A-shares enter the bottom "strike zone," foreign capital optimistic about Chinese assets' certainty

Ask AI · How can new energy become a medium-term winner in A-shares amid geopolitical conflicts?

Although facing “Black Monday,” several institutional analysts believe that China’s stock market is likely to hit an important bottom and “buying zone,” with the new energy industry expected to become a “medium-term winner.”

On March 23, Asia-Pacific markets plummeted sharply, and A-shares also experienced a deep correction. However, according to Xinhua News Agency, U.S. President Trump announced on social media that the U.S. was engaging in dialogue with Iran. Subsequently, international oil prices experienced a sudden plunge.

Foreign institutional analysts remain optimistic about this year’s A-share trend, continuing to increase their holdings in the Chinese market. Industry insiders believe that geopolitical conflicts will not change the fundamental positive long-term outlook of A-shares. Besides China’s economic resilience and moderate, controllable inflation levels, its new energy-related industries are considered a major support for future market performance.

Zhang Wei, Chief Macro Analyst at Caitong Securities, believes that the impact of geopolitical conflicts on the crude oil supply chain is not just a simple cost increase but an extreme test of the global manufacturing industry’s underlying supply capacity. China has formed a “coal-backed, oil and gas supplement, non-fossil fuel uplift” combined model, creating a solid foundation for industrial production.

The strategy team at Bank of China Securities also states that, amid the high uncertainty of the US-Iran conflict, the importance of energy structure transformation is even more prominent. On one hand, power generation from photovoltaic and wind power is less affected by geopolitical conflicts and fossil fuel prices; on the other hand, increasing penetration of new energy vehicles can help reduce dependence on oil, while energy storage systems can smooth out new energy volatility and enhance absorption capacity.

Energy Structure Determines China’s Economic Resilience

On March 23, the four major indices of the A-share market all opened with gaps lower, rebounded slightly in the first half-hour, then oscillated downward, with the decline widening. The Shanghai Composite Index held the 3,800-point level at the close.

By the close, the Shanghai Composite fell 3.63%, closing at 3,813.28 points; the Shenzhen Component Index dropped 3.76%, closing at 13,345.51 points; the ChiNext Index declined 3.49%, closing at 3,235.22 points; the STAR Market Composite Index fell 4.93%, closing at 1,587.68 points.

Analysts say that, on one hand, the geopolitical conflict caused international crude oil prices to soar, intensifying global concerns over “stagflation”—a combination of economic stagnation and inflation; on the other hand, overseas liquidity expectations sharply deteriorated: the Federal Reserve’s hawkish stance strengthened, market expectations for rate cuts fell short, leading to a rapid rise in U.S. Treasury yields, which significantly suppressed valuations of high-growth tech stocks globally. Under these negative factors, panic selling surged, and sectors that had previously risen sharply became the main targets of capital outflows.

Despite the sharp decline on March 23, coal, oil, and natural gas sectors stood out, with Yun Coal Energy (600792.SH) and Liaoning Energy (600758.SH) hitting the daily limit, and Shanxi Coking Coal (000983.SZ) rising 9.42%. The auto sector was relatively resilient, with Hainan Automobile (000572.SZ), BYD (002594.SZ), and Yutong Bus (600066.SH) rising 5.23%, 4.46%, and 3.02%, respectively.

Looking at individual stocks, 305 stocks rose against the trend, with the largest numbers coming from photovoltaic equipment (21 stocks), power (20 stocks), batteries (17 stocks), coal mining (14 stocks), and auto parts (11 stocks).

In terms of main capital flows, Wind data shows that in the Shenwan secondary industry categories, on March 23, the net main capital inflow was 1.631 billion yuan for passenger cars, 711 million yuan for packaging and printing, and 605 million yuan for coal mining. Notable stocks with significant net inflows include GCL System Integration (002506.SZ), BYD, Shunhao Co. (002565.SZ), with inflows exceeding 1.1 billion yuan each; Tori New Energy (002218.SZ), Silver J (300085.SZ), Hainan Automobile, and others, with inflows over 400 million yuan.

Analysts believe that the rebound of coal mining stocks amid the decline is driven by the rise in energy prices caused by geopolitical conflicts, with main coal futures contracts hitting the daily limit, and increased demand for substitutes in the coal chemical sector due to rising oil and gas costs.

“Greater geopolitical risks lead markets to shift from efficiency to safety,” says Dongfang Securities. The importance of energy independence and control is increasingly emphasized. New energy power generation is not only low-carbon but also a self-controlled energy source with virtually zero external dependence. Under this background, energy security is expected to become a market mainline, with photovoltaic equipment being a key focus considering risk preferences and other factors.

