Shanghai Composite Index Barely Holds 3800 Points! Institutions Warn: Don't Buy the Dip Yet, Wait for Stabilization

March 23rd, the A-shares market was sluggish all day, with heavy volume and a sharp decline. Key indices fell over 3%, with 5,172 stocks closing lower. Daily trading volume increased to 2.45 trillion yuan.

Sources say the main reason for the market decline is the escalation of US-Iran tensions pushing up oil prices, triggering global “stagflation” concerns. The Federal Reserve signaled a hawkish stance, reversing expectations of rate cuts, and tightening global liquidity suppressed valuations. Additionally, the A-share market had previously experienced significant gains, and the convergence of quantitative trading and capital chasing amplified market volatility. It is advised to control positions, wait for stabilization, and avoid panic selling or aggressive bottom-fishing.

Shanghai Composite Index briefly fell below 3,800 points during the session.

Today, the A-shares opened lower and declined across the board. The Shanghai Index briefly broke below 3,800 points during trading, ultimately closing down 3.63% at 3,813.28, down 143.77 points for the day; the ChiNext Index fell 3.49% to 3,235.22; the Shenzhen Component Index dropped 3.76%. The STAR Market fell over 4%, the Northbound Connect 50 over 5%, and the CSI 300 and SSE 50 declined more than 3%.

Trading volume significantly increased, with daily turnover up 1,454 billion yuan to 2.45 trillion yuan. Last Friday, A-shares weakened in the afternoon, indicating concerns over weekend uncertainties. Regarding leverage funds, risk aversion also clearly rose. As of March 20, the margin financing and securities lending balance in Shanghai and Shenzhen markets dropped to 2.63 trillion yuan.

The loss aversion effect was evident, with only 305 stocks rising, 38 hitting daily limit-ups; 5,172 stocks declined, with 133 hitting limit-downs. Among active stocks, only seven had daily turnover exceeding 10 billion yuan, including Huagong Tech, Zijin Mining, Sungrow, CATL, Zhongji Xuchuang, and Suning.com, all falling. BYD was the only stock to rise over 4% against the trend.

In terms of sectors, the blade battery sector performed well, while oil and gas, coal chemical, and shale gas declined slightly. Electronics, Zhipu AI, and leisure services sectors fell over 6%.

Out of 31 first-level industries in Shenwan, only coal and oil petrochemicals showed slight gains; utilities, power equipment, automobiles, and basic chemicals declined less than 3%. Twenty sectors fell more than 4%, with social services and beauty care down over 6%. Agriculture, forestry, animal husbandry, fishery, textiles, electronics, comprehensive sectors, and computers all saw significant declines.

Despite rising risk aversion, gold stocks and gold ETFs also fell sharply. Recently, COMEX gold futures continued to decline, falling nearly 7% to $4,258.5 per ounce at the time of writing.

Expectations for monetary policy are shifting toward tightening.

“Today’s market adjustment was mainly due to the impact of the US-Iran conflict,” said Ma Tao, Chief Strategy Analyst at China Ocean Fund. As Middle East tensions worsen, concerns grow that international crude oil prices may stay high. Meanwhile, the Fed maintained interest rates at last week’s meeting amid rising US inflation expectations caused by the US-Iran conflict. Overseas investors are now expecting no rate cuts from the Fed this year, and some even anticipate rate hikes.

Bao Xiaohui, Chairman and Investment Director of Changli Assets, believes the core reason for today’s sharp decline is the rising global inflation expectations, which directly changed market perceptions of central bank monetary policy. Previously, markets expected a global rate-cut cycle, supporting asset valuations through lower funding costs; now, inflation pressures have re-emerged, raising fears that rate cuts may not happen and that a rate hike cycle could restart. The shift from loose to tight monetary policy has increased funding costs, directly suppressing stock valuations, and panic sentiment has spread rapidly, creating a negative feedback loop.

“Iran’s escalation has triggered stagflation fears, causing Asian stock markets to decline across the board. Today’s A-shares market was extremely panicked, with strong risk aversion and obvious panic selling,” said Cheng Liang, Fund Manager at 33 Degrees Capital. The escalation of US-Iran tensions is the trigger. Expectations of blocked shipping through the Strait of Hormuz pushed Brent crude above $108, quickly shifting market thinking from a “bullish” mindset to “stagflation trading.” High oil prices raise concerns about imported inflation, suppressing growth stocks’ valuations, while profit-taking by previous winners (especially small- and mid-cap stocks) intensified the sell-off.

Chen Jiande, General Manager of Tianlang Fund, analyzed that the main reasons for today’s sharp decline are threefold: first, the prolongation and possible expansion of Iran-related conflicts leading to decreased global risk appetite; second, the market’s previous large gains, especially in thematic and small-cap stocks, which now need adjustment; third, the current convergence of quantitative fund trading amplifies investor behavior.

Zhang Pengyuan, a researcher at Paimai.com, also explained to the “International Financial News” that the reasons for the large decline include: one, the geopolitical risks in the Middle East have intensified beyond expectations, with oil prices remaining high; two, stagflation fears have increased, pressuring global risk assets. Rising oil prices boost inflation expectations, and concerns about a “slowdown + high inflation” stagflation pattern have intensified, leading to a broad valuation contraction in risk assets. Precious metals and base metals fluctuate sharply, invalidating traditional safe-haven logic, with funds clustering in energy and high-dividend sectors. Three, hawkish signals from the Fed have significantly cooled expectations of rate cuts. The Fed’s March meeting kept rates unchanged, raised inflation outlook, and market expectations for rate cuts this year have been substantially revised downward, with some pricing in no cuts or even rate hikes. Rising US bond yields and tightening liquidity in high-valuation growth stocks directly suppress the tech and small-cap sectors in A-shares. Four, end-of-quarter fund behaviors combined with redemption pressures further amplified volatility in high-flying sectors.

