A-shares show a decline with reduced volume rebound, how should we adjust the portfolio?

On April 7, China’s A-share market opened higher after the holiday, with the indexes up slightly. However, daily trading value shrank to 1.62 trillion yuan. A total of 3,977 individual stocks closed higher. The chemical sector sparked a surge into the daily limit-up spree.

Interviewees told reporters that the A-share market’s rise on lower volume is not a typical strong reversal signal. Its core logic is the combined effect of the exhaustion of sell pressure and structural capital-based risk avoidance. In the short term, the market needs an expansion in trading volume to move higher, and it also needs a push from core industries. Sectors such as technology and non-ferrous metals show an offensive posture. If defensive sectors stand out instead, there is still downside risk.

Nearly 4,000 individual stocks rise

The first trading day after the Qingming small holiday saw mixed market performance. The good news is that the stock index closed green; the bad news is that trading volume shrank. A-share indexes overall stabilized in a range and closed higher. During the session, they briefly dipped into red but ultimately edged up slightly at the close. The Shanghai Composite Index rose 0.26% to 3,890.16 points; the ChiNext Index rose 0.36% to 3,160.82 points; and the Shenzhen Component Index also rose 0.36%. The CSI 300 and SSE 50 closed flat. The STAR Market 50 rose 1.42%, while the Beijing Stock Exchange 50 fell 0.34%.

As for trading activity, the whole market’s daily trading value did not increase but instead declined. It fell by 45.32 billion yuan to 1.62 trillion yuan. Leverage-funded capital heat also continued to cool. As of April 3, the margin balance on the Shanghai, Shenzhen, and Beijing markets fell to 2.58 trillion yuan.

On the trading board, sectors such as banks, precious metals, beverages, aerospace, optical-electronic devices, and robots (300024), as well as dividend/undervalued stocks generally adjusted. By contrast, fertilizer/pesticide, chemical raw materials, and the Chiplet (advanced packaging) concept sectors led strongly.

Among 31 Shenwan primary industries, banks, food and beverage, automobiles, non-bank financials, and household appliances all closed lower, but the overall declines did not exceed 1%.

The remaining sectors closed higher, with only 10 sectors showing gains above 1%. Among them, basic chemicals, oil and petrochemicals, and coal all ranked among the top gainers.

The basic chemicals sector was especially impressive. A total of 33 stocks hit the daily limit. Lingwei Technology, Jiangtian Chemical, and Dongyue Silicones all secured “20cm” daily limit-ups. Xinghua Co., Ltd. (002109), Chitianhua, Yabang Co., Ltd., Youfu Co., Ltd., Liuzha Chemical, Longxing Technology, Xinan Co., Ltd. (600596), Sanfangxiang (600370), Shenma Co., Ltd. (600810), Zanyu Technology (002637), Xinjiang Tiansye (600075), Weiyuan Co., Ltd., and others all hit the daily limit.

Overall, more stocks rose than fell. A total of 3,977 stocks closed higher, with 101 stocks hitting the daily limit. Meanwhile, 1,426 stocks closed lower, with 18 stocks hitting the daily limit. Cangwu Ji’s daily trading value was 15.5 billion yuan. It rose 9.1% and closed at 1119 yuan per share. Meanwhile, Jichuang Xuanchuang (300308) and Xin Yisheng (300502) also closed higher. Tianfu Communication (300394) adjusted significantly, with a decline of nearly 5%.

Be cautious about rising on lower volume

“Today’s A-share market rose on lower volume and closed higher. This is not a typical strong reversal signal. Its core logic is the result of the joint effects of sell-pressure exhaustion at a certain stage and capital’s structural risk avoidance.” Zhang Pengyuan, a researcher at Paimaiwang Wealth, told the International Finance News reporter. On one hand, the shrinking trading value to a recent “very low” level shows that panic selling pressure has largely dried up, the strength of short sellers has weakened, and the market has entered a short-term balance between bulls and bears. On the other hand, capital is not launching an all-out attack; instead, it is concentrated into basic chemicals, oil, and coal sectors, reflecting a fairly clear risk-avoidance characteristic.

Honghan Investment’s Chief Investment Officer, Hu Zhenyi, told reporters that the decline in A-share trading activity indicates that both sell pressure and entering funds are insufficient, and sector rotation is clearly evident. In the short term, further upside depends on an expansion in trading volume. At the same time, it needs support from core industries: technology and non-ferrous metals have offensive attributes. If defensive sectors continue to dominate, the market still faces downside risk. The extent of short-term market adjustment has already been relatively sufficient. Most industries have adjusted by more than 20%. The 3,800-point level is a key support point with value. The market still has room for a rebound. The 4,000-point level can be treated as a line separating strength from weakness. Commodities and semiconductors that performed prominently in the quarterly report have rebound resilience.

