Q2 Market Outlook: A-shares May First Decline, Then Rise to Form a Bottom and Rebound

Ask AI · After the A-share correction in Q1, what are the key factors behind the rebound in Q2?

The 2026 first-quarter A-share market has officially closed. As of March 31, the Shanghai Composite Index fell 1.94% in Q1 to close at 3,891.86 points; the Shenzhen Component Index fell 0.35% to close at 13,478.06 points; the ChiNext Index fell 0.57% to close at 3,184.95 points; the Beijing 50 Index fell 13.34% to close at 1,248.29 points; and the STAR 50 Index fell 6.54% to close at 1,256.33 points. In terms of sector performance, resource-cycle and tech-manufacturing stocks led the market, with sectors such as precious metals, oil & gas extraction, humanoid robots, and AI optical modules rising the most. Among them, the precious metals concept led the entire market with a gain of more than 54%.

In Q1 2026, volatility in global financial markets has increased markedly. Ongoing geopolitical tensions in the Middle East and expectations of a shift in the Federal Reserve’s monetary policy have continued to disrupt the pricing of global risk assets. To help investors grasp the market pulse, 《大众证券报》 invited Yang Delong, Chief Economist of Qianhai Open-Source Fund, Zhang Cuixia, Chief Investment Consultant of Jufeng Investment, and Li Xia, a well-known market figure, to conduct an in-depth analysis of the A-share market outlook and investment strategy for Q2, hoping to be beneficial to investors.

The adjustment has not changed the “slow bull / long bull” framework

《大众证券报》: What is the core driver behind the market’s adjustment in Q1?

Li Dachao (a well-known market figure): The essence of this round of adjustment is not a reversal of the bull-bear trend, but the A-shares’ strengthening of the 4,000-point threshold. In Q1, the Shanghai index touched the high area around 4,180 points three times. On March 3, 4,197 points were lifted by the collective limit-ups of the “three oil giants,” which is a typical “false high point.” The internal cause is that gains had risen too quickly earlier and profit-taking orders piled up in large volume. The external shock comes from the Middle East geopolitical conflict and the continued convergence of expectations for Federal Reserve rate cuts. The key difference from the March 2025 adjustment lies in this: In 2025, it was a base-area consolidation; the core contradiction was that the fundamental recovery fell short of expectations. In 2026, it is a high-level rotation with turnover; the “3,000-point horizon” has been firmly established, and the long-term upward foundation has not been shaken.

Yang Delong (Chief Economist of Qianhai Open-Source Fund): This round of adjustment is mainly affected by the external shock from the Middle East conflict. The direct trigger is global panic-driven selling caused by an escalation in geopolitical tensions. The core internal factors are profit-taking by stocks that had already risen significantly earlier, along with concerns that the Fed’s rate-cut pace may slow down. The Middle East conflict has increased the risk of a blockade in the Strait of Hormuz; international oil prices have risen nearly 50% more than before the conflict, pushing up global inflation expectations. But it must be made clear: this adjustment has not changed the slow bull / long bull pattern. Different from March 2025: In 2025, the market was in the transition stage from the end of a bear market to the beginning of a bull market; by 2026, the market is already in a clearly defined slow-bull phase, with the trend of improving corporate earnings established. This round of adjustment is only a “bull pullback.”

Zhang Cuixia (Chief Investment Consultant of Jufeng Investment): The essence of the Q1 adjustment is an endogenous mid-cycle correction during the “big second wave” after the end of the “big first wave” of the bull market. It is part of a normal process of digesting profit-taking, with no systemic loss-of-control risk. The adjustment reflects a resonance combining external systemic shocks and internal market factors: Externally, the conflict between the U.S. and Iran pushed Brent crude oil to break through $116 per barrel; the Fed’s unexpectedly hawkish shift caused yields on the 10-year U.S. Treasury to surge to 4.39%; and northbound capital saw net outflows of over 8 billion yuan in a single week. Internally, risk-avoidance sentiment rose during the earnings window period, the pressure from institutions to meet quarterly performance targets increased, and a negative feedback loop formed from margin calls and quantitative stop-loss mechanisms. The core difference from March 2025 is that the market is located at a completely different position in the bull-bear cycle—2025 was a validation stage for the turning point from bear to bull; 2026 is a normal mid-cycle pullback during the progression of the bull market.

