Shanghai Composite Index Barely Holds 3800 Points! Some Institutions Remind: Don't Bottom Fish Yet, Wait for Stabilization

On March 23, the A-share market was sluggish all day, with heavy volume and a sharp decline. Key indices fell over 3%, with 5,172 stocks closing lower. Daily trading volume increased to 2.45 trillion yuan.

Sources say the main reason for the market decline is the escalation of US-Iran tensions pushing up oil prices, triggering global “stagflation” concerns. The Federal Reserve signaled a hawkish stance, reversing expectations of rate cuts, and tightening global liquidity suppressed valuations. Additionally, the A-share market had previously experienced significant gains, and the convergence of quantitative trading and capital chasing amplified market volatility. It is advised to control positions, wait for stabilization, and avoid panic selling or aggressive bottom-fishing.

Shanghai Composite briefly falls below 3,800 points

Today, the A-share market opened lower and declined across the board. The Shanghai Composite index briefly broke below 3,800 points during the session, ultimately closing down 3.63% at 3,813.28, down 143.77 points intraday; the ChiNext Index fell 3.49% to 3,235.22; the Shenzhen Component declined 3.76%. The STAR Market 50 dropped over 4%, the Beijing Stock Exchange 50 over 5%, and the CSI 300 and SSE 50 both declined more than 3%.

Trading volume significantly increased, with daily turnover up 1,454 billion yuan to 2.45 trillion yuan. Last Friday, the afternoon trading weakened, indicating concerns among funds about weekend uncertainties. Regarding leverage, risk aversion also clearly increased. As of March 20, the margin financing and securities lending balance in Shanghai, Shenzhen, and Beijing markets fell to 2.63 trillion yuan.

The market’s loss aversion was evident, with only 305 stocks rising, 38 hitting daily limit-ups; 5,172 stocks declined, with 133 hitting daily limit-downs. Among active stocks, only seven had daily turnover exceeding 100 billion yuan, including Huagong Tech, Zijin Mining, Sungrow, CATL, Zhongji Xuchuang, and Suning.com, all down, while BYD rose over 4% against the trend.

In sectors, the blade battery sector performed well, while oil & gas, coal chemical, and shale gas declined slightly. Electronics, AI, and leisure services sectors fell over 6%.

Out of 31 first-level industries in Shenwan, only coal and petrochemical sectors showed slight gains; utilities, power equipment, automotive, and basic chemicals declined less than 3%. Twenty sectors fell over 4%, with social services and beauty & personal care dropping more than 6%. Agriculture, textiles, electronics, comprehensive, and computer sectors all declined sharply.

Despite rising risk aversion, gold stocks and gold ETFs also fell sharply. Recently, COMEX gold futures continued downward, falling nearly 7% to $4,258.5 per ounce at the time of writing.

Monetary policy expectations shift toward tightening

“The market experienced a significant correction today, mainly due to the impact of the US-Iran conflict,” said Ma Tao, Chief Strategy Analyst at China Overseas Fund. As Middle East tensions worsen, concerns grow that international crude oil prices may stay high. Meanwhile, the US Federal Reserve maintained interest rates at last week’s meeting, influenced by rising US inflation expectations driven by US-Iran tensions. Overseas investors have begun to expect no rate cuts from the Fed this year, and some even anticipate rate hikes.

Bao Xiaohui, Chairman and Investment Director of Changli Assets, believes the core reason for today’s sharp decline is the rising global inflation expectations, which directly changed market perceptions of central bank monetary policy. Previously, markets generally expected a rate-cut cycle globally, with lower funding costs supporting asset valuations; now, inflation pressures have re-emerged, raising fears that not only will there be no rate cuts, but a new rate hike cycle may begin. Expectations for monetary policy have shifted from easing to tightening, with higher funding costs directly suppressing stock valuations. Panic quickly spread, and capital chasing each other created a negative feedback loop.

