A-shares fall below 4,000 points: institutions fiercely debate the main reasons for the correction, and the next strategy is here!

Ask AI · What do disagreements among institutions about the reasons for A-share adjustments reflect?

On March 20, with the A-shares hovering around the 4,000-point threshold, bulls and bears engaged in a fierce contest.

However, as trading weakened again into the close, the Shanghai Composite Index fell 1.24% to close at 3,957.05 points, hitting a new intra-year low.

In sharp contrast to the sluggishness of the SSE Composite Index, the ChiNext Index surged more than 3% at one point during the day, and ultimately closed up 1.3%. More than 4,700 stocks across the entire market declined, but a handful of sectors represented by photovoltaic and CPO (optical modules) fought back against the trend. A new breakthrough above the 1,000-yuan mark was made by Source Generate Technology, making it a newly listed A-share “1,000-yuan stock.”

This extreme structural divergence has become a snapshot of the market’s complex sentiment right now. Institutions are holding heated discussions about the nature of the adjustment, and a view put forward by a strategy analyst at a certain securities firm has sparked strong debate within the industry.

Looking back at the root causes of the recent market downturn, multiple institutions attribute it to the concentrated release of external risks.

CITIC Securities analysis suggests that the market’s core suppressing factors currently come from overseas. The escalation of the situation in the Middle East has triggered turmoil across global capital markets; concerns about “stagflation” driven by soaring oil prices have weighed on risk appetite. This has delayed rate-cut expectations from the Federal Reserve, increased volatility in U.S. Treasury yields, and imposed valuation pressure on global equity assets—especially high-valuation technology growth stocks.

XinYuan Fund stated that the decline on March 19 was essentially not a single technical pullback, but the result of global risk assets being in a state of reduced risk appetite, after external risks resonated collectively within a short period. Specifically, there are three major suppressing factors. First, the conflict between the U.S. and Iran has escalated further, shifting from spillover in military confrontation to attacks on energy infrastructure, significantly lifting the global crude oil risk premium. Second, signals with a hawkish tilt released by the Federal Reserve’s March policy meeting have pushed back expectations for global liquidity easing further; the market’s expectation for rate cuts within the year has been lowered to less than one time. Finally, the market has started worrying that the rise in oil prices will transmit again to global inflation, thereby suppressing risk appetite in equities—especially in high-valuation growth directions.

China Europe Fund also holds a similar view, saying that there is still considerable uncertainty regarding geopolitical risk in the Middle East, and that heightened uncertainty may keep global market volatility at elevated levels. If oil prices continue to remain at relatively high levels, global assets may further compress risk appetite under concerns about stagflation.

Unlike the external geopolitical risks that the market generally focuses on, another view has also been circulating regarding the market’s decline—this one from a securities firm analyst.

This view argues that the main reason for the market’s drop over the past two days is not war or an energy shock, because global markets have been broadly stable these days while A-shares are falling more. Its core reason is that insurers’ 2026 Second-Generation solvency regulation requirements have been comprehensively implemented, and March 31 is the first assessment date. In the recent period, bonds and stocks have declined together, which has created significant solvency pressure for small and mid-sized insurance companies. Their passive de-risking by reducing positions has also spilled over into pension and “fixed income+” products, forming “negative feedback loop” pressure.

However, some institutional figures have put forward the opposite view. Li Jin, Deputy General Manager of Shenzhen Zhuode Investment, said that he agrees that insurers selling stocks has some impact on the market’s decline, but he does not believe it is the main cause.

Li Jin’s analysis points out that since the evolution of the Middle East situation, global markets have been volatile. “The combined effect of people’s concerns about war and energy, along with uncertainty about annual report performance, has caused the market to fall. In such an unclear geopolitical environment, China’s stock market is also hard to remain unaffected.” In addition, the insurance industry has implemented the “second-generation solvency” rules since 2022; the latest transition period ended in 2025. For insurers to sell part of their stocks for some reasons should be structural adjustment rather than systematic de-risking. “For example, insurers prefer CSI Dividend, and there has still been about a 5% increase since the beginning of this year.”

