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

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Reporter | Xiao Ruidong Editor | Zhao Yun

On March 24, the market saw a bottom-recovery throughout the day, with both the Shanghai Composite Index and the Shenzhen Component Index rising over 1%, and the ChiNext Index turning positive at the close, having previously dropped nearly 2.5%. By the end of trading, the Shanghai Composite Index rose 1.78%, the Shenzhen Component Index rose 1.43%, and the ChiNext Index rose 0.5%.

In terms of sectors, the power sector surged, the military industry strengthened, the fiber optic concept continued to rise in the afternoon, the space photovoltaic concept was repeatedly active, and the shipping sector oscillated upwards. On the downside, oil and gas stocks performed poorly.

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

It must be said that trading stocks is indeed a fascinating affair.

When the market continuously declines, most retail investors still in the market think “wait for a rebound”;

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

Especially since the appearance of this rebound also involves a “Rashomon” concerning the situation in the Middle East.

During the day, some people want to “increase positions to recover losses,” some want to “exit at highs,” some want to “keep the strong and eliminate the weak,” and some “lie flat and do nothing”…

Various ideas intertwined, ultimately forming today’s market situation.

Looking back, before the A-shares opened today, overnight U.S. stocks and the morning sessions of the Japanese and South Korean stock markets all saw a recovery, creating a warm atmosphere.

Although the biggest news stimulus was “Trump claims he is negotiating with Iran while Iran denies it,” the parties in the market that urgently need a recovery still chose to believe that “U.S.-Iran dialogue is making progress,” or that they traded “TACO.”

The so-called “TACO trade” means “Trump Always Chickens Out,” referring to investors betting that Trump will ultimately back down during times of severe market volatility or panic triggered by policy, thereby pushing up risk assets. However, some viewpoints believe that under the current backdrop of escalating war in Iran, soaring oil prices, and reignited inflation concerns, more and more market participants are beginning to doubt whether this logic can continue to hold.

In terms of single-day performance, the recovery today (Tuesday) can be described as a winding road but ended up quite well.

In terms of indices, when the opening auction ended, the three major indices all opened higher.

In the first 50 minutes after the opening, the first wave of funds took profits and exited, causing the three major indices to briefly turn negative. The ChiNext Index had a maximum decline of about 2.47%.

From about 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 nearing the positive territory, continuing to fluctuate underwater.

In the afternoon, the indices tested the bottom again, but the lows were higher than in the morning; after 2 PM, the upward trend gradually became clearer.

In terms of individual stocks, at the end of the morning auction, only 196 stocks in the entire market were down.

Although there was still a broad rise with over 4,000 stocks up during the day, the number of declining stocks grew.

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

According to Wind data, the average stock price of the entire A-share market today also showed a “high open, low walk, and then rebound” trend.

In terms of actual gains, this index fell 5% yesterday and rebounded by 3.05% today; although it did not recover fully, it still conveys a positive signal.

In terms of trading volume, today’s A-share trading volume decreased by 352 billion yuan compared to yesterday, indicating that buying pressure still has some reserves.

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

I believe the vast majority of investors have included the “intensification” or “easing” of the situation in the Middle East in their observations.

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

Reviewing the performance of major asset classes after the Russia-Ukraine conflict, this agency divides the fluctuations of major assets into four stages:

(1) Panic trading: Risk premiums rise, safe havens dominate, and defensive assets lead;

(2) Reversal trading: The intensity of the conflict decreases and negative factors have been exhausted, structurally showing “oversold rebounds” and “dominating on my own”;

(3) Stagnation expectation trading: If oil prices remain high, the market gradually shifts to trading stagnation expectations;

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

In terms of future allocations, it is suggested to further focus on “stabilizing the tail and grasping the rhythm”:

If the situation in the Middle East does not materially ease in the short term, the narrative based on energy security regarding inflation or even stagflation will continue to strengthen, and assets like energy, agricultural products, and equity dividends are still expected to outperform, while markets and growth assets in energy-importing countries may continue to face pressure.

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

In terms of sector performance, today’s recovery differs notably from previous “bottom-rebound” instances:

Previously, technology themes (AI hardware, storage chips, etc.) that actively led the rise have shown relatively passive movements today, mainly declining as the index fell.

The sectors that first saw unusual movements and maintained leading gains throughout the day were actually military, pharmaceutical, power, and shipping directions.

Among them, the power sector has been repeatedly active recently, and overall, it has 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, ensuring that the proportion of green electricity applications in newly built computing power facilities 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 confidence in the market that fossil energy prices are prone to rise and hard to fall, which is an important positive signal for China, having been dragged by the decline in primary energy prices over the past three years. They reaffirm their bullish stance on the power sector, including green electricity such as hydropower, nuclear, wind, and biomass.

Some viewpoints argue that in the short term, after the indices undergo continuous adjustments, the market is welcoming a recovery. However, it should be noted that trading volume has significantly shrunk compared to yesterday, reflecting strong wait-and-see sentiment. It is expected that after an initial broad rise, the market may again fall into differentiation, making it crucial to grasp the rotation rhythm among hot spots.

China International Capital Corporation stated that this may be a relative low point for A-shares in the medium term, and deep adjustments have created good layout opportunities. Although the short-term trend still has some uncertainty, after the adjustments, the risks in the A-share market have been further released, and valuations are at relatively reasonable levels. From a mid-term perspective, the macro environment in which the market is located has not fundamentally changed, and the logic supporting the “steady progress” of the A-share market remains valid, with risk releases and downward adjustments providing good allocation opportunities.

Cover image source: AIGC

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Editor: Liu Wanli SF014