On March 23, the A-share market, which investors had hoped would defend the 3900-point level, ended up fighting to hold the 3800-point mark—and narrowly succeeded. By the close, the Shanghai Composite Index had fallen sharply by 3.63% to 3813.28 points, after briefly dipping below 3800 during the session. The Shenzhen Component Index dropped 3.76%, while the ChiNext Index declined 3.49%. Nearly 5200 stocks fell across the two exchanges.

More concerning was the significant increase in trading volume, which expanded to 2.45 trillion yuan, up more than 140 billion from the previous session. A sharp decline on heavy volume signals panic selling and stop-loss orders being triggered, with some investors forced to sell at a loss.

Multiple investment institutions suggest that, at this stage, investors should neither panic and sell indiscriminately nor attempt to catch falling knives. A private fund CEO recommended waiting patiently for the market to fully digest the sell-off before seeking out targets with valuations below fundamentals, clear growth prospects, and strong dividend or buyback programs. This approach, he noted, would be a wiser strategy to navigate uncertainty and position for the next rebound.

A public fund investor also cautioned against rushing to buy the dip, pointing out that quantitative-driven selling has not yet run its course—particularly in technology stocks, which may still have further to fall. Although a short-term rebound is possible in the coming days, attempting to trade it at current levels carries significant risk.

Who is driving the sell-off? The trigger lies in the Middle East. One private fund CEO stated plainly: “The market has finally woken up to the fact that geopolitical conflict will not end quickly and is likely to evolve into a medium- to long-term war of attrition.” The focus is the Strait of Hormuz, a critical chokepoint for global energy supplies. If disruptions persist, constraints on crude oil supply could last much longer than anticipated.

As a result, Brent crude has remained above $100 per barrel for an extended period and, as of writing, had surged to $109. Rising oil prices fuel inflation expectations, potentially dashing hopes for Federal Reserve rate cuts and reviving fears of further hikes. Some market participants are even pricing in a “stagflation” scenario.

Yang Delong, chief economist at Qianhai Kaiyuan Fund, noted that higher oil prices are pushing up inflation expectations, forcing the Fed to delay easing—a development that is severely impacting other asset classes.

Global risk assets fell broadly in response: the Nikkei 225 dropped 3.48%, South Korea’s KOSPI plummeted 6.49% triggering a circuit breaker, and U.S. stock futures also trended lower.

Zhang Pengyuan, researcher at Paipaiwang Wealth, identified four main factors behind the decline: First, geopolitical risks have escalated beyond expectations, shifting from short-term conflict to prolonged warfare, with consensus building around sustained high oil prices. Second, stagflation fears are growing as rising oil prices threaten to lift inflation while economic growth slows, compressing valuations for risk assets worldwide. Third, the Fed’s hawkish tone at its March meeting has cooled expectations for rate cuts, with some traders betting on no cuts—or even hikes—this year. Higher U.S. Treasury yields have hit A-share technology and small- and mid-cap stocks particularly hard. Fourth, domestic forced selling has intensified, as some institutions adjust portfolios ahead of quarter-end reviews. Heavily weighted sectors such as AI and semiconductors, which had risen sharply, are now seeing concentrated selling as investors lock in gains. More troubling, redemption pressures on some fixed-income-plus products have triggered a negative feedback loop: redemptions force selling, which drives further declines.

Did state-backed funds step in? Will a liquidity crisis emerge?

Sector performance on March 23 was a tale of two extremes. Coal and oil and gas were the only bright spots, benefiting from high crude prices and serving as rare safe havens. Yunnan Coal Energy and Liaoning Energy surged by the daily limit, standing out in a sea of red. The logic is straightforward: as long as conflict continues and oil prices remain elevated, coal—as an alternative energy source—will also benefit.

Every other sector fell sharply. Gold, traditionally a safe-haven asset, performed worst of all, becoming a source of risk instead. International gold prices fell sharply for several sessions, at one point dropping nearly $4100 per ounce during the day. Chifeng Gold and Sichuan Gold both hit the downside limit. Market participants quipped that Middle Eastern investors may be selling gold to cover losses in other assets.

Zhang Pengyuan suggested that sharp swings in precious and base metals indicate that traditional safe-haven logic has broken down, leaving funds with only one option: flock to energy and high-dividend stocks.