“Iran’s escalation has triggered stagflation fears, causing Asian stock markets to decline across the board. Today’s A-shares are extremely panicked, with strong risk-avoidance sentiment and obvious panic selling,” said Cheng Liang, Fund Manager at 33 Degrees Capital. The escalation of US-Iran tensions is the fuse. Expectations of blocked shipping through the Strait of Hormuz pushed Brent crude above $108, quickly shifting market thinking from a “bullish” mindset to “stagflation trading.” High oil prices raise concerns about imported inflation, suppressing growth stocks’ valuations, while profit-taking by earlier gains (especially in small- and mid-cap stocks) intensified, leading to a sell-off.

Chen Jiande, General Manager of Tianlang Fund, analyzed that the main reasons for today’s sharp decline are threefold: first, the prolongation and possible expansion of Iran-related conflicts, reducing global risk appetite; second, the market’s previous large gains, especially in thematic and small-cap stocks, which now need correction; third, the convergence of quantitative fund trading leading to uniform investor behavior.

Zhang Pengyuan, a researcher at Paimai.com, also explained the reasons for the large volume decline: first, the worsening of Middle East conflicts, with geopolitical risks rising and high oil prices becoming a consensus; second, increased stagflation fears, pressuring global risk assets. Rising oil prices boost inflation expectations, intensifying concerns about a stagflation scenario of “economic slowdown + high inflation,” leading to a broad valuation contraction. Precious and base metals fluctuate sharply, invalidating traditional safe-haven logic, with funds clustering only in energy and high-dividend sectors. Third, hawkish signals from the Fed, with expectations of no rate cuts or even hikes for the rest of the year, have been significantly revised downward. US Treasury yields rose, and liquidity for high-valuation growth stocks tightened, directly suppressing the tech and small-cap sectors in A-shares. Fourth, end-of-quarter fund behaviors and redemption pressures amplified volatility in high-level sectors.

Gushang Fund researcher Bi Mengran pointed out that the core logic behind the decline is external shocks. The March Fed meeting signaled a hawkish stance, reducing the expected rate cuts in 2026 from two to less than one, causing the 10-year US Treasury yield to surge to 4.39%. Global dollar liquidity tightened, directly suppressing high-valuation assets, with tech and growth stocks bearing the brunt. Meanwhile, the Middle East geopolitical situation escalated sharply, with increased risks in the Strait of Hormuz, and international oil prices breaking above $110 per barrel, fueling global stagflation fears. Global risk assets declined across the board; US stocks plummeted last Friday, Asian markets weakened simultaneously, and panic quickly spread to A-shares. Northbound funds reduced positions temporarily, further amplifying selling pressure. Internal market sentiment and liquidity pressures also contributed to the sharp decline.

Three major risks to watch now

Global markets declined across the board, with the Shanghai Composite briefly falling below 3,800 points and with increased volume, over 5,000 stocks down. What risks should be monitored?

“3,800 points on the Shanghai Composite is a key short-term psychological and technical support level,” Zhang Pengyuan warned. After this volume-driven decline, attention should focus on signs of stabilization with reduced volume, a recovery in the number of rising vs. falling stocks, and continuous inflow of northbound funds. Additionally, Middle East developments, oil price trends, and Fed policy expectations are external variables that will determine the strength of any rebound.

“Domestic policy environment remains relatively certain. The incremental funds from long-term institutional investors imply a low probability of systemic valuation destruction; the correction is more structural than trend-based,” Bi Mengran advised. In the short term, three major market risks should be closely watched:

1. The ongoing risk of geopolitical conflicts. The evolution of Middle East tensions remains highly uncertain. If the Strait of Hormuz risks persist or escalate, international oil prices will rise further, reinforcing stagflation expectations, impacting energy sectors and through imported inflation and declining risk appetite, affecting the broader A-share market—especially cyclicals and high-valuation growth stocks.

