Huatai Securities: Currently, funds are still actively seeking "certainty" amid energy shocks

Haitong Securities’ research report notes that after the market adjusted last week, it saw a modest rebound. However, due to disruptions from overseas risks, trading-oriented funds were relatively cautious. This has shown a divergence between the market’s “money-making effect” and investors’ sentiment. Specifically, measured by the market “money-making effect” using the rise-and-fall index, the “money-making effect” had been repaired to around the level of March 19 by the end of last week. But net outflows of margin financing expanded to RMB 24.0 billion, and market activity fell to below 9%, the first time since July 2025. With market participants concerned that sustained fund outflows under shrinking trading volumes may give rise to liquidity risk, we believe: 1) the market’s money-making effect still exists; the average collateral coverage ratio for margin financing remains relatively stable, making the probability of a negative feedback effect occurring to the downside relatively low; 2) funds are still actively seeking “certainty” amid the energy shock. Consensus is accelerating toward an energy-substitution logic, and both indicate that while funds remain in overall defensive mode, they still retain a strong willingness for structural long positions.

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Haitong | Strategy: Finding Certainty While Staying Defensive

Last week, after the market adjusted, it saw a modest rebound. However, due to disruptions from overseas risk disturbances, trading-oriented funds were relatively cautious, showing a divergence between the market’s money-making effect and investors’ sentiment. Specifically, measured by the market’s money-making effect using the rise-and-fall index, this money-making effect had been repaired to around the level of March 19 by the end of last week. Yet net outflows of margin financing expanded to RMB 24.0 billion, and activity fell to below 9%, the first time since July 2025. If market participants worry that continuous fund outflows under shrinking trading volumes may lead to liquidity risk, we believe: 1) the market’s money-making effect still exists; 2) the average collateral coverage ratio for margin financing is relatively stable, and the probability of a negative feedback effect occurring to the downside is relatively low.

Key takeaways

Focus 1: Trading-oriented funds are cautious

After a sharp drop on Monday last week, the market saw a modest rebound. But trading-oriented funds remained cautious. Specifically, in terms of the market money-making effect measured by the rise-and-fall index: after it fell back to a stage low on last Monday, it had already been repaired to around the level of March 19 by the end of last week. However, regarding fund sentiment, the A-share sentiment index we observed continued to stay in the panic zone. Margin financing saw net outflows of RMB 24.0 billion last week. Compared with the previous period, net outflows widened, and margin financing activity also narrowed in sync to below 9%, the first time since July 2025. Such divergence between the money-making effect and sentiment—fundamentally—may essentially be affected by disruptions from overseas risks, and the willingness for large-scale capital inflows is still relatively low. In addition, with concerns that sustained fund outflows may lead to liquidity risk later on, we believe 1) the market’s money-making effect still exists; 2) the average collateral coverage ratio for margin financing is relatively stable, making the probability of a negative feedback effect occurring to the downside relatively low.

Focus 2: Funds are finding certainty amid the energy shock

Different from the funding seeking defensive directions during the selloff as described last week, this week funds are seeking more “certainty” under the shocks. And they are forming relatively strong consensus toward an energy-substitution logic: 1) although the buy-and-sell total on the Dragon-and-Tiger list as a ratio of all-A trading volume continues to decline, the share of power and utilities, and sectors such as electrical new energy, continues to rise; 2) public funds have increased their positions in the lithium battery and power sectors; 3) trading-oriented funds such as margin financing also show relatively high attention to the substitution logic brought by the shock, and utilities have received additional capital as investors added positions.

A breakdown of marginal changes across different types of funds

Retail funds: Last week, retail funds saw net inflows of RMB 3.75B. Funds had net inflows into industries such as electronics, defense and military industry, and non-bank financials, while they had net outflows from directions such as power equipment, non-ferrous metals, and machinery equipment.

Leverage funds: Last week, margin financing saw outflows of RMB 24.01B. Margin financing trading activity fell back to 8.94%. The market’s average collateral coverage ratio fell slightly quarter-over-quarter to 275.54%. Structurally, margin financing had net inflows into sectors such as power and utilities, coal and communications, while it had net outflows from sectors such as computer, defense and military industry, and automobiles.

Public funds & ETFs: Last week, the number of fund registration submissions increased quarter-over-quarter, mainly for hybrid funds and ETFs. Equity allocations in ordinary-type and stock-biased funds fell slightly, while the intensity of new fund issuance increased slightly. Last week, ETF funds saw net outflows of RMB 12.25B, of which broad-based ETF net outflows were RMB 769M. By sector, the net inflow scale was highest in high-end manufacturing and public services sectors. Among industries, net inflows were highest in areas such as power equipment and new energy, power and utilities, and coal.

Foreign capital: Among allocation-type foreign capital as tracked by EPFR, from March 18 to March 25, allocation-type foreign capital saw net inflows of RMB 5.04 billion. Active allocation-type foreign capital saw outflows of RMB 0.63 billion, while passive allocation-type foreign capital saw net inflows of RMB 5.66 billion.

Risk warning: 1) the estimated-position model fails; 2) the data statistical methodology is incorrect.

（Source: Jiemian News）