A-shares' April "Good Start," Is the Turning Point Coming?

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Source: International Finance News

Supported by news that the U.S.-Iran conflict has eased, A-shares turned “clear” on the first day of April—trading volume surged to above 2 trillion yuan; nearly 4,500 individual stocks closed higher in red, with sectors such as pharmaceuticals, communications, and nonferrous metals leading the gains.

Interviewees analyzed that the A-share rebound has a certain degree of continuation, but the key is whether trading volume can be sustained; a trend reversal has not yet formed. Only after mid-to-late April, when first-quarter report performance becomes clear, domestic policy directions become even clearer, and the situation in the Middle East and region stabilizes in stages, can the market’s real turning point be confirmed. Before then, the market will most likely maintain a pattern where the main line is unclear, sectors rotate, and direction remains blurry. It is recommended that investors keep their allocation at 50% to 60%, balancing offense and defense.

4495 individual stocks rose

The index opened higher early in the day and then briefly dipped, but quickly rebounded afterward, staying in a high-range consolidation all day. Overall performance was good. The Shanghai Composite Index closed up 1.46% at 3,948.55 points; the ChiNext Index closed up 1.96% at 3,247.52 points; and the Shenzhen Component Index closed up 1.7%. The CSI 300, SSE 50, and Northern Stock 50 rose by about 2%; the STAR 50 closed up 3.33%.

Trading volume increased slightly by 19 billion yuan versus the previous day. Daily trading value reached 2.03 trillion yuan. Yesterday, A-shares opened higher and then fell back; the heat of leveraged funds cooled somewhat. As of March 31, the margin financing and securities lending balance across the Shanghai and Shenzhen and Beijing markets fell to 2.61 trillion yuan.

The market’s “money-making effect” was relatively strong. Throughout the day, 4,495 individual stocks closed higher and 65 hit the daily limit up; 887 closed lower and 14 hit the daily limit down. Eight individual stocks had daily trading values exceeding 10 billion yuan, mainly technology stocks. Sunshine Power fell nearly 11% to 134.45 yuan per share; it has cumulatively fallen nearly 18% over the past week. Semiconductor-related stock Demingli fell more than 2%. But Tianfu Communications rose nearly 11%, Cambricon rose nearly 7%, and Xin Yisheng rose more than 4%.

On the board, innovation drugs, weight-loss drugs, CRO, chemical pharmaceuticals, semiconductors, CPO, optoelectronic devices, and precious metals surged broadly, while power, oil and natural gas, blade batteries, and coal all declined slightly.

Among 31 Shenwan first-level industries, utilities, coal, and petroleum and petrochemicals dipped slightly; the rest closed higher. Banks, national defense and military industry, power equipment, and food and beverage rose weakly, all under 1%.

Pharmaceutical biology, communications, media, electronics, beauty and personal care, machinery equipment, nonferrous metals, computers, social services, and building materials all rose by more than 2%.

The pharmaceutical biology sector exploded upward. Fifteen related stocks hit the daily limit up, including Linuo Pharma Pack, Guangzhou Shengtang, Aidi Pharma, and RuiZhi Pharma “20cm” limit-ups. Huayu Pharmaceutical-W, Yifang Bio-U, Chengda Pharmaceutical, Haitai Xinguang, and Yipin Hong all surged sharply. Yibai Pharma (rights protection), Bidai Pharma, Peking University Pharma, Rundu Shares, Jaan Medical, KailaiXin, and OnliKang, WanZe Shares, WanBangDe, and JinYao Pharma all hit the daily limit up.

“Today’s market main line is very clear. Funds are moving along the direction guided by policy, focusing on technological innovation and new-quality productive forces, while also taking into account certain defensive-type stocks.” Fund manager Zheng Yanxin of Quanjing Fund said, first, the main line is technology growth; sectors such as pharmaceutical biology, communications, computers, and electronics led the gains, aligning highly with policy. Second, the communications and electronics sector benefits from industry trends such as computing power and semiconductor domestic substitution, and on top of that, with the Ministry of Industry and Information Technology promoting and implementing the action plan for innovating and developing the Internet of Things, the industry’s prosperity has continued to improve. Third, in the nonferrous metals sector, under geopolitical conflict and inflation expectations, the value of strategic resources such as gold and copper has been revalued and can serve as an auxiliary allocation direction.

