The Shanghai Composite Index narrowly held above 4,000 points, with nearly 5,000 stocks declining! What’s the outlook for the future?

Ask AI · How Can the U.S.-Iran Conflict Evolve into an Economic Squeeze-Out Risk?

The escalation of the U.S.-Iran conflict triggers global market jitters. On March 19, China A-shares opened lower and then kept falling; trading volume was slightly higher at 2.13 trillion yuan, and investors’ risk-avoidance sentiment was clearly evident. By sector, resource-related stocks such as nonferrous metals led the declines. Tech stocks such as defense and electronics also fell sharply, while dividend/quality stocks held up relatively better. Coal and oil-and-gas sectors provided support.

Interviewees analyzed that market concerns have shifted from purely military confrontation to an “economic squeeze-out” risk. In addition, above the 4,000 level on the Shanghai Composite Index, a large amount of trapped positions from prior periods and profit-taking positions accumulated recently. Under the impact of negative factors from overseas, profit-taking funds have concentrated their sell orders, while trapped positions have cut losses and exited, further intensifying market volatility.

Looking ahead, in the near term, A-shares may enter a period of choppy bottoming-and-digesting. Investors should avoid panic selling. In terms of strategy, it is recommended to adopt a “defense-first, with limited tactical opportunities” approach—keep positioning flexible, and buy high-quality tech stocks on dips.

Nonferrous and other resource stocks plunge

In terms of index performance, the Shanghai Composite briefly fell below the 4,000 level during the session, then managed a slight late-session rebound to barely hold that mark. It ultimately closed down 1.39% at 4,006.55 points. The ChiNext Index closed down 1.11% at 3,309.1 points. The Shenzhen Component closed down 2.02%. The STAR Market 50 Index closed down 2.44%. The Beijing Stock Exchange 50 Index closed down 3.33%. The SSE 50 Index closed down 1.53%. The CSI 300 closed down 1.61%.

On trading volume, turnover rose slightly by 66.25 billion yuan; total daily turnover across the three markets was 2.13 trillion yuan. With the market continuing to churn recently, the size of leveraged funds has still remained above 2.6 trillion yuan. As of March 18, the balance of margin financing and securities lending (two-finance) across the Shanghai, Shenzhen, and Beijing markets was 2.65 trillion yuan.

On the trading board, gold and other precious metals, rare earth permanent magnets, chemical fertilizer and pesticide, and phosphate chemical products all fell sharply. Oil and natural gas, banks, oil-and-gas resources, shale gas, coal, and telecom operators all posted gains against the trend.

The money-losing effect was significant: 4,955 individual stocks closed lower, including 14 stocks that closed at the daily limit down. 505 stocks closed higher, with 36 stocks hitting the daily limit up. Looking at active stocks, Zijin Mining fell more than 7%; 3D MEMS? (Byu? actually: “佰维存储”)?—“Baiwei Storage” fell nearly 6%; Huyidian?—“沪电股份” pulled back more than 5%; Goldwind Technology fell nearly 4%.

Only coal, PetroChina? and Sinopec? (oil and petrochemicals), and the public utilities sector ticked up, while 26 Shenwan primary industries fell more than 1%. Sectors such as banks and telecoms were down slightly.

Resource stocks have “gone quiet” recently. Today’s biggest decliners: the nonferrous metals sector fell more than 6%, while steel and basic chemical industries also plunged. Tech stocks such as machinery and equipment, national defense and military industry, and electronics also saw sizable declines.

Ge-Shang Fund researcher Bi Mengyao told reporters that today resource stocks such as nonferrous metals, steel, and chemicals collectively led the market lower, mainly driven by three factors:

First, pressure transmitted from the futures market. Overnight, global commodities markets collectively dove. COMEX gold and silver futures fell sharply, while industrial metals such as Shanghai copper and LME copper moved down in sync. Domestic futures followed lower as well, directly suppressing A-share resource stocks—especially precious metals and industrial metals, which were most clearly affected by the linkage between futures and spot prices.