Chen Xingwen, Chief Strategy Officer at Heiqi Capital, said directly to reporters, “The pattern of an index that moves sluggishly while individual stocks remain lively is exactly what shows the market is undergoing a silent exchange of chips.” From the perspective of trading volume, a decline in volume itself is not a monster, but three hidden concerns need attention. First is the liquidity trap: when trading value continues to stay below the 1.5 trillion yuan threshold and northbound funds fail to return, the existing stock/position-based game is very likely to turn into a situation where “some kill the most” (many shorts selling into strength). Second is the signal of sentiment fatigue: ahead of the Qingming holiday, risk-avoidance demand overlapped with a confusing holiday news cycle, and investors’ increasingly wait-and-see sentiment is exposed fully through the change in trading volume. Third is the approaching window for a breakout: around the key date of April 8, external geopolitical developments and internal policy expectations may resonate. If volume still cannot effectively expand at that time, support at 3,850 points will face a test.

Focus on three major risks

Based on an integrated analysis of current market influencing factors and the relationship between volume and price, Zhang Pengyuan reminded investors that going forward, three major risks should be重点关注. First, a rebound with no volume is easy to turn into a “pump-and-dump” style rally, with a risk of a selloff after a sharp spike. Second, in a position-based game dominated by existing holdings, the risk that the pace of sector rotation accelerates. Third, the risk of geopolitical disruptions and the risk of performance “blowups” during April’s earnings disclosure period.

“As macroeconomic data for the first quarter and listed companies’ annual reports and quarterly reports are released one after another, the market will gradually enter a fundamental-data validation stage, and short-term risk appetite may stay cautious,” Zhang Pengyuan expects. From the macro environment, domestic economic conditions have seen marginal improvement at the margin, but demand recovery still needs time. Overseas, inflation and geopolitical uncertainty may still disrupt global liquidity expectations. Against this backdrop, the A-share market in the short term may continue its choppy, range-bound pattern, with structural opportunities still the core theme. In positioning, investors can focus on high-quality assets with higher certainty in fundamentals and valuations within a reasonable range, while also allocating to structural investment opportunities driven by policy support directions and the rebound in industrial momentum.

“The market may continue to trade in a structurally volatile and differentiated way; a more important role will be played by the middle-level indicators of industry conditions and the valuation safety margin.” Mingyu Asset Management believes that the conflict between the U.S. and Iran has lasted longer than the market expected, and the U.S. military buildup is still progressing; it remains unclear whether the conflict will escalate on a large scale. The Strait of Hormuz remains persistently blocked, which intensifies global energy supply shocks and supply-chain disruptions. With the market’s stagflation expectations heating up, U.S. Treasury yields may continue to rise, affecting risk appetite. In a strong-dollar backdrop, the pace of RMB appreciation has slowed down.

How to position during the bottoming-out period

How should investors manage their positions? Which sector directions are worth paying attention to?

Xinghi Investment’s Chief Strategy Investment Officer, Guan Lei, analyzed for reporters that in the short term, because the situation in the Middle East remains unclear, the decline in global risk appetite will continue to disrupt domestic stock markets, leaving the market in a high-volatility stage. Looking at the medium to long term, compared with overseas uncertainties, China’s assets have continued to improve in terms of investment value and appeal, and there are investment opportunities for A-shares brought by a re-rating of valuations and earnings repair. On the one hand, many industry stocks have already sufficiently reflected the impact of high oil prices and tighter global liquidity. Sector valuations have fallen back to low levels, offering medium- to long-term allocation value. On the other hand, the current broad technology sector still maintains relatively high momentum, and some traditional areas are expected to benefit from domestic price repairs; improved earnings may become the main line for subsequent investment.

“The ‘last deadline’ narrative around the Middle East situation and the repeated twists in expectations for Fed rate cuts will continue to disrupt the pricing of risk assets. In the short term, A-shares will likely maintain a bottoming-out pattern of ‘probe lower first, then trade sideways.’” Chen Xingwen believes that for positioning, investors can focus on “inflation-benefiting assets.” In the context of a transition between global old and new cycles, geopolitical conflicts, and the resonance between AI capital expenditure, hard resources such as crude oil, copper and aluminum, rare earths, and coal have strategic value to weather market volatility. Especially when U.S. metal strategic stockpiles are at historic lows, demand for replenishing industrial inventory may be activated. In addition, the self-reliant technology chain (semiconductors, computing power infrastructure) and overseas manufacturing (machinery, chemicals, power equipment) remain powerful offensive tools, but investors need to wait for better entry timing after valuation digestion. High-dividend central state-owned enterprises and consumer leading companies can serve as the “safety cushion” in an investment portfolio.

“Overall, the Middle East conflict could still escalate, and A-shares may continue with choppy and differentiated moves. The impact may be smaller than in overseas markets, and the market style overall may tilt toward low-valuation defense.” Mingyu Asset Management suggests focusing on the resources price-led theme under catalysts from heightened overseas geopolitical conflict, such as oil and gas and sectors related to new energy. For areas with defensive attributes—banks—as well as service consumption and food and beverage with a tilt toward domestic demand, along with optical communications and innovative drugs that have higher industry momentum. Sectors with stronger earnings certainty such as AI hardware and software, advanced manufacturing, and defense industries may also see a repair rally after market risk appetite stabilizes.

(Editor: Zhang Yan)

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