Geopolitical tensions temporarily eased, will the A-shares rebound or reverse?

(Author Xue Hongyan is the Executive Vice President of the Xingtu Financial Research Institute)

Less than an hour and a half before the “ultimatum,” market nerves were instantly flipped by a single piece of news. On the evening of April 7 (U.S. Eastern Time), U.S. President Trump agreed to pause bombing and attack operations against Iran for two weeks. This decision marks the first time since the conflict began that both sides of the U.S.-Iran standoff have achieved a conditional ceasefire under high-intensity confrontation.

The moment the news broke, global capital markets jolted. In Asia’s morning session, stock markets in Japan and South Korea jumped sharply at the open. U.S. stock index futures then surged across the board, with Nasdaq futures briefly up more than 2.5%. Global risk appetite quickly returned in the form of a retaliatory rebound. For China’s A-shares, this shift from extreme conflict to a contest of negotiation has rendered the old narrative for the near-term trading completely outdated. Standing at the turning-point window, we need a new map of the market.

Short term: From geopolitical risk hedging to sentiment repair—trading the “ceasefire premium”

In the short term, the biggest variable in the market has shifted from “panic over escalating fighting” to “a contest over ceasefire quality and the height of the rebound.”

Logic switch one: Oil premium fully unwound significantly, and global risk appetite rises rapidly. Driven by the ceasefire news, international oil prices plunged overnight. In the early trading hours of April 8 (Beijing time), WTI crude futures were down more than 17% at one point; the price rapidly retreated from the conflict period’s high to below $95 per barrel. Brent crude also fell in sync to around $92, the first time since the end of March it broke below a key whole-dollar threshold. The oil spot-futures structure that had been severely distorted by geopolitical risk is being rapidly repaired, and input inflation pressure has been greatly eased in an instant. As the “biggest stone” that suppresses global risk-asset valuations begins to loosen, it directly catalyzes a major rebound across global equity markets.

Logic switch two: Hopes of navigation through the Strait of Hormuz warm up, and the supply-chain crisis is temporarily eased. Iran’s foreign minister Aragchi has made it clear that if attacks stop, ships will be able to pass safely through the Strait of Hormuz within the next two weeks. Previously, the global energy supply chain had been stretched tight due to a sharp 90% drop in passage volume; it may now get a breathing-space window. This is undoubtedly a tangible positive for manufacturing economies that are highly dependent on external commodity resources. Although current passage levels are still far below normal and reversal risks remain, the marginal improvement in expectations is enough to support valuation repair in cyclical sectors in the short run.

Logic switch three: The rebound’s “quality” in a game of existing positions still needs to be validated by volume and energy. Even though the external environment has improved, the structural problems within A-shares have not been completely resolved. On April 7, market trading value shrank to 1.62 trillion yuan, in the area of the year’s lows. Main funds still remained in a net outflow position, indicating that before the “certainty” of the other shoe drops, large capital is still watching and waiting. The index is still constrained by short-term moving averages such as the 5-day and 10-day lines, and overhead trapped-share pressure remains heavy. If, during the rebound over the next two days, the market’s total trading value cannot quickly expand to above 2 trillion yuan, the nature of the rally is likely still a technical rebound under sentiment repair—not a trend reversal. The real test comes after negotiations in Islamabad begin on April 10: whether the market will reprice the “two-week ceasefire” into a “long-term peace agreement.”

Overall, the biggest risk in the short term has been marginally eased, but uncertainty has not been completely eliminated. The ceasefire gives long positions a precious counterpunch window, but the rebound’s height and sustainability depend on how strongly funds return and whether more constructive signals arrive across the negotiating table. In terms of strategy, in the short term it’s not advisable to chase price blindly at sentiment highs, but instead to actively look for growth stocks that were wrongly sold off amid earlier geopolitical disturbances.

Mid to long term: Dawn is not far away

However, caution is not the same as pessimism. If we extend the horizon to the second quarter and even the second half of the year, an important medium-term bottom may be just ahead.

Domestic fundamentals are releasing positive signals. In March, the manufacturing PMI rebounded to 50.4, returning after two months to the expansion zone above the boom-bust line. The sub-indexes for production and new orders rose to 51.4 and 51.6, respectively, rebounding across the board. Even more worth attention is that the PMI for high-tech manufacturing was 52.1, staying in the expansion zone for 14 consecutive months. The new energy vehicle market has welcomed a genuine “spring thaw”—in March, retail sales of passenger vehicles under the narrow definition were about 1.70 million units, up 64.5% month over month. The penetration rate of new energy vehicles historically broke through 52.9%, marking the first time in a single month it exceeded that of gasoline vehicles.

Policy is also building momentum. After the “15th Five-Year Plan” outline was implemented in March, major investment projects accelerated. The People’s Bank of China conducted RMB 800 billion buyout-style reverse repo operations, and nine departments jointly released the《Service Consumption Quality Enhancement and Benefits to People Action Plan for 2026》. Policy remains on a positive tone. If the slope of economic recovery slows down afterward, meetings of the Political Bureau in the fourth quarter may further intensify measures to stabilize growth, providing support for the market.