The probability of challenging prior highs is relatively high

《大众证券报》: Can Q2 replicate the V-shaped repair seen in 2025? Will the market hit a new high this year?

Li Dachao: In Q2, it is unlikely that the market will simply replicate the same V-shaped plunge-and-rally pattern from the same period in 2025. More likely, it will show a slow-bull “climb” characterized by “range-bound base-building, gradual lift, and a higher trading center.” The V-shaped repair from April to June 2025 occurred when the market was at the early stage of valuation repair, driven by strong policy stimulus, resulting in extremely strong rebound momentum. In 2026, however, the market is already in the earnings-driven stage after valuation repair, so it is difficult for a one-sided V-shaped surge to occur again. We expect the index’s core operating range in Q2 to be 3,800—4,100 points, with a high probability of launching an attack above 4,100 points. But to effectively break through the 4,200-point annual high, multiple areas must resonate—fundamentals, policy, and liquidity. More likely, this will be realized in the second half of the year.

Yang Delong: It will be difficult for Q2 to fully replicate the V-shaped repair from the same period in 2025. There are fundamental differences in the market environment and driving logic. In Q2 2025, the core of the V-shaped reversal was a comprehensive valuation repair driven by easing real-estate policies and expectations of a strong economic recovery. By 2026, the market has entered the second stage of the slow bull; it has shifted from valuation-driven to earnings-driven, and the rally will focus more on certainty in performance. At the same time, the Middle East conflict situation remains unclear, and global equity markets are likely to continue with high volatility. Overall, A-shares in Q2 will show a trend of “stabilizing amid turbulence, sector differentiation, and a gradual upward move.” It has the potential to challenge prior highs, but to effectively break through and set a new annual high, two key conditions are needed: (1) corporate earnings improvement exceeding expectations; and (2) an acceleration in the pace of residents shifting savings into the market.

Zhang Cuixia: The probability of replicating the V-shaped repair in Q2 2025 is extremely low. More likely, the market will show an operating pattern dominated by “weakness first followed by strength, rising amid volatility, and structural opportunities leading.” The V-shaped reversal in Q2 2025 was an oversold rebound under strong policy stimulation. By 2026, the market’s core contradiction has shifted from “valuation repair” to “earnings validation,” making it hard to see a one-sided, rapid upward surge. Overall, in early April there is still inertia pulling down and a second bottom-building process. In mid-to-late April, as a dense wave of Q1 earnings releases comes out, sectors with earnings surprises will drive the market to stabilize and rebound. From May to June, it enters the main advance phase with a range-bound upward move. The core operating range is 3,750—4,150 points. The probability of challenging the prior high in Q2 is relatively high, and conservatively the Shanghai Composite Index could reach around 4,634 points within the year. But to effectively break through and create a new annual high, three conditions are needed: sustained strength from AI big-tech and price-hike concepts, the Fed releasing clear signals of rate cuts, and trading volume staying above 2 trillion yuan consistently.

This is a window for positioning in quality assets

《大众证券报》: Is the current position a window for a gold (i.e., favorable) setup, or is it a pause during a decline?

Li Dachao: Around 3,800 points, the Shanghai index has already entered the A-share core bottom area, which is a golden positioning window for high-quality blue-chip stocks. 3,000 points has become the solid “horizon” for A-shares. In 2026, the market’s low point must be higher than 2025’s 3,040 points. The long-term trend of progressively lifting the lows has never changed. The core logic of this bull market remains unchanged: steady economic recovery, improved corporate earnings, deeper reforms of the capital market, and residents shifting savings toward equity markets. The policy floor is already very clear. For the first time, the 《政府工作报告》 included “stabilize the stock market and the real-estate market” in its overall requirements, and the People’s Bank of China and the CSRC have continued to release signals to maintain market stability. The market bottom often lags behind the policy bottom. There may still be fluctuations in the short term, but the depth of any second bottoming is limited.

