The A-shares finally rebounded. How strong is the rebound? Can it continue tomorrow?

How does the “Rashomon” of the Middle East situation affect the stability of the A-share rebound?

On March 24, the market rebounded throughout the day, with the Shanghai Composite Index and Shenzhen Component Index both rising over 1%, and the ChiNext Index turning positive at the end, having previously dropped nearly 2.5%. By the close, the Shanghai Composite Index was up 1.78%, the Shenzhen Component Index was up 1.43%, and the ChiNext Index was up 0.5%.

Looking at the sectors, the power sector surged, the military industry sector strengthened, the fiber optic concept continued to rise in the afternoon, the space photovoltaic concept was repeatedly active, and the shipping sector oscillated upward. On the downside, oil and gas stocks performed weakly.

Over 5,100 stocks in the market rose, with 100 stocks hitting the daily limit. The total trading volume in the Shanghai and Shenzhen stock exchanges was 2.08 trillion yuan, a decrease of 348.7 billion from the previous trading day.

I must say, investing in stocks is truly a fascinating endeavor.

When the market continues to decline, most investors staying in the market think, “I’ll wait for a rebound”;

When the rebound finally occurs, the considerations become complex again.

Especially since this rebound involves a “Rashomon” concerning the Middle East situation.

During the trading session, some people want to “increase their positions to recover losses,” some want to “sell at a high,” some want to “stay strong and eliminate the weak,” and some just want to “lie flat and do nothing”…

Various thoughts intertwine, ultimately shaping today’s market.

A-shares have finally rebounded; how substantive is it?

Looking back, before today’s A-share market opened, overnight U.S. stocks and the morning sessions of Japanese and Korean markets all welcomed a recovery, thus creating a relatively warm atmosphere.

Although the biggest news stimulus was “Trump claims he is consulting with Iran, while Iran denies it,” parties in the market that urgently needed repair still chose to believe in “the progress of U.S.-Iran dialogue,” or in other words, traded on “TACO.”

The so-called “TACO trade” refers to “Trump Always Chickens Out,” meaning that investors bet on Trump ultimately backing down during market turbulence or panic caused by policy shifts, thus pushing risk assets to rebound. However, some viewpoints suggest that given the current backdrop of escalating war in Iran, soaring oil prices, and rekindled inflation worries, more market participants are beginning to doubt whether this logic will continue to hold.

In terms of single-day performance, today’s recovery can be described as a bumpy ride, but the outcome was decent.

In terms of indices, by the end of the opening auction, the three major indices opened higher collectively.

In the first 50 minutes after the opening, the first wave of funds cashed out, and the three major indices briefly turned negative. The ChiNext Index saw a maximum decline of about 2.47%.

From around 10:20 until the morning close, the indices rebounded again, with the Shanghai Composite Index maintaining positive territory for most of the time; the ChiNext Index fell back after approaching positive territory, continuing to oscillate underwater.

In the afternoon, the indices tested the lows again, but the lows were higher than those in the morning; after 2 PM, the upward momentum gradually became evident.

Looking at individual stocks, when the morning auction ended, only 196 stocks in the entire market were down.

Although there were still over 4,000 stocks rising during the session, the number of declining stocks increased.

Fortunately, by the close, the number of rising stocks returned to over 5,100.

According to Wind data, the average stock price in the entire A-share market today also showed a “high opening, low going back, and then rising” fluctuation trend.

In terms of actual gains, this indicator fell by 5% yesterday, rebounding by 3.05% today, signaling positive sentiment even though it did not fully cover the previous drop.

In terms of trading volume, today’s trading volume in A-shares decreased by 352 billion yuan compared to yesterday, indicating that the buying power is still somewhat reserved.

Therefore, the next question is: can the recovery continue in the coming trading days?

I believe that the vast majority of investors have already incorporated the “intensification” or “easing” of the Middle East situation into their observations.

Guotai Junan’s research report states that oil supply impacts various global macro variables, “pulling one hair affects the whole body,” and oil prices have become a core observation point for the current trend of global asset prices.

Reviewing the performance of major assets after the Russia-Ukraine conflict, this institution categorizes the changes in major asset performance into four stages:

1) Panic Trading: Risk premiums rise, safe-haven assets dominate, defensive assets outperform;

2) Reversal Trading: As the intensity of the conflict decreases and negative news is exhausted, a structural “oversold rebound” and “self-centric” pattern emerges;

3) Stagflation Expectation Trading: If oil prices remain high, the market gradually shifts to trading on stagflation expectations;

4) Reality Trading: After the long-term trend of oil prices and policy responses become clear, the market returns to reality, trading based on fundamentals and policies.

For subsequent allocation, they recommend further focusing on “stabilizing the tail and grasping the rhythm”:

If the Middle East situation does not see substantial easing in the short term, the narrative based on energy security and even stagflation will continue to strengthen. Assets such as energy, agricultural products, and equity dividends are still expected to outperform, while markets in energy-importing countries and growth-oriented assets may continue to face pressure.

In the medium to long term, the war premium will eventually decline, and the underlying logic of multiple cycle resonance emphasized in (its annual strategy) remains unchanged. After a correction, gold and strong industrial trend equities will present buying opportunities again, allowing for calibration of the “technology + cycle” allocation paradigm.

Will a “new main line” emerge?

In terms of sector performance, today’s recovery trend has a notable difference compared to previous “bottom rebounds”:

The technology themes (AI hardware, storage chips, etc.) that previously led the rally are relatively passive today, mainly declining when the indices fell.

The sectors that showed early movement and maintained leading gains throughout the day were actually military, pharmaceuticals, power, and shipping.

Among them, the power sector has been repeatedly active recently, generally showing higher enthusiasm.

In terms of news, on March 23, the National Bureau of Statistics stated that it will work with relevant departments to vigorously promote the collaborative project of computing power and electricity, ensuring that the application proportion of newly built computing power facilities using green electricity at hub nodes reaches over 80%, maximizing the supporting role of green electricity.

Huatai Securities pointed out that the blockade of the Strait of Hormuz has gradually established market confidence in the volatility of fossil energy prices, which is an important positive signal for China’s non-fossil energy, which has been dragged down by the decline in primary energy prices over the past three years. They reiterated a bullish outlook on the power sector, including green electricity such as hydropower, nuclear energy, wind energy, and biomass.

Some viewpoints suggest that in the short term, after the indices have experienced continuous adjustments, the market is welcoming a recovery. However, it should be noted that the trading volume has significantly shrunk compared to yesterday, reflecting that the wait-and-see sentiment remains strong. It is expected that after an initial broad-based rally, the market may once again fall into differentiation, making it crucial to grasp the rotation rhythm of hot sectors.

CITIC Securities stated that the current moment may represent a relative low point for A-shares, with the deep adjustment bringing good layout opportunities. Although there is still some uncertainty in the short-term trend, after the adjustments, the risk in the A-share market has been further released, and valuations are at a relatively reasonable level. From a medium-term perspective, the macro environment that the market is in has not fundamentally changed, and the logic supporting the “steady progress” of the A-share market remains valid, with risk release and downward adjustments providing good allocation opportunities.

Investing carries risks; independent judgment is very important.

This article is for reference only and does not constitute a basis for buying or selling; market risks are borne by the investor.

Cover image source: Screenshot of market software

Reporter: Xiao Ruidong Editor: Zhao Yun