Single-day decline exceeds 100 points, Shanghai Composite Index breaks below 3800 during trading! Institutions debate future market trends

On March 23, the A-share market experienced a significant correction. During the trading session, the Shanghai Composite Index repeatedly fell below the 3,900 and 3,800 points levels, with the lowest dropping to 3,794.68 points. Although it rebounded slightly by the close, it ended at 3,813.28 points, still down more than 100 points for the day. The Shenzhen Component Index and the ChiNext Index declined by 3.76% and 3.49%, respectively.

Market-wide, over 5,100 stocks declined, and market sentiment hit a low point. Meanwhile, from a cyclical perspective, the weekly chart of A-shares has formed four consecutive negative candles, indicating a continued correction trend.

On the news front, there is a possibility of further escalation in the US-Iran conflict. According to CCTV News, on March 23, the Iranian Islamic Revolutionary Guard Corps issued a statement emphasizing that if Iran’s power grid is attacked, Iran will retaliate in kind, targeting Israeli power plants and those supplying electricity to US military bases in the Middle East.

U.S. President Donald Trump posted on social media on March 21 that if Iran does not fully open the Strait of Hormuz within 48 hours to allow all ships passage, the U.S. will target Iran’s power plants.

Market analysts generally believe that the core pressure on the current market stems from evolving expectations of geopolitical conflict. Li Haonan, an investment advisor at Yue Sheng Wealth Management, told 21st Century Business Herald that “geopolitical disturbances are one of the main reasons for the sluggish performance of A-shares. The ongoing escalation of the US-Iran conflict caused a sharp decline across Asia-Pacific stock markets on Monday, and precious metals markets were also affected. Global liquidity expectations fluctuated, leading to phased capital reallocation. Coupled with the domestic earnings disclosure window, there is a divergence between economic recovery expectations and corporate profitability forecasts, resulting in a generally cautious market sentiment. Additionally, high-frequency quantitative trading has increased intraday volatility, with more half-day rallies in the morning and sell-offs in the afternoon, further amplifying market fluctuations. These multiple factors have jointly contributed to the current weakness of A-shares.”

CICC’s latest research report also points out that as the situation evolves, market expectations for a quick resolution to the conflict have shifted from “rapid victory” to “long-term confrontation.” According to Polymarket betting odds, the probability of the conflict ending in March has plummeted from 78% on February 28 to just 4% on March 20.

CICC believes that as these expectations are pushed back, trading focus will shift from short-term emotional shocks to longer-term secondary effects, such as liquidity feedback on assets and the inflationary and supply chain pressures caused by high energy costs. Last week, fluctuations in gold, US Treasuries, US stocks, and A/H shares increased simultaneously, reflecting this market shift.

In fact, the deep correction in A-shares is not an isolated phenomenon. On March 23, major Asia-Pacific markets all closed sharply lower, triggering a regional sell-off of risk assets. South Korea’s Kospi plunged 6.49%, with SK Hynix falling over 7%; Japan’s Nikkei 225 declined by 3.48%.

However, some brokerage firms remain optimistic about the future trend of A-shares. Li Haonan believes that “the current correction in A-shares results from a resonance of technical, liquidity, and sentiment factors. The support around 3,800 points is relatively strong. The increased volume during Monday’s decline suggests that market risk sentiment may have been fully released, so there is no need to be overly pessimistic about the current situation. Going forward, attention should be paid to changes in trading volume, institutional fund flows, and policy implementation. After the market fully digests selling pressure, it is still expected to return to a volatile upward channel.”

CICC also states that since 2020, when facing certain public events capable of triggering a global equity asset resonance, A-shares have shown strong resilience, with negative impacts usually ending within a week. When responding to short-term shocks, it is advisable to “stay calm rather than act.” When shocks last longer and their scope is unclear, the preferred approach is “reducing positions and controlling risks.”

CICC notes that once the impact boundary of an event becomes clear or the influence diminishes, it signals a good time to re-enter the market. Moreover, the index is likely to recover to pre-shock levels, so even if there is an unexpected escalation, holding cash during such times can generate excess returns, allowing gradual position increases.

Chief Investment Advisor Zhang Cuixia of Jufeng believes that the current index is in the midst of a second major correction wave. A series of policy measures are actively promoting market ecosystem optimization from three dimensions: liquidity support, institutional reform, and investor protection, providing solid support for the A-shares to regain upward momentum. Coordinated efforts in fiscal and monetary policies, such as targeted long-term liquidity injections, the issuance of 1.3 trillion yuan in ultra-long special government bonds to supplement financial institutions’ capital, and new infrastructure projects, have contributed to a decline in corporate loan rates by 0.35 percentage points year-on-year. Regulatory authorities are cracking down on financial fraud and stock price manipulation, strengthening supervision of high-frequency quantitative trading, and reducing information and tool asymmetries between retail and institutional investors. All these measures are conducive to the A-share market, once the second wave of structural adjustment concludes, returning to a healthy upward third wave.

(Note: The content of this article is for reference only and does not constitute investment advice. Investors operate at their own risk.)