CITIC Securities | How Much Has Market Sentiment Cooled Down Under the Shadow of War?

Text | Xia Fanjie

Although the mood index slightly rebounded at the beginning of the month, under the continued escalation of the US-Israel-Iran war, the sentiment index has been declining since March 17, dropping below 60 by the end of the month, approaching the median level. If subsequent wars and oil prices do not spiral out of control, a good buying signal for A-shares is: when the sentiment index falls into the 50-55 range, it issues a left-side buy signal, with the sub-indicator showing oversold signals and no warning signals. Conversely, if oil prices surge and trigger expectations of Fed rate hikes, the 10-15 range may become the new left-side buy signal zone for the sentiment index.

How much has market sentiment cooled under the shadow of war?

Turnover rate: rose first, then fell in March, ending near 1.8%. In early March, amid the outbreak of war and the convening of the Two Sessions, trading activity heated up again, with the turnover rate breaking above 2% into an overheated state. Subsequently, the turnover rate gradually declined, ending the month near 1.8%.

New fund issuance for equity funds: also rose first, then fell sharply in March. After the holiday, new fund issuance sharply cooled, becoming a major drag on the sentiment index. In mid-March, new fund issuance rapidly increased, then retreated in the latter half of the month, ending at a relatively low level, reflecting large fluctuations in investor sentiment.

Margin buying ratio: generally declined, ending near 9%. Since March, influenced by the Two Sessions and the US-Israel-Iran war, leverage sentiment has generally decreased, but with little volatility. The margin buy ratio dropped to about 9% at month-end, remaining at a median level.

Implied risk premium: slightly rebounded in March, maintaining a median level. In February, this indicator had fallen to the lowest level since 2022. In March, with market declines, it showed a slight rebound, improving the valuation of equity assets.

Equity-debt yield spread: significantly declined since late March, with the best profit effect since May last year. The indicator oscillated around zero in early to mid-March, then sharply declined since late March, marking the worst profit effect since May last year.

Above 60MA: sharply fell to around 60%, at a median level. After breaking the 80% warning line again at the end of February, we warned of a possible phase correction. In March, the indicator once dropped to 49%, currently around 60%.

Overbought/oversold: since the “924 market,” this indicator has remained above zero for a long time, indicating a short-term bullish market. Since March 20, it has fallen below zero for several consecutive days, showing a weak oscillating market. At month-end, the indicator was about -4%, not far from zero, indicating the market is not significantly oversold, with limited rebound momentum.

In late March 2022, we launched the CITIC Securities Investor Sentiment Index, composed of multiple publicly traded market indicators. This index has effectively reflected market sentiment levels during key periods in A-shares history and can lead market reversals at extreme highs and lows, showing some predictive ability. It is important to note that this index depicts investor sentiment and is a coincident indicator, with its predictive power mainly derived from how investor sentiment forecasts the market. Since its launch, it has attracted considerable investor attention. Starting from late April 2022, we have tracked and displayed the current market sentiment monthly, including the historical trends and latest movements of key sub-indicators. In August 2024, we released a special report reviewing the practical timing effects of the sentiment index over the past two and a half years and summarized the performance of different market styles under various sentiment states.

How much has market sentiment cooled under the shadow of war?

In our February report on market sentiment tracking, we pointed out that the sentiment index did not rebound as expected after the Spring Festival, and predicted the market rhythm would shift from an upward phase to a consolidation phase, advising cautious positioning and increased defensive assets. In March, major broad-based indices in A-shares collectively weakened, confirming our earlier judgment. Although the sentiment index slightly rebounded at the start of the month, the ongoing escalation of the US-Israel-Iran war caused the index to decline continuously since March 17, falling below 60 by month-end, approaching the median level.