In his view, some insurers’ selling actions do exist to maintain adequate solvency ratios, but more often they serve as the fuse triggering “fixed income+” product cycle selling. Including bank wealth management products, public funds, and broker asset management products, as well as dividend insurance, these “fixed income+” products generally drive scale growth by ranking on returns. Some institutions capture the rankings by boosting their preference for equity risk. When the market undergoes continuous pullbacks, the pressure for these products to passively reduce stock holdings rises significantly; and selling further drives related stocks lower, forming a negative feedback loop.

Li Jin believes that simply attributing the market downturn’s main cause to insurers’ de-risking via the “second-generation solvency” assessment overlooks the real impact of the external environment and market sentiment, and also does not fully align with the policy direction of regulators continuously guiding insurers’ allocation increases to equity assets.

A named fixed income+ fund manager also further corroborated this observation to a reporter from 21st Century Economic Herald. “I feel there is some connection. Funds with drawdown constraints—such as insurance, pension, wealth management—have recently become more cautious in their operations.” This fund manager told the reporter that these funds went through two rounds of accumulation, from June to August last year and from December to February this year, and their positions are currently at relatively high levels. During the recent market adjustment, some wealth management and pension products started adjusting their positions.

But he also added that such de-risking actions are more concentrated among small and mid-sized insurers, while the situation for leading institutions is relatively stable.

“Going forward, it may still play out a wave of small-scale adjustments.” Another institution also said that because the insurance industry is highly concentrated, top large companies hold most of the industry’s invested assets, and their business and investment behaviors are steady. “There are indeed some small and mid-sized companies that reduce positions due to solvency pressure, but that is part of normal industry operations, and it represents a low share within total funds—so it is also hard for it to have a major impact on the stock market.”

The institution also said that insurers’ equity holdings are more concentrated in large and mid-sized insurance companies. “The core reason is that leading companies have stronger solvency, and regulators have become very clear in continuously guiding long-term funds into the market. From our research, since the start of this year we have not seen clear reductions by large, mid, or small insurers; some institutions even have made small additions. Pension positions are indeed currently at a relatively high level, but based on recent research visits, there has not been any obvious reduction in equity holdings. Equity holdings have a significant impact on pension’s overall comprehensive returns. If positions are reduced and the market rebounds, then in a highly competitive pension environment, the pressure on asset/liability managers and investment managers will be enormous.”

The institution also reminded that this year, how to unload a relatively high level of pension positions at the right market timing is a question that should be considered by principals, trustees, and investment managers alike.

Meanwhile, in this round of A-share adjustment, the “anti-fall” undertone has already begun to show. Multiple institutions believe that although the market faces dual pressures at home and abroad, A-shares have also displayed some resilience during the adjustment. XinYuan Fund observed that in this round of geographic-impact-driven shocks, the adjustment magnitude of A-shares has been smaller than that of overseas markets and the repair has been faster.

Yao Pei, Chief Strategy Analyst at Huachuang Securities, clearly pointed out that with A-shares having pulled back to around the 4,000-point area, they may already be close to the bottom zone. “Especially under the basic-fundamental trend in which PPI is expected to accelerate the digestion of valuation within EPS, the impact of downward positioning adjustments is limited.”

Caitong Securities also believes that as overseas macro disturbances repeatedly hit the market and A-shares are about to enter the earnings season, the short-term confidence and long risk-taking momentum in the A-share market still need improvement. However, from a medium-term perspective, under the joint driving forces of the continuation of a “double-loose” stance in fiscal and monetary policies, residents’ savings assets continuing to enter the market, improved listed-company performance as the “anti-involution” trend progresses, and global AI technology continuing to break through, the foundation for this round of A-share performance remains solid. It is expected that this Middle East conflict will only affect A-share market short-term sentiment and the market’s pace of operation, and will not change the market direction. Confidence remains that the long-term trend toward improvement in the market will hold, and investors should not be overly worried.

The biggest feature of today’s trading is extreme divergence. In the 4,000-point tug-of-war, more than 4,700 stocks across the whole market declined, but a few sectors rose against the trend, and the market’s money-making effect is highly concentrated. On the board, energy-transition themes such as photovoltaic and power generation are active, and computational hardware sectors such as CPO also attracted capital attention. The market seems to be declaring—through extreme divergence—that the structural game centered on industry trends and certainty of earnings has become the main theme right now.