Amid the anxiety, investors are focused on two key questions. First, have state-backed funds intervened? Although the market fell sharply overall, notable buying emerged near the close in several major broad-based ETFs, including the Huatai-PineBridge CSI 300 ETF, Southern China Securities 500 ETF, ChinaAMC SSE 50 ETF, and Southern China Securities 1000 ETF. The Huatai-PineBridge CSI 300 ETF saw nearly 6.8 billion yuan in turnover, a one-month high, while the ChinaAMC SSE 50 ETF exceeded 4 billion yuan, up more than 1 billion from the previous day. However, this was largely interpreted as tentative buying rather than sustained intervention. One private fund source observed that during the market rally in early-to-mid January 2026, state-backed funds sold significant A-share holdings, and there is no clear evidence of large-scale ETF purchases at current levels. The present decline may not be deep enough to attract substantial official support.

Second, could a liquidity crisis occur? This has become the market’s biggest “gray rhino” risk. As the downturn continues, some analysts warn that loss thresholds may have been reached for certain fixed-income products with equity exposure, potentially triggering a wave of stop-loss selling. One private fund insider warned that forced selling is now more than 50% likely in small- and mid-cap stocks, metals, and overheated tech sectors. He advised investors to “strictly avoid these areas, reduce positions, and wait for the sell-off to run its course before buying.”

Bi Mengchan, researcher at Geshire Fund, also cautioned that liquidity conditions are becoming increasingly fragmented, urging investors to avoid high-flying thematic stocks and high-volatility micro-caps to prevent being caught in a liquidity squeeze.

Zhang added that the market is still digesting the shock, and high volatility may persist. Growth sectors that had rallied strongly now face pressure from both valuations and fund outflows. Strategically, it is wiser to use any rebound to adjust portfolio structure rather than chase rallies or sell in panic.

Waiting for the “Clearance” and Hunting for “Golden Opportunities”

When will the market bottom? That is the question on everyone’s mind. Generally, a market bottom requires two signals: a de-escalation of Middle East tensions and a cooling of oil prices, and a full capitulation of panic selling accompanied by shrinking volume.

Advice from institutional sources is consistent: stay on the sidelines in the short term. Zhang Pengyuan outlined clear near-term indicators to watch: stabilizing markets on lower volume, an improvement in the number of advancing versus declining stocks, and sustained inflows through northbound trading. Until these signals appear, it is better to remain cautious. Beyond these, Middle East developments, oil price trends, and shifting Fed policy expectations will be the key external variables determining the strength of any rebound.

Zhang believes that A-shares’ fundamental picture has not deteriorated systematically. Short-term trading may remain volatile as the market digests recent losses, but as sentiment gradually recovers, structural opportunities will eventually emerge around undervalued defensive assets and high-quality growth names.

Bi Mengchan also recommends keeping equity exposure between 30% and 50%, holding ample cash, and waiting for more certain opportunities. The private fund CEO quoted earlier offered a more direct strategy: “Wait patiently for the downturn to clear, then search for targets where valuations are below fundamentals, selling has been exhaustive, growth is visible, and dividends or buybacks are strong.” He believes that once panic subsides, these oversold assets will rebound significantly.

Over the medium term, the focus should be on “misplaced sell-offs” and “genuine growth.” Institutional views suggest that medium-term allocations should center on “defensive plays + certainty + growth stocks after adjustment.” First, high-dividend and energy stocks serve as anchors. Zhang noted that sectors like utilities and power, with stable cash flows and dividend advantages, offer safe harbors for core holdings. Second, on the offensive side, AI and resource plays remain key. Zhang Kexing, general manager of Beijing Gray Asset, stated that AI and resources will continue to be main themes this year, and the recent pullback offers a chance to build positions gradually.

Minsheng Jianyin Fund highlighted a new logic for AI: the focus is expanding from computing power to “storage + computing + power.” Massive electricity demand from AI data centers is expected to drive growth in grid and power equipment sectors.

As Jinxin Fund noted, the market is likely digesting short-term shocks from external changes. While near-term performance may remain under pressure, the foundation for medium- to long-term improvement remains intact. From an investment perspective, investors should acknowledge near-term volatility while maintaining confidence in the market’s longer-term trajectory. In terms of allocation, a “barbell strategy” combining high-dividend defensive sectors with technology growth segments is recommended.

Ping An Fund suggests focusing on three main themes: technology growth (including computing infrastructure, semiconductors, and advanced manufacturing), high-dividend assets, and resource plays (energy and commodity producers).