Second, a reversal in macro logic. Hawkish statements from the Federal Reserve cooled rate-cut expectations. The market then became dominated by the narrative that “high rates will last longer.” The opportunity cost of holding zero-yield commodities such as gold and copper rose sharply, and valuation logic was dealt a severe blow. This is the core driving force behind resource stock declines.

Third, profit-taking and capital rerouting. Since the start of the year, some resource-stock leaders have accumulated substantial gains, resulting in ample profits. Catalyzed by negative external news, funds concentrated their profit realization, triggering a “stampede-style” selloff. Meanwhile, active funds in the current market are highly concentrated in the tech growth main theme. Resource stocks struggle to attract incremental capital and lack a strong backstop, making it easier for prices to fall and harder for them to rise.

External disruption + internal capital tug-of-war

Against the backdrop of the U.S.-Iran conflict, A-shares had shown some resilience earlier, but today the declines were larger. The Shanghai Composite once dipped below the 4,000-point integer threshold, sending a more cautious message to the market. Combined with the trading-volume data, how should we view today’s pattern of A-shares opening lower and then falling throughout the session?

Sui Dong, a wealth researcher at Pai Pai Wang, told reporters from the International Finance News that the main external reason for A-shares’ sharp fall was the Federal Reserve’s hawkish stance suppressing global liquidity. In addition, the Middle East situation pushed up oil prices, triggering concerns about imported inflation. The internal logic is that the profit-taking positions accumulated earlier were realized in a concentrated manner around key integer levels, which then sparked technical selling pressure. Judging from the breakdown on rising volume, while there was some fund support during the decline, it was mainly “high-to-low switching” within the market—there was insufficient willingness from incremental funds to enter, resulting in a passive turnover under a stock-and-funds game driven by existing capital.

Li Si Yu, fund manager at Xiao Yu Investment, also analyzed that since March, the A-share market has maintained a range-bound churning and adjustment pattern, so in principle the impact of the U.S.-Iran conflict on A-share markets should gradually weaken. But last night the situation escalated again, and market worries further evolved into an energy crisis: persistent high oil prices could trigger a rise in global inflation and lead to further cooling of the Fed’s rate-cut expectations. In other words, the U.S.-Iran dispute has moved beyond purely the military-confrontation layer and escalated into an “economic squeeze-out.”

“The core reasons for A-shares’ big drop can be attributed to two aspects: external disruptions and internal capital tug-of-war.” Bi Mengyao said. On the external side, three major negative factors have concentrated: first, sustained hawkish signals from the Federal Reserve. At the policy meeting, the Fed kept interest rates unchanged, and the dot plot implied that in 2026 there would be only one rate cut, far beyond market expectations. This led to warming expectations of tighter global liquidity; U.S. Treasury yields rose and the U.S. dollar index strengthened, directly压制ing the valuation of risk assets in A-shares, and weighty sectors held heavily by foreign capital were the first to be sold. Second, geopolitical tensions in the Middle East escalated. After an attack on Iran’s South Pars gas field, safety threats emerged for energy facilities in related regions. International oil prices surged sharply: Brent crude broke above $103 per barrel, intensifying concerns about rising imported costs and further suppressing risk appetite. Third, coordinated declines across overseas markets. All three major U.S. stock indexes fell the night before. Major Asia-Pacific stock markets also weakened in sync, and pessimism was transmitted to A-shares, resulting in lower openings and no effective rebound throughout the day. On the internal side, the concentration and release of selling pressure from funds became the key driver of the decline.

Bi Mengyao added that above the 4,000 level, there are large quantities of trapped positions from earlier periods and profit-taking positions from recent times. The index has been repeatedly fluctuating at this level for multiple days without an effective breakout. Investors’ patience gradually ran out; under stimulation from negative external factors, profit-taking positions realized gains in a concentrated way, trapped positions cut losses and exited. With these two streams of selling pressure overlapping, the index fell broadly and across the board. At present, risk-avoidance sentiment has become the leading factor dominating the market.