Yang Bo, Chief Investment Officer of Shenzhen Zhuode Investment, believes that current A-share valuations show structural differences. For example, the valuation of upstream and downstream segments in the AI industry chain is relatively high, compounded by recent momentum from geopolitical factors driving sectors such as energy, power, and optical communications. On the other hand, sectors like consumer themes have valuations still near the bottom. He believes that the current pullback is a relatively good opportunity for some industries to repair and enter, but structurally it requires careful selection rather than a broad-based “all-rising” style rebound like last year.

In the face of the current complex external and internal macro environment and a market structure defined by extreme divergence, major institutions have all put forward their response strategies for the second half.

Defensive characteristics have been widely emphasized. China Europe Fund believes that against a backdrop of rising volatility, and because domestic expectations for PPI rebound make switching between stock and bond allocations difficult to provide sufficient defensive protection, it is recommended to seek defensive protection within stock assets by focusing on a dividend style. In terms of specific directions, three areas can be considered: traditional low-volatility dividend (especially the banking sector), technology hardware with significantly improving marginal fundamentals (such as storage and optical communications), and cyclical sectors driven by hedging/defensive demand (such as oil and gas).

XinYuan Fund, meanwhile, proposed an offense-defense structure of “new and old energy + utilities,” using the relative certainty of energy value reappraisal and power equipment demand to offset external volatility, while also capturing a phased allocation window in the AI compute-power industrial chain’s “certainty segments,” thereby controlling the portfolio’s overall elasticity and drawdowns. Boshi Fund also suggests controlling position size and adopting a defensive strategy, laying out opportunities on dips around high dividend yields, real-asset reappraisal, and highly certain growth directions.

Manulife Fund also noted that recently the market has shown signs of seeking safety assets when oil prices are high. Coal, basic chemicals, and new energy sectors have benefited from an energy-security logic and were positioned relatively lower in advance, leading the market. By contrast, the oil refining and petrochemicals sector, which saw crowded trading earlier, has lagged as the Federal Reserve rate-cut expectation has been postponed and investors have taken profits. The TMT sector has also seen a pullback under the influence of these factors.

However, most institutions believe that external shocks from geopolitical conflicts are unlikely to change the medium-to-long-term trend of A-shares being led by fundamentals and policy. Li Qiusuo, Chief Domestic Strategy Analyst in the research department of China International Capital Corporation (CICC), pointed out that if the geopolitical landscape changes further accelerates the process of rebuilding the international monetary order, it could actually reinforce China-asset reappraisal logic.

In a recent note, Citic Securities also emphasized that the recovery of corporate profit margins is the key to the next phase of A-share bull market continuation, and that disruptions to the global supply chain provide an opportunity to validate and price China’s advantaged manufacturing industry.

As market volatility increases, positive policy signals are also being released.

On March 18, the Party Committee of the People’s Bank of China held an expanded meeting, emphasizing the importance of fully leveraging the central bank’s macroprudential management and financial stability maintenance functions. It reaffirmed the commitment to firmly maintain stable operation of financial markets such as the stock, bond, and foreign exchange markets, and studied establishing a liquidity support mechanism for non-bank financial institutions under specific scenarios.

Boshi Fund analysis said that this meeting from the central bank conveyed a clear “stabilize the market” signal. The statement of “firmly maintaining the stable operation of the stock, bond, and FX markets” helps stabilize market expectations; and studying a liquidity support mechanism implies that the central bank is improving its institutional “toolbox” for preventing systemic risks.

On March 19, the China Securities Regulatory Commission held a symposium on the “Fifteenth Five-Year Plan and the upcoming Fifteenth-Five-year” capital market plan with investment institutions. Representatives from national social security funds, insurance asset management, public funds, private funds, and bank wealth management engaged in in-depth exchanges. The discussion focused on deepening reforms on the investment side, improving the inclusiveness and adaptability of the system, and enhancing the inherent stability of the capital market.

Boshi Fund said that this symposium reflects the high priority the regulator attaches to “reforms on the investment side,” and that subsequent policies may focus on optimizing the investor structure and improving the mechanisms for long-term capital to stay and invest long. Strengthening expectations for long-term funds entering the market will help improve the structure of market investors and reduce market volatility.

At the crossroads around 4,000 points, discussions about the nature of the adjustment are still ongoing. But a relatively broad consensus is taking shape: external shocks from geopolitical conflicts are unlikely to change the medium-to-long-term trend of A-shares being driven by fundamentals and policy; in the short term, pullbacks provide more opportunities for structural positioning and rebalancing.