The market is falling rapidly, Shanghai Composite Index ETF attracts significant attention

Ask AI · How does geopolitical tension transmit to the A-shares market?

1. What has happened in the capital market these days?

Recently, investors paying attention to the market may feel uneasy. The Shanghai Composite Index has been falling consecutively, breaking below 4,000 points on March 20 with a daily decline of -1.24%; on March 23, it continued to drop sharply, falling over 3%, approaching 3,800 points and giving back most of the gains since mid-December 2025. Watching the numbers turn green in their accounts, anxiety and confusion are inevitable. This article reviews the recent market situation, mainly addressing these questions: What caused the decline? How will the market look in the future? What should we do next?

2. Analysis of the reasons for the decline: internal and external factors resonate, but mainly driven by “external” factors.

Many attribute this decline to “rising too much then falling,” which is indeed one internal factor—since the beginning of the year, sectors like electricity, oil and petrochemicals, communications, and semiconductors have accumulated significant gains, and profit-taking is needed. However, the immediate trigger for this adjustment mainly comes from external factors.

The foremost is geopolitical risk. Recently, Middle East tensions have escalated, and markets are worried that the US-Iran conflict may evolve into a long-term confrontation. This concern is directly reflected in oil prices, with Brent crude once surging to $108. Oil is the blood of modern industry; when oil prices rise, production costs for companies increase, eventually affecting various aspects of daily life—from gasoline to plastics, logistics to chemical products—prices are impacted. This is known as “imported inflation.”

| Chart: Overseas traders no longer bet on Fed rate cuts in 2026 |

Once inflation shows signs of rising, central banks worldwide are reluctant to cut interest rates easily and may even continue to hike them to control prices. This further suppresses global risk assets because, under rate hike expectations, funds tend to withdraw from risk assets like stocks and move into safer assets. Recently, the March FOMC meeting signaled a “hawkish” stance, with expectations of rate cuts this year further diminishing. These factors collectively weigh on global risk assets. The A-shares market is no exception; in the short term, there has been a liquidity squeeze, and risk aversion is evident.

Another external factor is the global stock market linkage. Japan and South Korea are major energy importers, highly sensitive to Middle East developments and oil price fluctuations. Over the weekend, the Nikkei 225 and Korea Composite Index had already fallen sharply before the A-share market opened. This pessimism, transmitted psychologically, further amplified the panic among A-share investors. Therefore, this decline is not an issue specific to A-shares but a collective response of global capital markets to sudden risks.

3. How to view the future? Can we allocate now?

In the face of such a sharp drop, investors may worry: Is the bull market over? Objectively, such speculation lacks basis. It is advisable to see this decline as a “mid-term rest” in a bull market— the core logic supporting long-term market growth has not changed because of this correction.

First, domestic policy environment and real economic recovery remain solid “anchors.” This year marks the start of the 14th Five-Year Plan, and the recently concluded Two Sessions released many positive signals regarding “new productive forces” and reform of the capital market. Regulators have repeatedly emphasized enhancing market stability and promoting comprehensive reform of investment and financing. Under this policy tone, significant market volatility is likely limited, and stable operation remains the main theme.

Chart: The beginning year of the Five-Year Plan, macro fundamentals often perform strongly

Second, from a liquidity perspective, amid an “asset shortage” environment, with risk-free rates continuously declining, residents’ demand for new investment channels remains strong. After the correction, there is no shortage of potential incremental funds.

Third, from a fundamental standpoint, China’s economy shows resilience. Looking at macroeconomic indicators, in January-February 2026, exports hit a strong start, with a 21.8% year-on-year increase in exports (USD basis), and imports also rose 19.8%, indicating a continued optimization of the export structure. Currently, the resumption of work and production is generally positive; in January-February 2026, the added value of industrial enterprises above designated size increased by 6.3% year-on-year, continuing the recovery trend, reflecting marginal improvement in economic fundamentals. Under the energy crisis, China’s manufacturing share globally is expected to increase, and the “going out” manufacturing sector has growth potential; the Middle East conflict may accelerate the transition from traditional energy to renewable energy, benefiting the new energy industry chain; combined with the high certainty of earnings in technology segments and low-cycle industries, the downside space for A-shares may be limited.

Chart: Strong industrial growth momentum, with above-scale industrial added value up 6.3% YoY in Jan-Feb

Overall, in the short term, the market may still fluctuate due to sentiment factors, but after this correction, the Shanghai Composite Index has fallen over 7% from the previous high of 4182 points, releasing some risks. As long as the long-term trend remains unchanged, such declines often signal new opportunities brewing. For those with positions, “cutting losses” now may not be the most rational choice; for those holding cash, this correction offers a relatively cheaper opportunity to allocate to core assets.

4. How to use ETFs for balanced allocation at relatively low levels in A-shares?

Facing the current market, many investors are puzzled about what to do after the decline. With sector rotation accelerating, what should be bought next? The answer may be simpler than expected—rather than guessing which sector will rebound first, focus on the market itself: the Shanghai Composite Index. For current operations, we suggest following two principles.

First, maintain a calm mindset. The “bottom” of the market is often a zone, not a specific point. Instead of hoping to “buy at the very lowest,” adopt a phased, incremental approach to low-cost accumulation.

Second, choose the right tools. If worried about betting on sectors or individual stocks going wrong, E Fund Shanghai Composite ETF (Code: 530060) might be a very suitable choice. Through index dollar-cost averaging or phased purchases, you can share in the long-term upward trend of the A-share market while effectively diversifying risk away from single stocks or sectors.

Although short-term volatility can cause anxiety, looking back, every deep correction is laying the groundwork for the next phase of the market. Stay calm, understand the logic, choose appropriate tools, and you can navigate through the fog more easily.