In half a day, transactions reached 1.14 trillion, with over 3,700 stocks rising! Funds are currently focusing on these three main themes.

Ask AI · What are the differentiated driving logics behind the three main lines of capital allocation?

Full-Text Highlights: Today, the A-shares showed strong strength in Shenzhen and weakness in Shanghai, with contracting trading volume and more than 3,700 stocks rising. The leading sectors are nonferrous metals, biopharmaceuticals, and basic chemicals, respectively corresponding to demand recovery + supply constraints, industrial transformation + earnings validation, and cost-driven + spring farming demand. In the short term, the market is mainly about consolidating and building momentum through a period of range trading. Over the medium to long term, the focus should be on structural opportunities driven by corporate earnings.

Today (March 27), the market’s movements were not dramatic for the indices, but there are plenty of structural highlights. By the midday close, the Shanghai Composite Index inched up 0.26%, while the Shenzhen Component Index and the ChiNext Index rose 0.93% and 0.83%, respectively, making the “strong Shenzhen, weak Shanghai” pattern clearly evident. In the first half of the day, the three markets of Shanghai, Shenzhen, and Beijing recorded turnover of 1.14 trillion yuan, down 86.3 billion yuan from the previous day. But with more than 3,700 stocks rising across the whole market, it indicates that the stock-level “money-making effect” is not weak.

From the sector perspective, nonferrous metals, biopharmaceuticals, and basic chemicals have become the three main lagging leaders in the market, with gains of 2.6%, 2.46%, and 2.01%, respectively. Meanwhile, sectors such as utilities, coal, and banks experienced pullbacks. This divergence is not simply a matter of “switching between high and low”; each sector has its own driving logic.

First, looking at nonferrous metals represented by lithium mines, the rally logic is the convergence of “demand recovery” and “supply constraints.” On the demand side, energy storage is becoming the “second growth curve” for lithium batteries. In January and February 2026, domestic output of energy-storage battery cells increased by 91% year over year; in March, total lithium battery production scheduling increased by 16.5% month over month; and the energy-storage share rose from 37.7% to 40.6%. The charge per vehicle (battery) also rose 22.5% year over year, and power battery production maintained a 38.4% year-over-year growth rate.

On the supply side, the global lithium mining expansion cycle lasts 3 to 4 years. Capital expenditures already showed a turning point downward in 2024, and policy disruptions in overseas resource countries further increase uncertainty around supply. Against a backdrop of continued demand growth and constrained supply releases, the lithium supply-demand balance is expected to shift toward a tight equilibrium.

Next, for biopharmaceuticals represented by innovative drugs, the rally logic is the dual drive of “industrial transformation” and “earnings validation.” Domestic innovative drugs are moving from following R&D to creating globally first-in-class breakthroughs. Overseas data has validated this transformation: as of March 21, the total annual-to-date BD deal packages for innovative drugs going overseas reached $57.1 billion, equivalent to 41% of 2025’s full-year figure and already surpassing the whole of 2024. Improvements in the international investment and financing environment have driven a modest recovery in global pharmaceutical R&D, and leading companies have delivered strong results. WuXi AppTec’s 2025 attributable net profit surged 102.65% year over year, and it also provided guidance for 2026 revenue growth of 18%-22%. The expansion of the Hong Kong Stock Connect has injected liquidity into the sector; among the latest batch of newly added constituent names, 13 biopharmaceutical-related companies were selected.

As for the basic chemicals sector, the rally logic is the overlap of “cost-driven” factors and “spring farming demand.” Tensions in the geopolitical situation have pushed up international crude oil prices. As the world’s second-largest methanol producer, Iran accounts for 10% of global capacity. In China, about 50% of imported methanol comes from Iran, and the risk of supply disruption raises price expectations—methanol prices in the southwestern market rose 38.9% from late February, hitting a new high in nearly three years. On the demand side, domestic spring plowing fertilizer preparation demand is concentrated and released, and the National Development and Reform Commission issued a special document requiring efforts to ensure stable supply and pricing for spring farming fertilizers. On the supply side, some chemical production capacities in Europe have accelerated exits due to cost pressures. Under the domestic “anti-overcompetition” policy direction, capital expenditure has been cut back, and multiple factors together are boosting prices of chemical products.

Once you understand these three different rally logics, you’ll see why you can’t simply generalize everything as a matter of “style rotation.” So what should we look at for the outlook?

In the short term, volatility consolidation is likely the main tone. Geopolitical developments are not yet fully clear, and external shocks may still impact market sentiment. The expansion in trading volume is not significant, reflecting a cautious mindset of capital near key levels. However, the downside space for the market to fall sharply further is relatively limited. The process of forming a base is unlikely to happen overnight; after the contraction in volume, it is highly likely that the index will repeatedly trade in a range to consolidate and build support. Until the situation becomes clearer, it may be better to slow down your trading pace—be cautious about chasing gains—and focus on sectors with earnings support.

For the medium- to long-term strategy, you need to pay attention to a shift in core drivers. The main theme of the market over the past two years has been valuation repair. And in 2026, corporate earnings will become the core variable determining the direction of the market. Currently, the main disturbances faced by the A-shares are mainly due to overseas sentiment spillover rather than problems in domestic fundamentals. The policy tone for stabilizing growth has never loosened, forming the market’s long-term “safety cushion.” The foundation supporting a positive long-term outlook for the A-shares has not changed. The evolution of market operating mechanisms and the structure of investors makes it, compared with the past, more likely to form a “steady-but-advancing” pattern.

In terms of allocation, you can focus on three main lines: (1) cyclical industries that benefit from supply constraints and the logic of price increases, such as chemicals and nonferrous metals. In these areas, there is both support from China’s “anti-overcompetition” policies and supply contraction benefits from the withdrawal of overseas capacity; (2) AI infrastructure and advanced manufacturing with independently supported sectoral prosperity and less affected by external factors, including directions such as computing power, data centers, and power supporting facilities—supported by both policy drivers and industry trends; (3) the new-energy sector that is entering a turning point in the cycle—energy storage demand is ramping up rapidly, lithium battery production scheduling is continuing to recover, and the fundamentals of the sector are gradually moving out of the bottom. Combined with the near end of capacity clearing, leading companies’ earnings recovery has relatively high certainty. In addition, the innovative drugs sector is also gradually showing improved cost-effectiveness under the dual drive of transformation in industrial logic and earnings validation.

The current market is still in a state of high volatility. At this stage, prudent judgments based on fundamentals and balanced portfolio allocation may be more important than chasing short-term hot spots.

Note: The market involves risk; investment should be cautious. This article is based on publicly available information and does not constitute any investment advice.

Author statement: Personal views are provided only for reference