desensitized to geopolitics and oil prices and have an upward bias in their own cyclical conditions—such as the energy storage chain and domestic AIDC compute power chain. After sufficient adjustment, these assets can be selectively deployed. For the technology growth main line, it is recommended to wait until market sentiment stabilizes before considering entry, and it is not suitable to blindly bottom-pick earlier popular themes.

Looking forward to the next six months, Furong Fund said investment opportunities in the A-share market are expected to revolve around two main lines: “certainty” and “cyclical growth.” Under the backdrop of uncertainty in the macro economy, defensive assets with stable cash flow and higher dividend returns—such as utilities and parts of the financial sector—may see their allocation value stand out. At the same time, changes in the global energy landscape also bring structural opportunities to some areas. Benefiting from the energy security strategy and cost advantages, coal chemical industry, new energy, and energy storage may enter windows for an improvement in cyclical conditions. In addition, as domestic industrial upgrading continues, high-end manufacturing areas centered on new-quality productive forces, such as aerospace and electrical equipment, under dual drivers from policy and industrial trends, still have solid long-term growth logic and are expected to become a focus of market attention after the adjustment ends.

The Sun Suyu team from Sino-Union Macro believes that the period when the market is under the heaviest pressure from selling may have already passed. Investors can actively focus on technology (compute power, large models, power grid equipment, semiconductor equipment, etc.) that was previously affected by risk appetite but still has relatively strong fundamentals; chemical and non-ferrous sectors (copper, aluminum, etc.) that have undergone large adjustments; and new energy (energy storage, wind power, lithium batteries, etc.) that is expected over the medium term to benefit from rising energy hub prices. Consumer demand overall remains in a weak recovery stage; share prices are generally at the bottom, and defensive characteristics are strong. Investors can actively focus on consumer leaders with better earnings.

Reporter: Zhu Denghua

Text editor: Chen Si