Cutting losses or holding steady? An article guiding you through the current correction in the A-share market

Ask AI · Why the U.S.-Iran conflict has become a catalyst for A-share pullbacks?

Against the backdrop of the ongoing escalation of the U.S.-Iran conflict, global capital markets have been swinging violently. On March 27, the Shanghai Composite Index opened near the 3,850 level. In such a market environment, investors inevitably feel anxious: What is the nature of the current correction? How should investors respond next? This article draws on historical experience and market logic to lay out response ideas for investors at the current stage.

【Causes of the Correction: Resonance of Internal and External Factors】

External catalyst—conflict beyond expectations, inflation expectations heat up

After the U.S.-Iran conflict broke out, its duration has been significantly longer than what the market’s mainstream expectations had anticipated. Although developed countries have taken measures to keep oil prices stable, the effect has been limited. Large fluctuations in oil prices have directly pushed up global inflation expectations, leading to a reversal in expectations of monetary easing, rising bond yields, and valuation pressure on equity markets. Guangdong Kaiyuan Securities noted that the market worries that high oil prices could trigger inflation and monetary tightening globally, causing funds to quickly leave interest-rate-sensitive risk assets such as stocks.

Internal essence—profit-taking and the market itself needing to digest it

From the market’s own perspective, the Shanghai Composite Index has accumulated gains over 130 trading days since April 7, 2025 through late February 2026, setting a record for phased gains and building up significant pressure for a pullback. Guotai Junan Securities analyzed that recent corrections in both stocks and bonds have compressed floating profits of “fixed-income plus” and similar products, and expanded the face of floating losses in scenarios with relatively rigid liabilities and higher positioning among institutions since the beginning of the year, creating investment constraints. The core reason for this correction is mass profit-taking, i.e., investors giving back gains. External conflict is mainly a catalyst that accelerates the arrival of the correction.

One-sentence summary: The essence of the correction is that internal profit-taking needs to be digested; external geopolitical risk is the catalyst. The two resonate together, causing the market to accelerate its correction.

【Historical Experience: Three-Stage Evolution of Risk Pricing】

Guotai Junan Securities reviewed the 2022 Russia-Ukraine conflict and the Fed’s interest rate-hike cycle, and pointed out that risk pricing generally consists of three stages:

Stage one: expectation shock. From March to June 2022, the Russia-Ukraine conflict broke out; oil prices surged; the Fed initiated substantive rate hikes in the same month; and U.S. stock markets fell.

Stage two: reality shock. After June 2022, although the Russia-Ukraine conflict continued, its intensity no longer increased. Oil prices began to decline from high levels, and risk pricing largely ended. However, because of inflation stickiness and the Fed’s rate hikes, U.S. stock markets overall were in a rebound-and-consolidation phase.

Stage three: return to the growth logic. Starting January 2023, the U.S. AI industry made positive progress; rising capital expenditures and improved earnings drove stocks higher.

From this, two important insights can be drawn: first, risk pricing is not about seeing risk end, but rather about when the intensity is no longer rising—risk pricing ends; second, after risk pricing ends, the key is whether the market itself has growth capacity.

Guangdong Kaiyuan Securities said that A-share bull market experience shows bull markets have never been ended by geopolitics. Most endings are due to domestic factors such as policy shifts. The current market correction is more about concentrated pressure releasing than a reversal of the overall trend.

【Conflict outlook: Protracted fighting is a low-probability event】

Dongxing Securities analyzed that, on the U.S. side, its core demands are to curb Iran’s nuclear capabilities, ensure safe passage through the Strait of Hormuz, and at the same time avoid getting stuck in a long-term war quagmire. The Trump administration has long emphasized shifting responsibility in the Middle East. Current fiscal pressure and military-industrial capacity also cannot support a full-scale war. On the Iranian side, its core demands are to lift international sanctions, safeguard national sovereignty, and maintain nuclear development rights. Iran has long faced sanctions and military pressure, which has significantly affected economic development, and it also has needs to ease the conflict.

Guangdong Kaiyuan Securities noted that the U.S. faces three major constraints: economic, political, and diplomatic. The lack of strategic will means it has neither the intention nor the capability to start a bottomless long-term war in the Middle East. As for Iran, if a war lasts too long, it would be “the opposite of what it wants,” damaging relations with oil-consuming countries, while Iran also risks diplomatic isolation. At the same time, Iran’s own economic situation does not support a long-term conflict.

Therefore, a prolonged and drawn-out war is a low-probability event. In the short term, intensifying conflict and upgrading threats are intended to facilitate achieving objectives, and instead create opportunities for both sides to sit down at the negotiating table. Recently, Trump has repeatedly said he is “very willing to reach an agreement with Iran,” which, to a certain extent, also signals the U.S. intends to avoid further escalation of the conflict.

