External disturbances trigger a decline in trading volume in the A-shares market; lithium, coal, and other sectors defy the trend and strengthen.

External disturbance factors continue to ferment, leading to a new adjustment in the Asia-Pacific market, including the A-shares. Wind data shows that as of the close on March 26, all three major A-share indices fell over 1%, with the Shanghai Composite Index losing the 3900-point mark, and the market’s daily trading volume hitting a new low for the year; the Nikkei 225 Index and the Korea Composite Index also collectively declined. From an industry sector perspective, most A-share sectors fell, while lithium batteries, coal, and other sectors performed strongly against the trend.

Regarding the future trend of A-shares, industry insiders believe that external shocks may still trigger periodic disturbances. Once the market gradually stabilizes and liquidity pressure marginally eases, structural opportunities will gradually emerge, with attention warranted on sectors such as petrochemicals, coal, power equipment, new energy vehicles, and energy storage.

Asia-Pacific Stock Market Adjusts Collectively

On March 26, all three major A-share indices adjusted collectively, with the Shanghai Composite Index losing the 3900-point mark. By the close, the Shanghai Composite Index fell 1.09% to 3889.08 points; the Shenzhen Component Index dropped 1.41% to 13606.44 points; the ChiNext Index decreased 1.34% to 3272.49 points. Nearly 4500 individual stocks in the entire market declined.

In terms of trading volume, on March 26, the total trading volume of A-shares reached 1.96 trillion yuan, a decrease of over 200 billion yuan from the previous trading day’s 2.19 trillion yuan, marking a new low for daily trading volume this year. It is also the second trading day since February 13 with a trading volume below 2 trillion yuan, indicating that after experiencing recent high-level fluctuations, investor sentiment has turned more cautious.

In terms of capital flow, among the 31 first-level industries under Shenwan, most industries faced major capital sell-offs. As of the close on March 26, the electronic industry saw a net outflow of 7.104 billion yuan, the largest net outflow, while the net outflows in the computer, non-banking financial, defense and military industry, construction decoration, and communication sectors all exceeded 2 billion yuan; the construction materials and non-ferrous metals sectors saw major capital inflows against the trend, with net inflows of over 2.2 billion yuan each, and basic chemicals, banking, pharmaceuticals, and transportation sectors also received net inflows.

From the performance of industry sectors, among the 31 first-level industries under Shenwan, 28 sectors declined, with the computer and communication sectors, which saw significant rebounds the previous day, leading the declines with daily drops of over 2%. These sectors also happened to be among those with the largest net outflows of major capital.

Not only A-shares, but also under the ongoing geopolitical conflicts in the Middle East, the major stock indices in the Asia-Pacific market saw adjustments on March 26. By the close, the Korea Composite Index fell 3.22%, and the Nikkei 225 Index dropped 0.27%; the three major Hong Kong stock indices collectively fell, with the Hang Seng Index, Hang Seng Technology Index, and Hang Seng China Enterprises Index decreasing by 1.89%, 3.28%, and 2.25% respectively.

“The recent market adjustments are essentially a liquidity negative spiral triggered by external shocks. From the perspective of capital supply and demand, it is not solely caused by a single capital outflow but rather a result of the accumulation of internal and external pressures and the resonance of capital sentiment,” said Zhang Xia, chief strategy analyst at China Merchants Securities. Looking ahead, external shocks may still lead to periodic fluctuations, and the confirmation of the market’s bottom range will require time to create space. Once the market gradually stabilizes and liquidity pressure marginally eases, structural opportunities will gradually emerge.

Two Active Sectors

In the broadly declining market on March 26, two sectors in A-shares remained active, achieving gains against the trend.

First is the new energy sector represented by lithium batteries. Wind data shows that as of the close on March 26, lithium battery electrolytes ranked first among all concept sectors with an increase of nearly 5%, and related concepts such as lithium battery anodes, lithium mines, power batteries, and sodium-ion batteries also saw strong gains. Individual stocks such as Haike New Energy surged over 16%, Shida Shenghua hit the daily limit, and Huasheng Lithium Battery and Tianji Co. each rose over 7% in a single day.