Gushang Fund analyst Bi Mengran pointed out that the core logic behind the decline is mainly external shocks. The March Fed meeting sent unexpectedly hawkish signals, reducing the expected number of rate cuts in 2026 from two to less than one, causing the 10-year US Treasury yield to surge to 4.39%. Global dollar liquidity tightened, directly suppressing high-valuation assets, with the tech growth sector bearing the brunt. Meanwhile, geopolitical tensions in the Middle East escalated sharply, with increased risks in the Strait of Hormuz, and international oil prices broke above $110 per barrel, triggering global stagflation fears. Risk assets globally declined, with US stocks plunging last Friday and Asia-Pacific markets weakening simultaneously. Panic quickly spread to the A-share market, with northbound funds reducing positions temporarily, further increasing selling pressure. Internal funds and sentiment pressures also amplified the decline.

Three major risks to watch now:

1. The ongoing development of geopolitical conflicts. The evolution of Middle East tensions remains highly uncertain. If risks in the Strait of Hormuz persist or escalate, international oil prices will stay high, reinforcing stagflation expectations, impacting energy sectors, and through imported inflation and declining risk appetite, exerting continuous pressure on the A-share market—especially on cyclical and high-valuation growth stocks.

2. The transmission risk of liquidity tightening. Globally, hawkish Fed stance may persist longer than expected, with high US interest rates and yields, leading to continued capital flow back to the US. Northbound funds may slow or reverse inflows, suppressing high-valuation assets in A-shares.

3. The risk of a change in market valuation logic. Previously, the A-share market was mainly driven by expectations, with thematic growth sectors like AI and computing power leading through speculation and valuation increases. Now, the market is gradually shifting toward “fundamental validation,” with funds rotating from high-valuation, volatile thematic stocks to low-valuation, high-dividend, performance-strong sectors. If upcoming annual and quarterly reports show underperformance in previously hot sectors or better-than-expected results in defensive sectors, this will reinforce the valuation shift, intensify sector differentiation, and cause further declines in previously high-flying stocks. The process of valuation change will also involve market sentiment fluctuations.

Bao Xiaohui believes this adjustment is likely to last about half a month. The Middle East situation remains uncertain, and external risks will continue to disturb the market; additionally, the earnings season in April will prompt funds to wait and see.

Chen Jiande thinks the short-term outlook for A-shares remains weak, with panic sentiment possibly leading to further declines.

“One-day heavy volume declines release most of the short-selling momentum, but emotional recovery takes time.” Cheng Liang expects the market to enter a volatile bottoming phase in the near term, with indices oscillating around 3,800 points, making a V-shaped reversal unlikely. If Iran’s situation does not worsen further, there may be technical rebounds, with resistance around 3,860–3,880 points.

Avoid aggressive left-side positioning.

In this environment, how should investors position themselves?

Chen Jiande recommends controlling positions, as market volatility and swings are currently large. Sector-wise, focus on coal, oil, energy storage, benefiting from rising oil prices; be cautious with thematic stocks that have already surged and are highly valued.

“Oscillating to find a bottom, control positions, wait for stabilization.” Cheng Liang suggests keeping total positions around 60%. Cut losses on growth stocks that break below support and lack earnings, and focus on core themes of technology (growth) and energy (cyclical). Specifically, on the defensive side—coal, oil, energy storage, photovoltaics, lithium, hydrogen; on the offensive side—AI computing, semiconductors. Do not bottom-fish now; wait until indices stabilize and signals of Iran easing (such as negotiations) appear before considering left-side deployment.

Zhang Pengyuan advises that investors should prioritize stability, control overall risk exposure, and avoid aggressive left-side positioning during the decline driven by sentiment. It’s better to wait for clear stabilization signals before gradually participating. Overvalued growth and high-elasticity sectors still face valuation and capital pressures; strategies should focus on structural optimization during rebounds rather than chasing highs or panic selling. From a medium-term perspective, allocations can focus on “defense + certainty + post-adjustment growth.”

“High-flying tech stocks and small- and mid-cap stocks face certain correction risks, and US-Iran tensions may accelerate their adjustment,” said Ma Tao. In the short term, investors should stay cautious, reduce risk appetite, and allocate to low-priced growth blue chips, high-dividend stocks, and stable consumer stocks for defense. Recommended sectors include: power, telecommunications, transportation with good cash flow; tourism, food and beverage, retail benefiting from domestic demand expansion; high-end manufacturing, domestic substitution, AI, and pharmaceuticals.

Bi Mengran notes that the current market is in a stage of risk release combined with style switching. Short-term positions should be kept between 30% and 50%, with cash reserves waiting for stabilization signals. Defensive core holdings can include high-dividend and energy resources such as coal, power, and utilities—low valuation, high dividend, stable cash flow, and good for risk hedging. Medium-term, focus on sectors with clear earnings, such as energy storage, semiconductors, and related equipment.

“Overall, operate cautiously, control positions, and avoid frequent trading,” Bao Xiaohui emphasizes. The recent sharp decline is essentially a market shakeout, digesting floating positions and bad news. Once panic subsides, the market will gradually stabilize and rebound. The most important thing for ordinary investors now is to stay calm and avoid being driven by panic.