From a longer-cycle perspective, after A-shares completes a short-term pause and reset, the market is likely to re-enter a benign track. Directions such as new energy, high-end manufacturing, and key resource commodities benefit from trends including energy security, supply-chain restructuring, and technological self-reliance—industrial logic remains solid. Valuations of growth sectors have already returned to a reasonable range, and the cost-effectiveness is prominent. As the impact of geopolitical disturbances fades, the effectiveness of bottom-up stock-picking strategies will increase, and structural opportunities will gradually emerge.

Regarding the market’s pace and rhythm, there is a time point worth watching: the fourth quarter. This judgment is not guesswork; it is a logic-based projection across three dimensions: fundamentals, liquidity, and the policy cycle.

From fundamentals, the repair of the inventory cycle and the earnings cycle takes time. Historical experience shows that after the inventory cycle bottoms, A-shares overall is likely to show an upward trend with oscillations. After the inventory cycle bottomed in August 2009, the stock market kept rising for three months. After the inventory cycle bottomed in August 2013, A-shares saw an upward move within the following year. Currently, the turning point at the bottom of the earnings cycle has already passed, but the full release of the elasticity of earnings recovery still requires time, usually validated by data over 2 to 3 quarters. In the second quarter, the market will experience a dense disclosure period for annual reports and first-quarter reports; more signals reflecting corporate fundamentals and industry momentum will gradually become visible. This process itself takes time to digest and confirm, and both earnings realization and valuation digestion require at least one quarter of data accumulation. In terms of timing, a path where earnings dip first, then rise, and gradually improve is more likely.

From liquidity, the turning-point window for overseas monetary policy is shifting further back. Previously, constrained by high oil prices, some foreign institutions moved their forecast for the first rate cut from after June to September, and some even no longer expected rate cuts by the Federal Reserve in 2026. Now, although oil prices have fallen sharply and created more policy room for the Federal Reserve, the global liquidity environment is likely to remain meaningfully loose, and it would most likely show up not until the end of the third quarter to the fourth quarter. Until then, external liquidity support for A-shares is relatively limited.

From the policy cycle, the second quarter to the third quarter is the observation window for policy effectiveness. After the end of the two sessions in March and the release of the “15th Five-Year Plan” outline, key investment projects have entered an accelerated implementation phase. But from implementation to producing real economic effects, policy typically has a lag of 3 to 6 months. The Political Bureau meeting at the end of April may further bolster growth-stabilization policies depending on external shocks, but it also takes time for these policies’ effects to be reflected. Around the fourth quarter, only the resonance between fundamentals and policy effects may truly become apparent.

Overall, the fourth quarter is the time intersection when fundamentals improvement gets confirmed by data, liquidity conditions become looser, and policy effects gradually show. Before that, the market is more likely to be in a phase of consolidation and structural rotation rather than a broad-based upward rally.

Trading strategy: Beware of sentiment highs, and抓住 structural rotation

Based on the above judgment, the current trading strategy can be summarized into three layers.

Short term: Participate rationally in the rebound, and avoid chasing blindly higher. Easing geopolitical risks provides a sentiment-repair window, but investors should be wary of the risk of a high open followed by a low close. Operationally, maintain a moderate position size and focus on monitoring negotiation progress and whether trading volume can cooperate. If trading value does not significantly expand, the strategy should mainly be to buy on pullbacks rather than chase rallies.

Medium term: Allocate to high-visibility directions, and focus on policy-catalyzed areas. Focus on sectors such as new energy vehicles (rising penetration + strong export growth), energy storage (driven by both policy and economics), and the export supply chain (gaining global market share). Meanwhile, after oil prices decline, the logic for earnings recovery in midstream-downstream manufacturing and consumer goods sectors is also worth watching.

Long term: Stay patient and wait for the resonance between fundamentals and liquidity. The market’s medium-term bottom may already be close, but a trend-based rally still needs to wait. Around the fourth quarter, as the inventory cycle is verified, overseas liquidity turning points become visible, and policy effects are released, the market may see a clearer upward driver. Before then, it’s recommended to respond with a thinking framework suited for a range-bound market, selecting high-quality targets with solid fundamentals.

In summary, A-shares has just gone through an extreme test of a geopolitical shock—at the last moment, Trump’s “cliff-hanger” decision gave global markets a chance to catch their breath, and in the short term the market is rapidly switching from a risk-hedging mode to a repair mode. But it’s also crucial to stay clear-minded: a two-week ceasefire does not equal permanent peace. The Islamabad negotiations that begin on the 10th are the true litmus test. The marginal improvement in domestic economic data, the continuous strengthening of the policy base, and the phase-by-phase easing of external conflicts all point to one conclusion: the most panic-driven moment may already be behind us. What investors need to do is to stay clear-headed at sentiment highs, dare to position after the medium-term bottom is confirmed, hold patiently through consolidation and rotation, and finally wait for a行情 driven by the resonance of fundamentals and liquidity.

Caixin Yicai Account exclusive first release; this article only represents the author’s views and does not constitute investment advice.

(This article comes from Caixin Yicai)