The Shanghai Composite Index falls below 3,900 points, with many equity funds already down over 20% in March—should you exit or increase your holdings?

Ask AI: How does the strong dollar phenomenon affect capital flows in emerging markets?

Beijing Business Today (Reporter Liu Yuyang) reports that after the previous trading day broke below 4,000 points, on March 23, the opening of the A-share market saw all three major indices opening lower and continuing to fluctuate downward, with the Shanghai Composite Index briefly falling below 3,900 points. By midday close, the Shanghai Composite, Shenzhen Component, and ChiNext Index had fallen by 2.5%, 2.53%, and 2.44%, respectively, closing at 3,858.18, 13,515.13, and 3,270.16 points. Since March, the three indices have declined by 7.32%, 6.76%, and 1.21%, respectively.

Looking back to early March, the Shanghai Composite once rose to a high of 4,197.23 points, approaching 4,200. However, in just 14 trading days, it repeatedly broke through three hundred-point levels. The market quickly shifted, with the non-ferrous metals sector leading the decline. Previously hot sectors like high-end manufacturing and AI-related technology stocks also pulled back, with risk-averse sentiment increasing.

According to China-Europe Fund analysis, since February, influenced by geopolitical risks, U.S. stagflation, and accelerated AI capital expenditure, global markets have experienced high volatility. The turbulence has significantly reduced leverage in the existing market and accelerated the downward risk in stock and commodity prices. Middle Eastern geopolitical risks remain uncertain, and increased geopolitical instability may keep global market volatility high. If oil prices stay elevated, global assets might further reduce risk appetite amid concerns about stagflation.

Financial commentator Guo Shiliang also pointed out that the recent rapid decline in A-shares is partly related to complex international situations, especially the recurring Middle East tensions and high oil prices triggering imported inflation. Additionally, the strengthening dollar index has caused capital to flow out of emerging markets. Under the strong dollar environment, assets like gold and emerging market stocks have fallen, speeding up global capital movement.

As a result, the net value growth rate of public equity funds has also sharply declined, with some products dropping by 20% within the month. Wind data shows that since March, only non-ferrous metal-themed ETFs led the market decline, with Tianhong CSI Industrial Non-Ferrous Metal ETF falling 21.98%, and similar products from GuoFeng, WanJia, and Penghua funds also dropping over 21.8%. Among active equity funds, those heavily invested in non-ferrous metal stocks, such as Tongtai Huiying Hybrid A/C, fell 21.66% and 21.68%, respectively, the most among similar products. Besides this theme, some funds focused on high-end manufacturing and AI-related sectors also declined over 15%.

Guo Shiliang admitted that the continued decline of these thematic funds, with losses exceeding the market index during the same period, is related to their previous large gains and short-term profit-taking pressure. Meanwhile, capital is a double-edged sword: it can trigger large inflows and push prices higher when rising, but also cause rapid sell-offs and accelerate declines when falling.

With recent market adjustments, investor sentiment has also shifted. Beijing Business Today observed in some fund discussion forums that keywords like “sell all,” “redeem,” and “bottom-fishing” frequently appeared, reflecting differing investor behaviors amid market volatility. So, is now the best time to exit or increase positions? Which sectors are more worth watching?

Guo Shiliang said that future support levels around 3,800 to 3,850 points need to be monitored. This zone is the starting point of the recent rally since December last year and represents a strong short- to medium-term support. Additionally, whether the strong dollar phenomenon persists should be observed, as capital outflows under a strong dollar environment may increase in the short term. In such conditions, capital might favor safe-haven assets like undervalued high-dividend stocks. Currently, the market valuation is not high, and further significant declines are relatively limited. Blindly clearing positions is not advisable; patience for a market stabilization opportunity is better.

China-Europe Fund also believes that, amid rising volatility, the structural market trend may continue, and the value of low-volatility assets is gradually increasing. Focus on sectors such as traditional low-volatility dividend stocks, especially banks; sectors with significant fundamental improvements not yet fully priced in, like technology storage and optical communications hardware; and cyclical sectors driven by increased risk aversion and rising prices.

Looking ahead, Qianhai Kaiyuan Fund Chief Economist Yang Delong pointed out that the market has been adjusting for some time. In the short term, further declines may be limited, with a slight rebound possible. From an industry perspective, leading companies in technology and new energy sectors still hold long-term investment value.