After a sharp phase decline, the sentiment index at low levels often issues a left-side buy signal (i.e., increasing positions at panic lows). During a bull market rally (when the All A-shares index is above the annual and semiannual moving averages), 70 is often the level at which the sentiment index issues a left-side buy point (e.g., mid-June 2025, mid-December 2025). However, after the All A-shares index broke below the semiannual line on March 20, market sentiment quickly fell below 70 and further declined. Based on historical experience, in a oscillating bull market, the sentiment index may need to drop to 50-55 to issue a left-side buy signal (currently close to this level). In a oscillating bear market, the index needs to fall to 10-15 to trigger a buy signal (the market has not turned bearish yet). Therefore, if subsequent wars and oil prices do not spiral out of control, a good buy point for A-shares is when the sentiment index drops into the 50-55 range, with oversold signals in sub-indicators and no warning signals. Conversely, if oil prices surge and trigger expectations of Fed rate hikes, the 10-15 range may become the new left-side buy signal zone.

We analyze each sub-indicator. Among the seven major indicators, turnover rate, new equity fund issuance, margin buy ratio, implied risk premium, and equity-debt yield spread are smoothed with a 5-day moving average; the other two, above 60MA and overbought/oversold, were originally weekly data but are now unified to daily for better sensitivity, with the 60-week moving average replaced by a 300-day moving average. All subsequent analysis uses this standard.

Turnover rate: rose first, then fell in March, ending near 1.8%. In early March, amid war outbreak and the Two Sessions, trading activity heated up again, with the turnover rate breaking above 2% into an overheated state. It then gradually declined, ending near 1.8%.

New fund issuance for equity funds: also rose first, then fell sharply in March, with large fluctuations. After the holiday, new fund issuance sharply cooled, becoming a major drag on the sentiment index. In mid-March, issuance rapidly increased, then retreated in the latter half of the month, ending at a relatively low level, reflecting large swings in investor sentiment.

Margin buy ratio: generally declined, ending near 9%. Since March, influenced by the Two Sessions and the US-Israel-Iran war, leverage sentiment has generally decreased, with little volatility. The margin buy ratio dropped to about 9% at month-end, remaining at a median level.

Implied risk premium: slightly rebounded in March, maintaining a median level. In February, this indicator had fallen to the lowest since 2022. In March, with market declines, it showed a slight rebound, improving the valuation of equity assets.

Equity-debt yield spread: significantly declined since late March, with the worst profit effect since May last year. The indicator oscillated around zero in early to mid-March, then sharply declined since late March, marking the worst profit effect since May last year.

Above 60MA: sharply declined to around 60%, at a median level. This indicator reflects the strength of the market from a medium- to long-term perspective, representing the proportion of stocks closing above the 60-week (300-day) moving average. Historically, exceeding 80% or dropping below 20% often signals overheat or overcooling, with potential reversals. After breaking the 80% warning line again at the end of February, we warned of a possible phase correction. In March, the indicator once dropped to 49%, currently around 60%.

Overbought/oversold: for the first time since the “924 market,” this indicator has remained below zero for several days. It depicts short-term market strength. Since the “924 market,” it has been above zero, indicating a short-term bullish trend. Since March 20, it has fallen below zero for several days, showing a weak, oscillating market. At month-end, the indicator was about -4%, not far from zero, indicating the market is not significantly oversold, with limited rebound potential.

1. Data collection errors: all data are exported from third-party databases like Wind, which may have discrepancies in definitions. Due to timing issues, data may fluctuate. Since the latest fund issuance data is not yet available, we estimated it, which may differ from actual values.

2. The model is based on historical data, with limited predictive power: data are lagging, which may affect analysis. The model relies on recent historical data of A-shares, with limited future prediction capability; market sentiment may also be influenced by policies and other unpredictable events.

Securities Research Report Title: “How Much Has Market Sentiment Cooled Under the Shadow of War? — March Market Sentiment Tracking Report”

External Release Date: April 1, 2026

Publishing Institution: CITIC Securities Co., Ltd.

Analyst:

Xia Fanjie SAC ID: S1440521120005