Resources and technology cycles: how can A-shares keep pace?

March 12, A-shares experienced a V-shaped intraday movement, ultimately closing lower with reduced volume, showing a clear money-losing effect. Sector rotation and differentiation intensified, with coal sector soaring sharply, while military industry sectors pulled back.

Sources pointed out that current market sentiment is becoming more cautious. Insufficient incremental funds combined with sector logic divergence have increased operational difficulty. In the short term, A-shares are likely to fluctuate within a range with structural differentiation. A balanced allocation between technology and resource sectors is a preferable strategy, balancing return flexibility and volatility control.

3,893 stocks closed lower

In terms of index performance, the market initially declined in the morning, then rebounded in the afternoon with a V-shaped pattern. By the close, the Shanghai Composite Index dipped slightly by 0.1% to 4,129.1 points, the ChiNext Index fell 0.96% to 3,317.52 points, and the Shenzhen Component Index decreased by 0.63%. The Sci-Tech Innovation Board 50 and Beijing 50 declined over 1%, while CSI 300 and SSE 50 saw slight declines.

Trading volume shrank, with daily turnover decreasing by 67.69 billion yuan to 2.46 trillion yuan. Leverage funds regained momentum; as of March 11, the margin balance in Shanghai, Shenzhen, and Beijing increased to 2.66 trillion yuan.

Sector differentiation was evident. Coal, electricity, optoelectronic devices, infrastructure, and gas sectors surged, while engineering machinery, aerospace, passive components, and ground equipment sectors declined sharply.

Defense military, machinery, communications, and electronics sectors led the decline, along with media, beauty and personal care, automotive, and light industry sectors.

Coal sector soared, with utilities, agriculture, forestry, animal husbandry, fishery, and comprehensive sectors also performing well.

Zhengzhou Coal & Electricity, Yankuang Energy, and Shaanxi Black Cat hit the daily limit up, while JinKong Coal, China Coal Energy, Baotailong, Lu’an Environmental Energy, and Shanghai Energy gained over 5%.

Twelve utility stocks hit the daily limit, including Datang Power, Green Power, Jinkai New Energy, New Sky Green Energy, GCL New Energy, Jiangsu New Energy, and Delong Hui Neng.

In individual stocks, the money-losing effect was prominent. Out of the entire market, 3,893 stocks declined, with 6 hitting the daily limit down; 1,494 stocks rose, with 64 hitting the daily limit up. Among active stocks, 10 stocks traded over 10 billion yuan daily, with Sungrow Power Supply continuing to rise, China Energy Construction hitting the daily limit, and Goldwind Technology up over 3%. However, Xinyi Solar and Zhongji Xuchuang both fell nearly 4%.

Market sentiment remains cautious

Why did the A-shares decline and diverge today?

Li Shiyu, fund manager at Xiaoyu Investment, told reporters that the decline and divergence today mainly stem from the index reaching the upper boundary of its range, requiring adjustment, coupled with external factors causing interference, leading to continued volatility. Since March, the US-Iran conflict has evolved from an expected “lightning war” into a “prolonged war,” becoming the biggest negative factor for the market and triggering some adjustments.

Liu Youhua, Director of Wealth Research at PaiPai.com, told the “International Financial News” that today’s volume reduction and market divergence are primarily due to geopolitical conflicts changing market expectations and capital flows. The Middle East situation pushed up international oil prices, raising concerns about imported inflation. Safe-haven funds shifted out of high-valuation tech stocks into resource stocks like coal, which have inflation-hedging logic. Growth sectors like technology and military industry, which had experienced significant gains earlier, faced profit-taking pressure due to stagflation expectations and valuation suppression.

Overall, market sentiment remains cautious and defensive. Trading volume indicates a lack of willingness for incremental funds to enter, with a strong wait-and-see attitude. Funds are shifting from high-valuation thematic stocks lacking immediate earnings support to fundamentally supported, undervalued sectors. While market momentum is weak, panic selling has not yet emerged.

“Overall, market sentiment is neither extremely panicked nor overly optimistic, remaining in a typical cautious wait-and-see zone of a volatile market. The core contradiction lies in the lack of incremental funds and the operational difficulty caused by sector logic divergence,” said Bi Mengni, researcher at GeShang Fund, explaining the core logic behind today’s A-share decline and divergence from two perspectives:

First, volume contraction is the key premise. Today’s total market turnover was 2.46 trillion yuan, slightly lower than previous days. Insufficient volume means limited new funds entering, making it difficult to support a broad rally, leading to concentration in sectors with clear logic support and intensifying sector differentiation. In the absence of new funds, sectors with large gains earlier took profit first, while those with short-term catalysts attracted funds.

