The A-shares dropped back to 3,900 points in two days! The three main reasons behind it, with institutional warnings

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Reporter | Pang Huaiwei

Editor | Jiang Shiqiang

A-share investors’ mood over the past three days has been like riding a roller coaster.

On Monday, the market plunged below 3,800 points amid panic, with some cutting losses and leaving the market, others unable to sleep all night. As a result, on Tuesday and Wednesday, the market rebounded for two consecutive days, with Wednesday directly reclaiming the 3,900-point mark.

By the close on March 25, the Shanghai Composite Index rose 1.30%, to 3,931.84 points; the Shenzhen Component Index increased 1.95%, and the ChiNext Index gained 2.01%. Nearly 4,900 stocks in the two markets rose, over 100 stocks hit the daily limit, and the market median change was 1.648%, with the profit-taking effect returning overnight.

Throughout the day, small-cap stocks outperformed large caps. The gains of the SSE 50, CSI 300, CSI 500, and CSI 1000 were +1.01%, +1.4%, +2.24%, and +1.98%, respectively.

Trading volume also modestly expanded to 2.19 trillion yuan, nearly 100 billion more than the previous day. What does this indicate? — Some investors are starting to rebuild positions.

Overall, after experiencing panic-driven sell-offs on Monday, the market has rebounded and recovered over the past two days. However, the strength of the rebound has weakened each day, indicating that funds remain cautious, and the market may enter a short-term consolidation phase.

An institutional expert warned: “Today’s rebound has already been significant; whether trading volume can continue to increase tomorrow is key. If volume shrinks, the sustainability of the rebound is doubtful.”

For ordinary investors, the current advice from institutions is a “simple approach”: don’t chase high, wait for a pullback, keep positions at 50-70%, and leave enough ammunition to handle uncertainties.

After all, what’s most difficult this week isn’t the direction but the rhythm. Poor timing could lead to big losses.

Three “heroes” driving the counterattack

In just two days, from panic to euphoria, what has sustained this rebound?

Hero One: The Middle East situation suddenly “cooled down.”

The trigger for Monday’s plunge was the escalation of US-Iran conflict and oil prices soaring to $109. The next two days, however, saw a sudden shift—US signals of ceasefire negotiations, and Iran’s letter to the UN stating non-belligerent ships can safely pass through the Strait of Hormuz.

Sui Dong, a researcher at Pao Wealth, said: “Easing geopolitical concerns is the core driver of today’s rebound.” Overnight, US stocks closed higher, and Asian markets recovered collectively on March 25, with the A-shares also bouncing back.

As a result, sectors like coal and oil, which surged against the trend on Monday, experienced “reversals” on Tuesday and Wednesday. China National Petroleum, Sinopec, and CNOOC fell collectively for the second day, marking a normal correction after geopolitical tensions eased.

Hero Two: “The central bank” provides support, liquidity stabilizes.

There’s also a “calm reassurance” internally. The People’s Bank of China conducted MLF operations, achieving net liquidity injection, maintaining a stable and ample liquidity environment. Bi Mengni, a researcher at Ge Shang Fund, pointed out this provides stable funding support for the market. Coupled with a significant rebound of northbound funds, the combined internal and external efforts have clearly restored market confidence.

Hero Three: AI and HALO dual engines drive, funds find their main focus.

If the first two are “assistants,” then the real rhythm-setters are industry logic.

On March 25, the most eye-catching concept was “computing and electricity collaboration”—Hua Electric Liaoning Power hit 8 consecutive limit-ups, Shao Neng Shares hit 5 limit-ups in 6 days, and more than ten stocks in the green energy sector hit the daily limit.

The logic behind this: The National Data Bureau recently announced plans to vigorously promote the computing and electricity collaboration project, ensuring that new computing power facilities at key nodes use over 80% green electricity. The explosive demand for AI computing power has made electricity the “new infrastructure” core.

Meanwhile, fiber optic prices hit a seven-year high, CPO concepts are active, and semiconductor equipment is strengthening. On the news front, China broke a record in optical communication transmission, achieving real-time bidirectional transmission of 2.5 terabits per second over 10.3 km of fiber.

Qianhai Open Source Fund’s Yang Delong said: “Technology and HALO assets are the two main investment themes this year.”

What is HALO? It refers to heavy assets (Heavy Assets) with low obsolescence (Low Obsolescence)—such as power, grid equipment, non-ferrous metals, railways, and logistics. These assets, in the AI era, are not only irreplaceable but also the “rebar and cement” essential for building large data centers.

Additionally, throughout the day, non-ferrous metals led the gains in the two markets under the influence of precious metals, with gold concept stocks collectively strengthening.

Institutional advice: Don’t rush

After two days of gains, can you still chase?

Wang Zhongyuan, founder of Zhirui Xing Investment, gave straightforward advice: “It’s not recommended to chase high. Today’s rebound has already been significant; the risk-reward ratio isn’t favorable. Wait for a pullback before entering.”

He provided specific suggestions: in the short term (1-2 weeks), the market is still in a recovery phase with large fluctuations, suitable for small positions to participate in the rebound, quick in and out, focusing on AI computing chain (like optical modules, servers) and energy sector after corrections; in the medium term (more than 1 month), optimistic, consider gradually deploying quality growth stocks (Chinese manufacturing + AI applications) below 3,900 points, controlling total positions at 50-70%, and leaving enough ammunition to handle geopolitical fluctuations.

Yongying Fund proposed the “HALO PLUS” strategy—continue to hold high-cash-flow, heavy-asset, high-industry-threshold sectors like coal, utilities, and construction on the defensive side; on the offensive side, focus on growth directions with still low trading congestion and less sensitivity to interest rates, such as commercial aerospace, batteries, and space photovoltaics.

Bi Mengni reminded that sector rotation is accelerating, so avoid blindly chasing short-term surges in themes. Focus on low-cost entries. Also, monitor trading volume sustainability; if subsequent trading volume cannot maintain current levels, the rebound strength may weaken.

Sui Dong’s more cautious conclusion: in the short term, A-shares are expected to continue oscillating and consolidating, with sector rotation. The index may fluctuate within a range, making a single-direction trend unlikely. Be alert to two major risks: repeated geopolitical tensions and some companies’ earnings falling short during the earnings season.

Yang Delong said: “The current market shows clear differentiation, presenting a ‘dumbbell’ allocation strategy. One end is technological innovation, the other is HALO assets. The former is flexible, the latter resilient.”

As for those traditional industries replaced by AI and “old stocks” in cyclical decline, he recommends staying away. The capital market is a barometer of the economy, reflecting the direction of economic transformation.