2. The transmission risk of liquidity tightening. Globally, hawkish Fed attitudes may persist longer than expected, with high US interest rates and elevated 10-year Treasury yields causing continued capital inflow into the US, slowing northbound capital flows, and suppressing high-valuation assets in A-shares.

3. The risk of a change in market valuation logic. Previously, the A-share market was mainly driven by expectations, with themes like AI and computing power leading the market through speculation and valuation increases. Now, the valuation logic is shifting toward “fundamental verification,” with capital rotating from high-valuation, volatile thematic stocks to low-valuation, high-dividend, performance-strong sectors. If upcoming annual and quarterly reports show underperformance in previously hot sectors or better-than-expected results in defensive sectors, this will reinforce the valuation shift, leading to increased sector differentiation and potential further declines in previously high-flying stocks. The process of valuation change will also cause market sentiment to fluctuate.

Bao Xiaohui believes this correction will likely last another two weeks. The Middle East situation remains uncertain, and external risks will continue to influence the market. Additionally, with the earnings season approaching in April, funds will start to observe corporate performance more cautiously.

Chen Jiande thinks the A-share market will remain weak in the short term, with panic sentiment possibly leading to further declines.

“Single-day volume-driven declines release most of the short-selling momentum, but emotional recovery takes time,” said Cheng Liang. He expects the market to oscillate around 3,800 points in the near term, with difficulty in a V-shaped reversal. If Iran’s situation does not worsen further, technical rebounds are possible, with resistance around 3,860–3,880 points.

Avoid aggressive left-side positioning

In this environment, how should investors position themselves?

Chen Jiande recommends controlling positions, as market volatility and swings are currently large. Sector-wise, focus on coal, oil, energy storage, benefiting from rising oil prices; be cautious with thematic stocks that have already surged and are highly valued.

“Oscillating to find a bottom, control positions, wait for stabilization,” Cheng Liang suggests, keeping total holdings around 60%. Cut losses on growth stocks that break support without earnings, and focus on technology (growth) and energy (cyclical) themes. Specifically, on the defensive side—coal, oil, energy storage, photovoltaics, lithium, hydrogen; on the offensive side—AI computing power, semiconductors. Do not bottom-fish now; wait until the index stabilizes and signals of easing Iran tensions (such as negotiations) appear before considering left-side deployment.

Zhang Pengyuan emphasizes that investors should prioritize stability, control overall risk exposure, and avoid aggressive left-side positioning during the current decline driven by sentiment. It’s more suitable to wait for clear stabilization signals before gradually participating. Overvalued growth and high-elasticity sectors still face valuation and capital pressures. The strategy should focus on using rebounds for structural optimization rather than blindly chasing or panicking out. From a medium-term perspective, allocations should revolve around “defense + certainty + post-correction growth.”

“High-flying tech stocks and small/mid caps face certain correction risks, and US-Iran tensions may accelerate their adjustment,” Ma Tao advises. In the short term, maintain caution, reduce risk appetite, and allocate to low-priced blue chips, high-dividend stocks, and stable consumer stocks for defense. Recommended sectors include: power, telecommunications, transportation with good cash flow; tourism, food & beverage, retail benefiting from domestic demand expansion; high-end manufacturing, domestic substitution, AI, and pharmaceuticals.

Bi Mengran notes that the current market is in a stage of risk release, style switching, with short-term positions at 30–50%, holding cash for stabilization signals. Defensive core holdings can include high-dividend and energy resources like coal, power, utilities—low valuation, high dividend, stable cash flow, and good for risk hedging; medium-term focus on growth sectors with clear earnings, such as energy storage, semiconductor equipment, and materials.

“Overall, operate cautiously, control positions, and avoid frequent trading,” Bao Xiaohui emphasizes. The recent sharp decline is essentially a market shakeout, digesting floating positions and bad news. Once panic subsides, the market will gradually stabilize and rebound. The most important thing for ordinary investors now is to stay calm and avoid being driven by panic.