Despite ongoing fluctuations in the A-share market since March, capital has continued to pour in via sector and thematic ETFs. Wind data shows that from March 2 to March 5, sector index ETFs and thematic index ETFs recorded net inflows of 15.676 billion yuan and 27.833 billion yuan, respectively, making them the top two categories by net inflow among equity ETFs. Oil & gas ETFs, power grid equipment ETFs, chemical-themed ETFs, and nonferrous metals ETFs were the primary contributors to these inflows.

"Given the current characteristics of structured rotation in the market, sector and thematic ETFs have largely provided investors with a convenient way to capture phased opportunities in specific sectors," noted an analyst from Morningstar (China). However, she also cautioned that such ETFs are more susceptible to market trends and short-term sentiment, advising investors to avoid chasing rallies during periods of excessive optimism. While these products offer significant upside potential, their downside risks during corrections are often higher than those of broad-market ETFs.

Against a backdrop of geopolitical tensions, A-share market volatility intensified during the week. ETF activity remained robust, with equity ETFs attracting nearly 34.6 billion yuan in net inflows over two consecutive days of market adjustments on March 3 and 4. However, outflows were recorded on both March 2 and March 5. Thematic and sector ETFs emerged as particularly popular among investors.

On a weekly basis, equity ETFs as a whole saw a net outflow of 1.106 billion yuan from March 2 to 5. Within this category, however, sector and thematic ETFs collectively attracted net inflows totaling 43.509 billion yuan over the four-day period. Oil & gas ETFs, power grid equipment ETFs, chemical-themed ETFs, and nonferrous metals ETFs led the inflows.

Specifically, eight sector ETFs tracking oil and gas-related indices saw combined net inflows exceeding 22.5 billion yuan. Three ETFs tracking the Hang Seng A-Share Power Grid Equipment Index and one tracking the CSI Power Grid Equipment Theme Index together attracted nearly 7.5 billion yuan. Meanwhile, nonferrous metals-themed ETFs and chemical-themed ETFs each recorded net inflows of over 4.2 billion yuan. Rare metals-themed ETFs and rare earth-themed ETFs also drew significant interest, with net inflows of approximately 3.5 billion yuan and 2.2 billion yuan, respectively.

At the individual fund level, three sector/thematic ETFs each attracted over 5 billion yuan in net inflows during the period, led by Guotai AMC's Oil & Gas ETF (8.7 billion yuan), ChinaAMC's Power Grid Equipment ETF (5.3 billion yuan), and Penghua's Oil & Gas ETF (5.1 billion yuan). These were followed by inflows into similar products from other asset managers. An additional 12 sector/thematic ETFs saw net inflows ranging from 1 billion to 2 billion yuan, covering themes such as rare earths, rare metals, power grids, chemicals, defense, nonferrous metals, gold equities, and satellites. Notably, these 17 high-inflow ETFs occupied the top 17 spots in the net inflow rankings for all equity ETFs during the same period.

Industry experts attribute the popularity of sector and thematic ETFs to two main factors. First, as relatively convenient allocation tools, they offer diversification by holding a basket of stocks, thereby reducing single-stock risk compared to direct equity investments. This simplifies stock selection and improves asset allocation efficiency. Second, their structure is well-suited to capturing rotational opportunities in specific market segments under current conditions.

An analysis of the indices tracked by these ETFs shows mixed performance: while rare earth, rare metal, and defense indices declined during the week, the oil and gas index posted significant gains. Concurrently, the outstanding shares of sector and thematic ETFs increased substantially, rising by over 28.5 billion units between February 27 and March 5.

Beyond ETF flows, leveraged funds have also shown signs of recovery. According to Huatai Securities' strategy team, margin financing shifted to a net inflow of 79.5 billion yuan in the first week after the Spring Festival holiday, following two weeks of outflows, with activity levels rebounding above 10%. Retail investor participation also increased. Overseas, configured foreign capital recorded a net inflow of 3.75 billion yuan from February 11 to 25.

Different types of capital, however, have favored different sectors. Retail and leveraged funds increased exposure to AI and inflation-related chains such as electronics, nonferrous metals, and steel, while mutual funds reduced positions in inflation-sensitive sectors and added to service consumption, machinery, and electronics.

Looking ahead, analysts expect core indices to remain range-bound in the near term, with narrow fluctuations and a focus on structural opportunities. CICC's strategy team noted that as the first year of the 15th Five-Year Plan, market expectations for pro-growth policies are high, with medium-to-long-term reforms likely to be outlined during the ongoing National People's Congress. Supported by global monetary restructuring, AI adoption, and domestic stabilization measures, the market's "steady progress" trend is expected to continue, presenting a window for allocation.

Geopolitical tensions are currently reshaping asset pricing. A fund manager from Ping An Fund highlighted that expectations of prolonged conflict are accelerating global rearmament, potentially leading to a systemic reassessment of strategic metals like tungsten, tin, tantalum, and uranium. The shipping industry is also significantly affected, with disruptions in the Strait of Hormuz—a vital route for LNG trade—posing risks to natural gas supply stability.

Regarding oil prices, a portfolio manager from ZhongOu Fund suggested that future movements depend on the conflict's resolution. A swift end with minimal supply impact could cause a rapid fade in geopolitical premiums, whereas a prolonged conflict affecting Middle Eastern supply would have lasting effects. She cautioned that underlying oil fundamentals remain weak, with soft demand and ample OPEC+ spare capacity posing risks.

As for gold and silver, pricing is expected to revert to dependence on U.S. monetary policy and dollar credibility once safe-haven demand subsides. Amid increased market volatility, rational investment in equity ETFs is advised. Investors should remain cautious of buying during sentiment-driven rallies, recognizing that while sector ETFs offer high upside potential, they also carry greater downside risks compared to broad-market ETFs during corrections.