Second is the resource sector represented by coal and oil. As of the close on March 26, coal and petroleum and petrochemicals rose by 0.59% and 0.47%, respectively, making them among the few rising industries out of the 31 first-level industries under Shenwan. In terms of individual stocks, Blue Flame Holdings and Bohai Chemical both hit the daily limit, while Liaoning Energy, Baotailong, Qixiang Tengda, and Yunmei Energy had notable gains.

The geopolitical conflicts in the Middle East have led to a surge in international oil prices, which, while driving up related sectors such as oil, has also boosted market attention towards the new energy industry chain. Taking this crisis as an opportunity, strengthening energy security further with new energy as a focus has become a direction of interest for many institutions.

Lin Jie, an analyst in the electrical and new energy sector at CITIC Securities, believes that in the short term, against the backdrop of sharply rising oil and gas prices, the new energy sector is expected to benefit from its flexible allocation properties and improved economic advantages, leading to accelerated demand growth. In the medium to long term, there are shortcomings in oil and gas resources in China, Europe, and the Asia-Pacific region, and the development of clean energy will transform from a optional path of low-carbon transition into a necessary strategy for ensuring energy security. Therefore, under the trend of increasing demand for new energy and the catalytic resonance of geopolitical conflicts, the industry is expected to welcome a Davis double hit.

Liu Jun, chief analyst of the electrical equipment and new energy sector at Huatai Securities Research Institute, stated that high oil prices, while causing shocks to energy prices, have also made energy security a top priority for countries: “Energy security mainly relies on localization and diversification, while the increase in local electrification levels brought about by energy transition and the decrease in import dependence highlight the importance of energy security. New energy will once again become a choice for the development of various countries, with the demand ceiling expected to be lifted, and this sector will also become a core beneficiary area, welcoming an increase in profits and valuations.”

Positive on Opportunities in New Energy and Other Directions

Reviewing the historical impact of high oil prices on the economy, Fang Yi, chief strategist at Guotai Junan Hai Tong, believes that the current high oil prices will indeed affect normal production in the industry and constitute a cost shock in the short term, but the overall impact on the economy in the medium term is relatively limited. Considering that the domestic economic cycle is in a recovery phase rather than overheating, the rise in oil prices is expected to accelerate the rise of PPI back to positive territory.

From a fundamental perspective, the Shenwan Hongyuan strategy team believes that the probability of a cyclical improvement in A-shares’ fundamentals in 2026 is relatively high, with expectations for effective recovery of A-shares’ profitability throughout the year and a trend of cumulative profits rising year-on-year in each quarter remaining unchanged, indicating that the mid-term upward trend in A-shares has a fundamental basis. Entering the second half of the year, with several conditions in place, including gradual digestion of valuation pressure, the A-share market may see an upward trend.

Regarding future industry allocation, Fang Yi suggests focusing on three main lines: first, the rising oil prices drive the expansion of the price difference in the energy chain, favoring petrochemicals, coal, coal chemical, and agricultural chemicals; second, driven by global energy transition and the demand for production safety, favoring electrical equipment, new energy vehicles, and engineering machinery; third, driven by expectations of price increases, favoring construction materials, steel, chemicals, and other sectors.

For investment opportunities in the new energy sector, Lin Jie suggests paying attention to sub-fields such as energy storage, photovoltaics, wind power, and green fuels: the urgent demand due to new energy consumption pressure, overseas power shortages, and AIDC storage combined with the acceleration of profit model improvement are expected to sustain high growth in energy storage installation demand; the photovoltaic industry, benefiting from stabilized prices and ongoing technological upgrades, is expected to welcome high-quality development; for wind turbine segments, rising prices and other factors are expected to drive improvements in industry profitability and valuations; benefiting from sharply rising oil prices and other factors, the green fuel industry is entering a fast track of development and is expected to become an important option for ensuring energy security in the future.