Zhang Wei also notes that the energy structure grants China stronger supply resilience. Compared to Japan, South Korea, and Germany—highly dependent on oil and gas imports—China has built a “coal-backed, oil and gas supplemented, non-fossil fuel uplift” model. The share of non-oil and gas energy sources is already significant, with domestic coal resources combined with nuclear, wind, and hydropower forming a solid industrial base. China’s diversified crude oil sourcing and deep technological reserves in coal chemical industry give it a stronger capacity for raw material supply and hedging under extreme conditions.

“When overseas economies face shutdowns due to rising energy costs and raw material shortages, China’s manufacturing, with its complete supply chain and stable delivery, is well-positioned to take on global orders,” says Zhang Wei.

In the context of global energy security, accelerating overseas expansion of new energy vehicles is also a major focus. Dongfang Securities believes that to ensure energy security, countries worldwide are expected to seek to reduce reliance on traditional energy sources, with new energy vehicles becoming an important part of strengthening national energy security strategies. China’s new energy vehicle exports and auto parts exports will accelerate, becoming a key long-term growth driver.

Chinese Assets Are “More Certain”

Although some investors are concerned about energy price shocks and tightening financial conditions, both domestic and foreign institutions believe that short-term disruptions are unlikely to change the long-term trajectory of A-shares.

Fu Jingtao, Chief Strategy Analyst at Shenwan Hongyuan, believes that in the short term, the market may follow a process of “oversold—stabilize—policy support—rebound.” The market will likely continue to oscillate within a range, with leading sectors rotating. During periods with new opportunities (such as short-term energy storage and optical communication driven by industry cycles), the market may challenge the upper limit of the oscillation range.

“Short-term, the market may enter a consolidation phase, but the domestic economic fundamentals and policy support remain solid. The current Middle East conflict is expected to only impact the short-term rhythm, not the long-term positive trend of A-shares,” says the analyst.

Guotai Haitong Strategy team also states that the impact of micro-trading shocks is expected to be short-lived, and the current position is not suitable for blindly selling off. The Chinese stock market is likely to see an important bottom and “buying zone.” Chinese assets are not only relatively stable and secure but also benefit from diversified energy reserves and multiple growth drivers, which are scarce globally.

Foreign institutions remain optimistic about the A-share market. “In the short term, our allocation in A-shares is focused on energy, low-cost defensive assets, and sectors with independent growth logic, due to geopolitical conflicts,” says Jiang Xianwei, Senior Global Market Strategist at Morgan Asset Management China. Based on relatively high economic growth, clear policy directions, improving macro data, and industry restructuring, he remains optimistic about this year’s A-share prospects.

“Larger external factors like geopolitical conflicts haven’t changed our overall logic; they have just prompted us to accelerate our strategic deployment for the year,” says Liu Song, Chairman of LoboMai Fund Management (China). He remains bullish on A-shares, believing that although external factors may slow recovery, inflows of overseas capital and rebounding overseas demand will support the market.

Liu Song emphasizes that the core reason for continued investment in China is its unique “certainty” amid high global volatility. Compared to many economies still grappling with high inflation, China’s combination of economic resilience and moderate, controllable inflation levels offers a rare stability advantage.

Looking ahead, Liu Song sees two main catalysts for market growth: first, the reallocation of global funds from high-valuation markets to undervalued regions, which will likely bring sustained foreign inflows into China; second, the macroeconomic recovery driven by moderate inflation, as China gradually emerges from deflation, with moderate price increases helping to activate economic vitality and support market growth.

Jiang Xianwei adds that historical data shows that market shocks caused by geopolitical conflicts tend to be shorter than recessions. He emphasizes monitoring sectors supported by domestic policies and overseas demand, such as AI, power, and computing collaboration, as well as domestic capital expenditure on self-controlled infrastructure (domestic computing power, cloud computing, etc.), ongoing overseas computing supply chains (optical modules, PCBs), and future industry opportunities driven by policy and supply-demand improvements.

Fu Jingtao also advises maintaining confidence and patience in the medium term. He notes that each major global shock in recent years has been an opportunity to reassess China’s supply chain capabilities. This round of China safeguarding supply chain and energy security will be further validated, presenting a new chance for the market narrative to regain strength.

“In this external environment, China’s new energy system and manufacturing cost advantages are crucial,” says Chen Gu, Deputy Director and Chief Strategist at Orient Securities Research Institute. “The current energy crisis and overseas stagflation risks put pressure on global markets, but China’s new energy industry is poised to become a ‘medium-term winner.’”

(This article is from First Financial)