Second, logic divergence and capital switching. Defense, military, machinery, communications, and electronics sectors led the decline, mainly because these sectors had already experienced gains, some funds took profits, and there was a lack of new positive catalysts. Coupled with reduced risk appetite, funds temporarily withdrew. Media, beauty, automotive, and other sectors also declined due to industry cyclicality and slower-than-expected consumption recovery. Conversely, resource stocks like coal surged due to geopolitical conflicts and energy substitution effects—demand for coal as a cost-effective energy source increased, along with supply contraction from Indonesia’s coal production cuts, attracting capital inflows and supporting their strength, while also slightly boosting chemical and cyclical sectors.

Short-term continuation of oscillation and differentiation

What is the outlook for A-shares?

“Multiple factors are intertwined, and in the short term, A-shares are likely to fluctuate within a range with structural differentiation,” said Yuan Huaming, General Manager of Huahui Chuangfu Investment. He emphasized paying close attention to the policies after the Two Sessions regarding monetary, fiscal, and capital market measures, which directly influence liquidity and investor risk appetite. Also, monitor overseas interest rates, the dollar index, and external capital flows, as these will impact A-share sentiment and liquidity through exchange rates and capital channels.

“Lately, A-shares are still in a strong oscillation phase. The risk of decline is manageable, but upward momentum is insufficient. It’s important to control trading rhythm,” said Liu Yan, Trading Director at Honghan Investment. He added that it’s too early to judge an upward trend: first, overseas news remains highly uncertain; second, the market needs time to consolidate consensus; third, the push from incremental funds is the most direct factor determining the market direction.

Bi Mengni advised that the primary task in position management is to control holdings and avoid risks associated with volatility. Avoid full positions under uncertain conditions, leaving room for future low-cost entries. Also, optimize portfolio structure by focusing core holdings on sectors with long-term prosperity and strong earnings visibility, while allocating flexible positions around short-term catalysts to reduce the impact of sector-specific volatility. Additionally, avoid overvalued thematic stocks with weak earnings support, as these are prone to large fluctuations and weak capital absorption.

“In a volatile market, sector rotation and differentiation are inevitable. Investors should maintain appropriate positions for buy low, sell high,” said Li Shiyu. As mid-March approaches, with frequent news disclosures, most stocks are expected to remain within a range. Currently, the main trending sectors are power, computing power, and chemicals. Power sector benefits from US-Iran tensions boosting oil prices; renewable energy replacing traditional energy is seen as the ultimate energy development solution; “Lobster farming” has driven a surge in computing power demand; chemical sector benefits from good first-quarter earnings outlooks of related listed companies.

Continuing optimism on two main themes

Recently, the tech and resource sectors show a clear tug-of-war. How to choose?

Yuan Huaming said straightforwardly that technology stocks represent future industry directions, with high growth but high volatility, suitable for aggressive allocation; resource stocks are driven by commodity prices and supply-demand cycles, with leading companies being stable, dividend-paying, and relatively low valuation, making them good defensive assets. Given current market segmentation, a balanced allocation can consider both, adjusting proportions dynamically: increase tech when risk appetite rises, shift towards resources when it declines.

Bi Mengni believes that resource stocks like coal and oil have clear short-term catalysts and can be focal points for flexible holdings, but caution is needed due to volatility risks. Their performance heavily depends on geopolitical conflicts and commodity prices; if conflicts ease and oil prices fall, these sectors may retreat, so long-term holding is not recommended. Upstream tech sectors like computing power and electricity have clear long-term growth logic and can serve as core holdings, but during dips, avoid blindly bottom-fishing; wait for stabilization and volume expansion to gradually buy in, focusing on leading companies with strong earnings and core technology to share industry growth dividends over the long term.

Liu Youhua suggests a “defensive + growth” balanced approach, with a short-term focus on resource price increases and a medium-term focus on technology. Keep an eye on geopolitical conflicts and oil prices to dynamically adjust; avoid chasing highs blindly. Tech stocks, as a long-term mainline, can be gradually accumulated during market dips, but focus on those with real earnings and avoid pure hype stocks.

Reporter: Zhu Denghua

Text Editor: Chen Cai