The Shanghai Composite Index fluctuates and falls back, losing the 60-day moving average. When will A-shares stabilize in the short term?

Tuesday’s A-shares major indices fluctuated and declined.

As of the close on March 17, the Shanghai Composite Index fell 0.85%, closing at 4,049.91 points, losing the 60-day moving average; the STAR 50 Index dropped 2.23%, the Shenzhen Component Index declined 1.87%, and the ChiNext Index fell 2.29%. From the market perspective, the computing hardware industry chain and super-hard materials concept saw significant declines, with power generation equipment, chemical, and agricultural sectors leading the drops. Conversely, recent IPOs and large financial sectors performed countertrend and strengthened.

Regarding market trends, after-hours interviews with several public funds indicated that most believe the main reasons for Tuesday’s market correction are the rising geopolitical risks fueling global risk aversion and profit-taking pressure from previously hot sectors. Until geopolitical uncertainties are resolved, the A-shares market is likely to remain volatile in the short term.

“If the Shanghai Index can quickly recover the 60-day moving average on Wednesday and close above it without falling back below, Tuesday’s decline could be a trap for false breakouts, and the index near the 60-day line still has a chance to stabilize,” said an institutional analyst. “If the Shanghai Index only makes a slight rebound on Wednesday and fails to recover the 60-day moving average, we should be cautious of further declines testing the lower boundary of the large trading range.”

Rising Risk Aversion Among Investors

Liu Chong, senior market analyst at Cinda Asia Fund, analyzed that recent tensions in the Middle East have caused international oil prices to surge sharply, raising concerns about global inflation and delaying expectations of Federal Reserve rate cuts. This has intensified risk aversion, prompting accelerated capital outflows. Meanwhile, sectors that previously experienced high gains have accumulated large profit-taking positions, with funds flowing out of high-level concept stocks and shifting toward defensive sectors like banks.

“Under the influence of geopolitical uncertainties, global risk assets are showing high volatility. The ongoing geopolitical tensions remain central to the current global market narrative, with asset pricing reflecting concerns over economic stagnation and liquidity tightening caused by rising oil prices,” Liu said.

Bosera Fund also believes that the market is gradually pricing in the prolonged duration of US-Iran conflicts, with crude oil prices likely remaining high. This could trigger a macro re-pricing chain of ‘supply shocks—rising inflation—passive tightening of financial conditions,’ which impacts corporate earnings, liquidity, and risk appetite. Short-term caution is advised, with a balanced allocation strategy and a focus on defensive dividend assets.

Beyond energy, China Merchants Fund pointed out that ongoing disruptions in the Strait of Hormuz could also impact food security and other issues, making the effects on different sectors particularly complex.

Jinxin Fund manager Tan Zhiming further analyzed that Nvidia’s GTC conference, dubbed the “Spring Festival Gala of AI,” opened on March 16. The next-generation AI chip “Feynman,” expected to launch in 2028, and the advancement of optical communication technology are long-term positives. However, these positive signals are overshadowed by macroeconomic concerns. “Due to US-Iran geopolitical conflicts and inflation worries, market risk appetite has significantly declined, with funds shifting toward highly pragmatic assets. Additionally, the optical module index has risen substantially since the beginning of the year, creating a phase of profit-taking pressure. Multiple factors have led to a sharp correction in related sectors.”

Seizing Industry Certainty Amid Macro Uncertainty

Looking ahead, most public funds believe that until geopolitical uncertainties are resolved, the A-shares market will likely remain volatile in the short term.

In the short term, Liu Chong believes that due to the pressure on global risk appetite and ongoing geopolitical tensions, the A-shares market may stay volatile. In the medium term, with proactive policies at the start of the 14th Five-Year Plan and the goal of “stability with progress and quality improvement” by 2026, economic recovery is expected to continue. As the traditional economic peak season approaches, improving price environments could support earnings recovery. Additionally, as annual and first-quarter reports are released, performance factors are expected to increasingly influence the market, making quality growth sectors worth关注.

In terms of allocation strategies, institutional views are increasingly aligned with certainty.

Tan Zhiming believes that the market will return to fundamentals, with earnings certainty and realization becoming core themes. Investors are advised to buy on dips in the technology growth sector to capture long-term investment opportunities driven by industrial upgrades.

China Merchants Fund recommends focusing on sectors with industry certainty amid macro uncertainties, such as energy prices rising, energy resource security strategies, domestic demand, innovative pharmaceuticals, and semiconductors—areas that are relatively independent of current geopolitical conflicts.

NuoAn Fund suggests paying attention to insurance, securities, and electricity sectors. In the short term, price increases remain a key focus in Q1, as conflicts in Israel and Iran and the closure of the Strait of Hormuz are expected to temporarily raise oil prices, increasing costs for cyclical commodities. This scenario presents abundant structural opportunities in chemicals, oil and gas, and materials sectors.

Pengyang Fund states that with short-term risk appetite declining, the strategy should avoid overheated, overvalued sectors and focus on high-quality, undervalued stocks with clear industry trends. Currently, macro conditions do not present significant beta opportunities; patience is needed for new policies or existing policy effects to take hold. After this round of volatility, technology remains a long-term core focus, with AI sectors offering buying opportunities during corrections. As markets gradually price in geopolitical risks and high oil prices, it is advisable to stay away from speculative stocks driven by geopolitical catalysts.