Zhongtai Strategy: Short-term Volatility, Adjustments Are Opportunities for Positioning (Includes April's Top Stock Report)

Conclusion:

We expect continued volatility in the short term, but there is no systemic risk for the index. Pullbacks are opportunities to build positions.

In March: A-share stocks fluctuated and declined, going through a process of “correction—rally—second decline.”

As of March 26, most major indices recorded losses. Among them, the Shanghai Composite Index fell 6.58%, the CSI 300 fell 4.95%, the CSI 2000 fell 10.92%, and the ChiNext Index and STAR Market 50 both recorded declines of 1.14% and 13.39%, respectively. Average daily trading value was 239.30 billion yuan, up 82.20 billion yuan month-on-month versus February. In terms of rhythm, it went through a process of “correction—rally—second decline,” meaning the market transitioned from being shocked by one-off events in valuation to a stagflation (滞胀) trade.

This month’s index performance was dominated by overseas factors. The escalation of the conflict between the U.S. and Iran and the stagflation trade were the main themes driving trading throughout the month.

（1）The escalation of the U.S.-Iran conflict and the intensification of the stagflation trade are the main themes贯穿 throughout the month. From the perspective of the geopolitical risk index, the short-term intensity of this round of the U.S.-Iran conflict is higher than that of the 2022 Russia-Ukraine and the 2025 U.S.-Iran conflict. However, its persistence is still not as strong as Russia-Ukraine. Due to the Strait of Hormuz blockade causing a surge in oil prices, market pricing of this conflict shifted away from an initial one-off event shock toward a stagflation trade.

（2）The Federal Reserve’s FOMC releasing a slightly hawkish tone is the direct cause of the second decline in A-share stocks. In March, the Federal Reserve’s FOMC meeting released a slightly hawkish tone, tightening global liquidity expectations. The market’s core contradiction shifted from a retreat in risk appetite to valuation pressure caused by tighter liquidity.

（3）The overall adjustment magnitude of A-share stocks is approximately: U.S. stocks ＜ other emerging markets. Styles are significantly diverging. As of March 26, using the SSE Composite (沪指) as an observation indicator, A-shares’ performance in global equity markets has been relatively leading, comparable to U.S. stocks. In particular, in the early phase before the conflict, the adjustment magnitude of A-shares was far lower than that of Japan and Korea, and Europe. The main reason is that the Hormuz Strait ban has a greater impact on energy supply to Japan, Korea, and Europe, while China and the U.S. are relatively independent.

In the technology category, resilience is prominent in the upstream and midstream, while in the cyclical categories, the energy chain strengthened.

（1）Intra-technology assets have seen increased differentiation, with resilience clearly stronger in the upstream and midstream. The logic behind increased differentiation in technology assets lies in the differences in the thickness of the “safety cushion” arising from the visibility of profitability across different links in the industrial chain. In technology, upstream sectors such as communications and power equipment have clear earnings-execution capabilities and are supported by sustained industry business-cycle improvement. With added support from medium- to long-term themes like energy security and domestic substitution, they show stronger resilience in a phase when market risk appetite has retreated. By contrast, most downstream application-side targets have longer earnings-execution cycles and higher sensitivity of valuation to changes in liquidity, resulting in more pronounced pressure.

（2）Among cyclical assets, the energy chain has strengthened against the trend, and cyclical industrial products have given back a large portion of the earlier excess returns. The energy chain mainly benefited from the escalation of the geopolitical conflict, with global energy security logic continuing to strengthen. The main reason for the convergence of excess returns in nonferrous metals is that a key “win factor”—the market’s expectations for Federal Reserve easing—experienced large fluctuations. Sectors such as chemicals, building materials, and steel previously benefited from expectations of supply-side optimization and a rebound in domestic demand. Although there was no significant change in fundamentals in March, valuation odds in the short term were already relatively tight, implying greater downside elasticity.

（3）The defensive attribute of dividend (redemption-like) sectors has become prominent, while consumer sectors lack robust support. Overall, dividend-style assets declined significantly less than other style sectors, mainly benefiting from the continued rise in risk-hedging sentiment in a market environment where uncertainty increased. Consumer sectors are the core concentrated segment of industries whose annual returns turn negative, but improvements in industry fundamentals did not exceed expectations. In January–February, small positive returns were achieved in an environment with abundant market liquidity; however, with global liquidity expectations tightening, valuation expansion has been constrained.

