Recent escalation in the Middle East, triggered by last week's US-Iran conflict affecting key energy facilities in the Gulf region and President Trump's March 21 ultimatum giving Iran 48 hours to open the Strait of Hormuz or face strikes on its power infrastructure, has heightened geopolitical risks. Concurrently, major developed market central banks, including the US Federal Reserve, held interest rates steady at their policy meetings last week, reinforcing expectations that rates will remain elevated for longer. This has sustained a risk-off sentiment among investors, leading to a rapid expansion in equity market volatility.
In terms of market performance, major Asian equity indices declined broadly today, with key A-share benchmarks also experiencing significant corrections. At the close, the Shanghai Composite Index fell 3.63% to 3813.28 points, while the Shenzhen Component Index and the ChiNext Index dropped 3.76% and 3.49%, respectively. The Beijing Stock Exchange 50 Index and the STAR 50 Index both fell more than 4%. Nearly 5,200 stocks across the market ended lower, with trading volume expanding to 2.45 trillion yuan. Sector-wise, defensive plays such as food & beverage and banks showed relative resilience, while most other sectors performed weakly.
Looking ahead, near-term market direction is likely to remain constrained by uncertainties in the Middle East, with a high probability of prolonged bottoming-out oscillations. However, technically speaking, the Shanghai Index may already be in the latter stages of its correction cycle, suggesting limited room for further steep declines. Moreover, the fundamental logic supporting A-shares has not fundamentally reversed. Factors such as China's potential gradual exit from deflation, the possibility of Producer Price Index turning positive sooner due to upstream resource price increases, policy support for capital markets, ongoing industrial upgrading, and potential incremental fund inflows all remain intact.
From the perspective of the current energy transformation, China holds a relative advantage in its energy structure. Rising crude oil prices could benefit midstream manufacturing and export industries, potentially enhancing the competitiveness of Chinese manufacturing. Therefore, the current market adjustment appears more cyclical than trend-driven. Once uncertainties are digested and market positioning is cleared, the market is expected to transition into a new phase driven by earnings growth.
From an investment perspective, until the broader situation becomes clearer and trading volume expands sustainably, a strategy of "remaining patient and focusing on high-growth sectors" may be advisable. Historical experience shows that reactive trading during periods of high volatility is often inadvisable; instead, significant corrections can present windows of opportunity for medium-term positioning.
Investors should exercise caution toward highly-valued, overcrowded segments and assets sensitive to liquidity conditions. Alternatively, they may consider allocating to sectors with independent growth drivers that are less correlated with external liquidity, patiently awaiting market stabilization. Defensively, dividend-yielding assets such as banks and utilities could be considered. On the offensive side, sectors related to energy security and supply chain resilience—such as oil & gas, coal, power equipment (grid, energy storage), and coal chemical—warrant attention, as do areas with dual support from earnings and policy, including upstream AI computing, optical communication, and energy security, where medium-term growth prospects appear relatively certain.
Unless otherwise stated, data on this page is sourced from Wind and Morgan Asset Management, with a cut-off date of March 23, 2026.
The above information does not constitute investment advice, or an offer or solicitation to purchase any securities, investment products, or services. The content is based on sources believed to be reliable, but verification is recommended. Investing involves risks, and different asset classes carry different risk characteristics. Past performance is not indicative of future results. Please refer to the relevant offering documents for details, including risk factors. Views and forecasts are current as of the date of writing and are subject to change.