Oil Price Volatility Amplifies A-Share Sector Rotation, Related Thematic Funds "Rise and Fall"

Recently, the sharp fluctuations in international oil prices have become the core variable stirring the A-share market. Not only have they significantly accelerated sector rotation, but they have also created a “polarized” market situation between previously hot technology growth tracks and energy-related sectors, leading to rapid performance divergence among thematic funds.

Data shows that since March, energy-themed funds have achieved returns of over 34%, while some technology growth funds have experienced maximum drawdowns of over 14%, with performance gaps exceeding 49 percentage points. Behind this “scissors gap” is the rapid migration of capital between sectors, reflecting a deep shift in market pricing logic. Understanding the internal logic of sector rotation and managing potential risks and opportunities has become key to current investment decisions.

Massive Capital Migration

Data clearly outlines the migration trajectory of funds: energy-related sectors such as oil and gas, coal have surged, while technology growth sectors have come under pressure.

As of March 13 (the same below), since March, energy-themed funds have been the biggest winners: Southern Oil A returned 34.51%, followed by E Fund Oil A RMB and Harvest Oil, both with returns over 33%. In the coal sector, Guotai CSI Coal ETF returned 9.63%, with similar funds from Fuguo and Guolian exceeding 9%. In the power sector, funds like Guotai CSI Green Power ETF, E Fund CSI Green Power ETF, and Southern CSI Power Utilities ETF all gained over 8%. Agricultural-themed funds also performed well, with ETFs from E Fund, Tianhong, and Huaxia gaining over 5% since March, indicating strong capital inflows.

In contrast, technology growth sectors faced pressure. Five funds, including Qianhai Open Source High-End Equipment Manufacturing A and CCB Technology Intelligent Selection A, declined over 13%. Chip, AI, and TMT-related theme funds generally fell, forming a stark performance contrast.

This divergence is more intuitively reflected in capital flows. In energy ETFs, five products including Huaxia CSI Power Grid Equipment ETF have seen two consecutive weeks of net capital inflows since March, with total inflows exceeding 1 billion yuan each. In chemicals, Fuguo CSI Specialized Chemical Industry ETF and E Fund CSI Petrochemical Industry ETF saw net inflows of 1.959 billion yuan and 1.088 billion yuan, respectively. In agriculture, most related ETFs have experienced two weeks of continuous net inflows since March, with Fuguo CSI Agriculture ETF and Penghua CSI Grain Industry ETF leading with inflows of 1.227 billion yuan and 850 million yuan.

Meanwhile, some previously popular sectors are facing capital outflows. Since March, funds such as GF CSI Media ETF, Huaxia CSI Robotics ETF, Huaxia CSI Animation & Gaming ETF, and Huabao CSI Financial Technology ETF have each seen net outflows exceeding 1 billion yuan; six funds including Harvest CSI STAR Market Chips ETF and Huitianfu CSI Hong Kong Stock Connect Innovative Drugs ETF have outflows over 500 million yuan. This “cyclical inflow, growth outflow” pattern highlights investors’ risk-averse rebalancing amid oil price volatility and market divergent expectations for different sectors.

Sector Rotation Logic

Beneath sector rotation lies a clear macro pricing shift from focusing on profit growth to emphasizing “risk-free rates and risk premiums.” During stable oil prices, markets tend to trade on economic recovery expectations, with profit elasticity of tech growth stocks being the main driver of their prices. However, when oil prices rise rapidly, market logic quickly shifts to concerns about “stagflation.” Historically, rising oil prices often accompany rising inflation expectations, which in turn push up global risk-free rates, directly suppressing high-duration growth stock valuations.

Currently, A-share tech stocks remain highly sensitive to interest rates, with prices possibly overestimating optimistic expectations. Even after corrections, safety margins are still limited. If oil price fluctuations trigger persistent inflation expectations, rising interest rates could further depress growth stock valuations. Conversely, the valuation logic of cyclical sectors is quite different. Rising oil prices directly boost upstream companies’ current profits, and many have high free cash flow and dividend payout ratios, making them more resilient in an environment of rising rates.

Capital flow data confirms this risk-averse preference. Since March, funds have flowed into Yinhua Rili A, HFT CSI Short-term Bond ETF, and Huaxia CSI Free Cash Flow ETF, with net inflows of 6.215 billion, 4.55 billion, and 3.025 billion yuan, respectively.

It is also noteworthy that internal divergence within the tech sector has become apparent, further emphasizing the importance of “performance certainty” in the current environment. Data shows that segments with high performance realization and relatively low macroeconomic correlation have performed relatively resiliently. For example, since March, Dongcai CSI Communication Technology A has only slightly increased by 0.62%, but its holdings in Zhongji Xuchuang, Xin Yisheng, and Tianfu Communications are expected to see significant earnings growth by 2025.

This divergence indicates that capital has not completely abandoned tech growth but is engaging in a “filtering” process of “truth versus falsehood.” When macro conditions change, resource price increase logic outperforms vague industry landing logic. Even within tech, certain performance-verified growth is preferred over pure story-driven expectations. The core logic of this rotation is: under valuation pressure, only assets with strong and certain earnings can effectively adapt to market adjustments.

Beware of “Mean Reversion”

Although cyclical sectors have performed well recently, investors must remain alert to hidden risks behind the data, remembering that mean reversion is an unchanging law of financial markets.

First, the sustainability of cyclical trends heavily depends on the absolute level of oil prices. The recent rise is driven more by geopolitical sentiment and short-term supply-demand mismatches, with long-term trends still uncertain. Historically, pulse-like oil price surges caused by geopolitical conflicts have short windows of excess returns, often followed by corrections within weeks after sentiment subsides. If future geopolitical tensions ease, global economic recovery underperforms, or major oil producers release strategic reserves, oil prices could decline, posing “oil price decline + valuation correction” risks for related funds.

Second, style drift presents hidden risks. Recently, some tech-themed funds’ net asset values have shown increased correlation with energy indices, suggesting possible style drift by fund managers. While this may preserve NAV in the short term, a rapid style shift back to growth could lead to missed opportunities and doubts among investors. For individual investors, blindly chasing recent top-performing funds may result in buying at a high point, falling into a trap of chasing highs and selling lows.

In such a highly differentiated market environment, a rational strategy is to build a balanced portfolio with “three tactics”: resource-based hedges, chemical industry as a spear, and technology as the core, practicing diversification:

1. Maintain defensive positions by allocating some upstream resources benefiting from energy security logic to hedge against inflation and geopolitical risks.
2. Stick to growth core holdings, avoiding wholesale liquidation of tech growth stocks, but optimizing positions in segments with high performance certainty and reasonable valuations, waiting for market sentiment to recover.
3. Focus on sectors benefiting from price transmission, such as upstream chemicals and coal chemicals, which have cost transfer ability and earnings resilience, effectively connecting cyclical and growth opportunities.

This diversified approach allows investors to capture phase-specific gains in upstream sectors while not missing long-term opportunities in tech growth, enabling steady progress amid market mean reversion.

In summary, the performance divergence of thematic funds is essentially a natural response of capital seeking certainty amid uncertainty. For investors, understanding the rotation logic is more important than chasing short-term rankings. In a macro environment of frequent factor shifts, only by maintaining balanced allocations and avoiding extreme crowding can one navigate the cyclical waves steadily.

(Source: Securities Times)