Looking ahead, the short-term market may still face volatility, but there is no systemic risk of a large downside move. Structurally, performance is likely to revolve around upside opportunities in growth tracks with strong independence.

1）The short-term market may still face volatility, but there is no risk of a systemic large decline in the index. Overseas financial markets have not yet reached the level required to trigger “TACO.” For example, the adjustment magnitude of the S&P 500, and the upward moves in VIX and U.S. Treasury yields have all been relatively limited. There is no lack of possibility that geopolitical risks continue to fluctuate in the short term. At present, the A-share index options skew has bottomed out and rebounded. Out-of-the-money put options have become relatively more expensive versus their prices, reflecting that the market’s concern about a second wave of geopolitical shocks is coalescing, and risk appetite is unlikely to show a smooth repair in the short term.

2）However, we do not think investors need to worry excessively. The market is expected to have no systemic risk. The key is that market-stabilization policies have not changed. On March 18, the People’s Bank of China stated it would “resolutely maintain stable operation of financial markets such as stocks, bonds, and foreign exchange.” Our estimates also show that the China Investment Corporation’s (汇金) ETF holdings have shifted from net outflows previously to net inflows. Therefore, after the index adjusts further, it is still possible that long-term stable-market capital will quickly step in.

3）Structurally, we expect performance to revolve around growth tracks with strong independence. Reviewing two rounds of typical overseas geopolitical risk events—the Russia-Ukraine conflict in 2022 and the U.S.-Iran conflict in 2025—on the first month after geopolitical risk peaks, the market’s trading still revolves around energy-type cyclical resources directly related to the conflict and with rigid supply-demand. In the second month after geopolitical risk peaks, industries that have surged primarily driven by the geopolitical event are unlikely to give back excess returns significantly, while the leading sectors that declined before the risk peak are unlikely to become the main line for the subsequent rebound in the short term. After geopolitical risk pricing is completed, sectors that are not directly strongly linked to the conflict and have independently high-growth industrial logic have greater ability to continue delivering excess returns.

Allocation strategy: Place emphasis on the defensive attributes of dividend assets, and position for repair candidates after the marginal convergence of geopolitical risk.

（1）High-dividend dividend assets: In a macro environment where geopolitical conflicts occur frequently and global economic growth momentum is relatively weak, dividend assets’ certainty and defensive attributes have extremely high allocation value.（2）Globally priced commodities: After the conflict-related sentiment shock in this round, as geopolitical risk converges at the margin, commodities such as copper, gold, and others will face clear allocation opportunities.（3）Build positions in growth tracks on dips: Build positions on dips in technology industries with shortages, and in overseas manufacturing directions with global competitiveness, to capture opportunities for a dual recovery in earnings and valuation after market sentiment stabilizes.

April Top Stock Portfolio

Top-down industry recommendations combined, the following are the CITIC Taishe Securities (中泰证券) April 2026 “golden stock” recommendations (not ranked in any particular order): Hong Kong dividend low-volatility ETF (strategy), Jin Haitong (electronic), Wanhua Chemical (chemicals), Baofeng Energy (chemicals), China Jushi (building materials), Huaxin Building Materials (building materials), NIO-SW (automobiles), BYD (automobiles), Huarui Precision (advanced industries), Guansheng Co., Ltd. (advanced industries), Shantui Co., Ltd. (machinery), TCL Electronics (home appliances), Guanglian Aviation (military industry), Jiuhua Tourism (commercial services), Zhujian Jiang Co., Ltd. (commercial services), Yongding Co., Ltd. (communications), Kingdee International (computer), WuXi AppTec (pharmaceuticals), Focus Media Information Technology (media), Zhongyuan Media (media), China Taiping Group Insurance (non-bank financial).

Risk Warning

Risks include economic downside pressure exceeding expectations, policy support falling short of expectations, and the risk of data updates not being timely.

（Source: CITIC Taishe Securities）