【The underlying logic supporting A-shares remains solid】

Although geopolitical conflict may be difficult to fade quickly in the short term, and global equity markets are expected to maintain high volatility, the logic supporting A-shares is still solid:

Policy guidance: During the two sessions, the CSRC signaled that improving market resilience and stability would be the top priority. China’s “socialism with Chinese characteristics” mechanisms to stabilize the market may help break potential negative feedback pressure on funds. The People’s Bank of China emphasized a supportive monetary stance, meaning greater certainty in easing.

Valuation safety cushion: Overall A-share valuations are at historical lows, leaving relatively limited room for further large downside. Guangdong Kaiyuan Securities pointed out that as of the close on March 23, the RSI of Shanghai Gold and Shanghai Copper relative strength indices were both below 30, placing them in oversold territory; the market has already priced in a significant portion of pessimistic expectations.

Fund structure: Long-term funds represented by insurance and social security continue to flow in. China’s diversified energy reserves and varied growth paths are scarce even from a global perspective.

【Response strategy: Take volatility rationally, and lay out mid-term directions】

When global resonance leads to declines, panic does not solve the problem. The key is to build a response system that is not swayed by emotions.

First, steady mindset: don’t try to guess the bottom, don’t harden it out

No one can predict the trajectory of geopolitics, oil-price turning points, or market bottoms in advance. Rather than obsessing over “when we will see the bottom,” it’s better to manage positioning. Guotai Junan Securities believes that the impact of micro-level trading shocks is not expected to last long; it would be inappropriate to blindly sell off at the current level. China’s stock market may see an important bottom and a “hitting zone” emerge.

Second, do allocation: use balance to counter extremes

A single asset is unlikely to withstand a complex environment. In the short term, it may be appropriate to reduce positions in high-volatility categories. In a volatile market, assets with dividend-like cash flows often hold up better; you may also consider dividend-state-owned enterprise ETFs (510720) and cash-flow ETFs (159399).

Third, extend the time horizon: let time digest the volatility

Looking back at history, whether it’s the 2018 trade frictions, the 2020 pandemic, or the 2022 conflict, after each wave of panic, the market ultimately returns to the direction it should go. Truly competitive companies and industries with prospects will not change their long-term trajectory due to short-term events.

【Where are the directions for a medium-term layout?】

Looking at the medium to long term, to the extent the conflict eases, it is beneficial for market risk appetite to recover. Earlier corrections were relatively pronounced in growth stocks; those may be able to stop the decline and rebound. The market may form a new market-bottom consolidation center around 3,900. Market focus is likely to return to fundamentals and business conditions; growth stocks that were mispriced out in the short term may be able to generate excess returns.

Stable domestic demand and China’s science and technology manufacturing are key to breaking the narrative risk of stagflation. China has globally competitive capital-equipment and equipment companies with cost advantages, which benefit from energy shocks and industrial transition; there is broad AI potential. In 2026, China is expected to increase technology investment, which could help accelerate growth along domestic supply chains. Domestic controllability and related areas tied to technology self-reliance—domestic computing power, artificial intelligence, new energy, energy storage—may also be worth watching.

Related instruments:

Communication ETF (515880): In the optical module segment, the market size has been growing at a rapid pace. Strong earnings support in the recent period show it has strong downside resilience, demonstrating the market’s strong recognition.

Semiconductor equipment ETF (159516): In AI, compute, storage, and transport are inseparable. The high boom in transport also sends positive signals for compute and storage. It also benefits from advanced process capacity expansion and storage expansion, which are worth paying attention to. In addition, there will be future catalysts from “two-storage” listings and order placements, highlighting a strong value-for-money profile.

Entrepreneurial Board New Energy ETF Guotai (159387): Focuses on the optical-storage segment. Benefiting from global demand growth, AI data center supporting demand, and the landing of space-based photovoltaic orders, there is ample room for capital to return due to the resonance among earnings and policy.

Geopolitical conflict will pass, oil prices will return to balance, and inflation expectations will find a new equilibrium. China’s industrial strengths—an intact supply chain, a leading position in new energy, and continuous technology investment—will not disappear because of a single conflict. When looking at the longer time horizon, these are what ultimately determine asset prices’ underlying logic.

Rather than letting short-term volatility lead you around, ask yourself: Is this price worth holding?

Special reminder: Investing is a long-distance race, not a sprint. Don’t chase highs blindly; let rationality replace emotions; and keep a sense of敬畏之心 so that time becomes your friend rather than a source of anxiety. Investing involves risk; enter the market cautiously.

Risk warning: The mention of individual stocks is only for industry event analysis and does not constitute any recommendation or investment advice for any specific stock. Short-term changes in indices are for reference only and do not represent future performance, nor do they constitute any promise or guarantee regarding fund performance. Views may be adjusted as market conditions change and do not constitute investment advice or commitments. The risk/return characteristics of funds mentioned differ; investors are requested to read the fund legal documents carefully, fully understand product features, risk grades, and the principles of profit distribution, choose products that match their own risk tolerance, and invest prudently. For fund fee rates, please refer to the legal documents.

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