Yang Delong: The current adjustment is a stage pullback within a slow bull market—an archetypal “bull pullback”—and it has entered a golden positioning window for quality assets. When the Shanghai index breaks below 4,000 points, it is precisely a good time for investors who missed the earlier run to start building positions in quality stocks. The three core logic points supporting a slow bull / long bull—policy continuing to exert force to stabilize growth, residents’ savings shifting massively into the capital market, and earnings improvements brought by technology innovation leading industrial upgrading—have not changed in any fundamental way. As 2026 is the first year of the “15th Five-Year Plan” period, policy support is continuously strengthened. The expiration of up to 50 trillion yuan in time deposits across the year will bring ample potential incremental funds to the market.

Zhang Cuixia: The medium-term trend for A-shares is stable and favorable, with a volatile upward climb. The market is still in the early stage of the bull market. It is currently at the end of the correction range of the big second wave. This is definitely not a pause during a decline, but a golden window for positioning in quality assets. From a monthly-chart perspective, over nearly 10 years A-shares have repeatedly consolidated and built a base around the 3,000-point value anchor. As of now, the cumulative gain of the Shanghai Composite Index is only 56%, leaving ample room for further upside. The 3,700—3,800 point range is the core area where policy strongly supports the market and is also a strong support range for this round of adjustment. The market has shifted from a broad “valuation bull” driven rally to a structural “earnings bull.” After the adjustment ends, the third-wave main advance phase will come.

Two main lines: price-hike technology and AI

《大众证券报》: What is the core investment main line for Q2?

Li Dachao: The price-hike concept and AI big-tech are the two key main lines for Q2 in terms of crossing market volatility. The core driver behind the price-hike concept is a continuous improvement in supply-demand dynamics. Whether it is bulk commodities, resource products, or AI-related compute power and storage chips, behind price increases are demand surges and rigid supply constraints. The core driver behind AI big-tech is the rapid iteration of global AI technologies and accelerated commercialization. The “15th Five-Year Plan” treats technological innovation as a core direction. In terms of sub-sectors, for the price-hike concept, the focus should be on resource-product leaders such as energy and nonferrous metals, and on price-hike sectors that benefit from the AI-demand surge such as compute-power services and storage chips. For AI big-tech, the focus should be on sub-sectors with clear core-technology advantages and explicit logic for domestic substitution—AI chips, compute-power infrastructure, optical modules, etc. The core investment logic has always adhered to “earnings first.”

Yang Delong: The price-hike concept and AI big-tech are the core main lines that run throughout the entire year of 2026. AI big-tech focuses on three directions: (1) AI infrastructure with the strongest earnings certainty (compute-power chips, servers, optical modules, data centers); (2) AI application deployments with the greatest earnings elasticity (vertical areas such as office, finance, and healthcare); and (3) semiconductors with huge domestic substitution space that are independently controllable (chip design, manufacturing, equipment, materials). The price-hike concept focuses on two directions: (1) AI-related price-hike sectors (storage chips, compute-power leasing, optical modules); and (2) resource-related price-hike sectors (copper, aluminum, and other nonferrous metals; and bulk commodities such as oil and chemicals). In addition, sectors such as power-grid equipment and energy storage under the “15th Five-Year Plan,” as well as new-quality productive forces such as the low-altitude economy and controllable nuclear fusion also present stage opportunities. In terms of broad asset allocation, gold is the core asset to hedge against fiat currency depreciation and can be allocated at around 20% in an investment portfolio.

Zhang Cuixia: The price-hike concept and AI big-tech are the core structural main lines for Q2 that can even run through the whole year. AI big-tech focuses on four areas: compute-power infrastructure (AI chips, GPU/DCU, AI servers, liquid-cooling technology, high-speed optical modules, IDC), where earnings realization is the clearest; semiconductors that are independently controllable (storage chips, chip design, semiconductor equipment, materials, EDA tools), where earnings elasticity is the highest; the AI application end (industrial software, financial AI, medical AI, intelligent driving), with the greatest explosive potential in Q2; and fusion sectors related to new-quality productive forces such as AI+manufacturing and AI+defense industry. The price-hike concept focuses on three areas: AI-related price-hike sectors (storage chips, compute-power leasing, optical modules, PCB); resource-related price-hike sectors (nonferrous metals, petroleum and chemical industry, coal); and price-hike sectors in consumer electronics (passive components, consumer-electronics parts). Reporter Huang Du