Likely high volatility in the short term, and fast rotations

With A-shares currently disturbed by geopolitical conflicts, the impact on sentiment is obvious, and uncertainties from abroad still remain. Coupled with the upcoming earnings release season, what risks should investors watch? How will A-shares trend in the short term?

“Given the current market environment, fund behavior, and the degree to which negative news has been absorbed, A-shares are unlikely to see a strong reversal in the short term. Overall, it will mainly be about choppy bottoming and digesting pressure. The 4,000-point level is a key psychological threshold; afterward, it is highly likely that the market will keep engaging in repeated tug-of-war around that level.” In Bi Mengyao’s view, the core principle for positioning in the short term is light exposure for defense—avoid risks and don’t blindly try to catch the bottom.

Sui Dong believes that in the near term A-shares are expected to enter a pattern of range-bound bottoming with stability as the main tone. There is technical support near the 4,000 level on the Shanghai Composite, but limited by insufficient incremental funds and subdued market sentiment, the rebound’s momentum is limited. Most likely, the index will consolidate repeatedly within a range to build a bottom.

Yuan Huaming, General Manager of Wahui Chuangfu Investment, also expects that in the short term A-shares are more likely to show a choppy and slow upward trend. He believes that although the turning point has not arrived yet, it is approaching. Key turning signals to watch include whether trading volume can provide confirmation and whether a clear main theme has formed. If it’s only sector rotation, it will be hard to see a major trend. Current trading volume reflects cautious sentiment, and there is little chance of a broad-based rally in the index. However, considering that liquidity is relatively loose and policy support is strong, the market has strong support at the bottom and some upward momentum.

“Over the short term, A-shares will continue with a choppy pattern of high volatility and fast rotations.” Pan Jun, investment manager at Le Che? (奶酪基金), said that geopolitical events such as the U.S.-Iran conflict are the main short-term disturbances. Through the transmission of risk-avoidance sentiment, they could trigger brief choppiness and sector differentiation in A-shares, but overall there is limited downside room for the index. In addition, it’s close to the season for releasing annual and quarterly reports. The market is switching from valuation repair to performance validation. The requirement for listed companies’ earnings realization is becoming stricter, and the driving logic is shifting from a one-way rally driven by liquidity and sentiment to a choppy adjustment driven by fundamental verification.

“The A-share market index is starting to show signs of breaking down, indicating that it may enter a medium-term adjustment phase.” Li Si Yu said, “Due to the influence of heavy-weight stocks, the Shanghai Composite has limited reference value. For this round of the market, we have always used the Shenzhen Component as the reference indicator. The Shenzhen Component previously pulled back to the 60-day moving average multiple times, but it never broke below it. So we judge the market is still unfolding. If, within the next 3 to 5 trading days, the closing price cannot return above the 60-day moving average, then the market would basically confirm entry into a medium-term adjustment phase—meaning the index needs to search for support lower down.

Wang Zheng, General Manager of Shangyi Fund, analyzed that in recent days, the market has been influenced by overlapping factors such as disturbances from overseas geopolitical developments, uncertainty in overseas policies, and domestic earnings windows. The market clearly shows a characteristic of game-playing among existing (stock) capital, with overall risk appetite on the weak side. Because funds are worried about uncertainty and don’t dare to stay in a single main theme long-term, they can only switch quickly among sectors such as technology, cycles, and low-position defense. Meanwhile, although policies are being rolled out in multiple places, there is no strong single main line, which further accelerates the frequency of hot-spot switching and the speed of sector rotation.

Looking ahead, Wang Zheng believes that in the short term the market will still focus on choppy base-building and structural differentiation, with limited downside room for the index. But external disturbances and earnings disclosures will continue to bring volatility. In the medium term, the logic driving the rally will shift from sentiment and themes to the dual-wheel drive of “performance + policy.” Structural opportunities will remain the core feature.

Keep positioning flexibility

In a choppy market, how should investors manage their positions?

Li Si Yu recommended that investors should control their exposure appropriately. Those with overly heavy positions should reduce exposure when opportunities arise, since signs have appeared that the market is entering a medium-term adjustment. He analyzed that today’s broad drop in resource stocks such as nonferrous metals is mainly because the rate-cut expectations from the Federal Reserve cooled further, and the market began trading the logic of “hikes to curb inflation.” In the short term, technology stocks in non-war areas and resource stocks in war-related areas (oil, chemicals) form a “seesaw” effect, alternating in their performance. But if the market confirms entry into a medium-term adjustment phase, the strong sectors will ultimately “catch up on the downside” (sell off as well). Therefore, investors should focus on position management now and wait for market rebound signals.

“Within the current choppy environment of ‘resistance overhead (geopolitical pressure)’ and ‘support below (policy backstopping),’ it is recommended to adopt a dumbbell-style positioning strategy—balance defense with offense, and avoid chasing rallies or panic selling. Keep a neutral-to-constructive posture, and use the market’s pullbacks as opportunities to buy on dips rather than panicked liquidation.” Pan Jun analyzed that tech sectors benefited over the past year from the mapping of the global artificial intelligence industry revolution and domestic expectations for self-controllable policies, accumulating huge gains. In the short term, a decline in risk appetite led to a clear outflow of profit-taking positions. In contrast, resource stocks represented by coal and petrochemicals benefit from supply-side shocks brought by global geopolitical conflicts, which push up systemic costs for commodities such as crude oil and the risk-avoidance premium.

Sui Dong suggested a strategy of “defense first, with limited tactical plays.” The top priority is controlling overall exposure and keeping some flexibility. On allocation, investors should hold core positions in defense-oriented sectors with high dividend yields such as oil and coal, and avoid stocks that are already at high levels. At the same time, investors can take a light position in tech sectors like communications and computer services—areas whose prices have already adjusted sufficiently and whose valuations are reasonable—and conduct staged dip-buying.

“Under the convergence of multiple positive and negative factors, funds may rotate between the two directions of technology and resources.” Yuan Huaming said. Technology has outstanding growth potential, but it is also easily affected by market sentiment, leading to big volatility; it is therefore suitable as an offensively oriented allocation. Resource stocks are mainly driven by commodity prices and the supply-demand cycle. Top companies’ operations and dividends are relatively stable, valuations are relatively low, and thus they are good defense-oriented allocation assets. With the current market showing differentiation and rotation, balanced allocation to both technology and resource sectors is a better choice that weighs both return elasticity and volatility control. At the same time, the ratio between the two can be dynamically adjusted: when market risk appetite improves, increase the weight of the technology sector; conversely, increase the weight of resource sectors.

Bi Mengyao advised avoiding full-investment (all-in) positions and setting aside funds to deal with subsequent choppy adjustments, preventing panic selling and cutting losses. She analyzed that resource stocks in the short term still have multiple negative factors that have not been fully digested, so they will likely continue with range-bound adjustments. Some high-volatility items that surged earlier still have room to pull back. She suggested temporarily staying cautious and not blindly trying to catch the bottom. After waiting for three major signals—sector trading volume shrinking, futures prices stabilizing, and marginal improvement in the market’s expectations for Fed policy—then investors can take small positions in benchmark stocks with reasonable valuations and strong earnings certainty. For tech stocks, there may be mild choppiness in the near term, but over the long term they have support. She recommended buying quality stocks on dips; the core is that the sector has a dual logic of “policy support + demand surge,” and the growth logic is clear. For consumer sectors, catalysts in the short term are relatively weak. Domestic consumption data still has room to improve further, but some leading companies in certain sub-sectors still have opportunities.

Wang Zheng also recommended an allocation approach that combines offense and defense: use low-valuation sectors as the defensive core positions. For offense and elasticity, buy into new-quality productive forces such as AI compute power, semiconductors, and integrated compute-electricity collaboration, and capture the upside elasticity. Also, modestly add low-position repair sectors such as consumption and healthcare/biopharma to smooth portfolio volatility. In execution, control exposure, avoid chasing high valuations, and focus on waiting to buy on dips—mostly positioning oneself in advance to buy at lower levels.

Reporter Zhu Denghua

Text editor Chen Si