Behind the surge with higher volume

Why did today’s A-shares open strong and keep going higher?

What support factors are there?

Research analyst Sui Dong from PaiPaiWang Wealth analyzed that today’s A-shares’ surge with higher volume was mainly driven by three factors: first, season-end disturbance factors faded, incremental capital gradually entered the market, and the two exchanges’ total trading value returned to above 2 trillion yuan, providing key liquidity support for the market; second, signals of easing in the geopolitical situation emerged, with global risk appetite picking up, creating a favorable external environment for A-shares’ rebound; third, first-quarter earnings previews have been disclosed one after another. The high-growth earnings momentum started and boosted market sentiment.

“Signs of easing in the U.S.-Iran tense situation emerged; global risk-avoidance sentiment cooled; capital gradually returned to risk assets, further pushing A-share market sentiment higher.” Research analyst Bi Mengjuan from Geshang Fund told reporters, today’s A-shares moderate rebound with higher volume indicates that funds are mainly focused on steady deployment, leaving room for the subsequent continuation of the rally. Fund flows have a clear direction: high-prosperity sectors such as pharmaceutical biology, communications, and electronics received key additional buying by main funds, showing that capital is concentrating on high-quality growth tracks and further strengthening the logic behind the rebound. However, whether trading volume can break out materially is another matter—it also reflects that the market still has a certain cautious sentiment, with some funds in a wait-and-see mode. The pace of incremental capital entering remains relatively steady.

Zheng Yanxin said to reporters that today’s strong rebound in the A-share market is not accidental, but the result of multiple positive factors converging: first, the policy tone has been set strongly. The People’s Bank of China clearly proposed that it will “continue to implement moderately accommodative monetary policy”; second, macro fundamentals data have shown some recovery. The just-released March Manufacturing PMI was 50.5%, staying in an expansion range for two consecutive months, and the rebound in the prosperity of high-tech manufacturing is even more evident; third, the market itself has repair demand. The growth sectors represented by technology had experienced consecutive adjustments earlier; both valuation and positioning have already fallen back to a relatively reasonable range, providing momentum for a rebound from oversold conditions. In addition, the U.S. president recently signaled a ceasefire, which also improved global market pessimistic expectations.

From the external-factor perspective, fund manager Li Shiyu of Xiao Yu Investment believed that this round of market adjustment was mainly influenced by the U.S.-Iran situation, with the conflict gradually evolving from the originally expected “lightning war” into a “protracted war.” At present, both sides have successively issued signals of easing, and there is hope that the situation will ultimately return to the negotiation table.

General manager Mo Xiaocheng of Huanrui Tianze interpreted from the performance dimension: today’s market rebounded sharply mainly because funds moved away from the emotion-driven pessimism triggered by the war and rebuilt confidence in corporate earnings and economic prospects. Currently, it is a concentrated disclosure period for annual reports in A-shares and Hong Kong stocks. Many excellent companies—especially innovation-drug leaders—have delivered satisfactory results, causing investors’ attention to focus again on the pharmaceutical sector.

Focus on key variables

Can the rebound rally continue?

“This rebound has some degree of continuity, but it is more likely to follow a path of ‘range-bound repair with the center of gravity gradually lifting,’ rather than a one-way surge.” Sui Dong said, next the focus is on trading volume. If it can be maintained around 2 trillion yuan at an active level, it indicates incremental capital is still entering, and the index may have a chance to test key upper levels. However, prior technical pressure levels such as gaps may lead to short-term consolidation.

“Currently, A-shares still belong to a structural rebound, and a trend reversal has not formed.” Bi Mengjuan said, potential risks still need to be watched closely: geopolitical uncertainty remains. Although the U.S.-Iran situation has eased, it could still fluctuate and thus affect global risk appetite. If volume cannot continue to expand, it will limit the index’s upside space; the market’s “game of existing positions” characteristics may cause sector rotation to accelerate. Also, some sectors have seen relatively large gains in the short term, bringing profit-taking pressure and possibly leading to a stage-wise pullback.

“An intraday high open followed by a continued rise, with limited volume—this does not mean that a bull market is established.” Zheng Yanxin said bluntly. Expanding volume is an important validation of the rebound’s effectiveness, showing that some incremental capital has begun to enter. But compared with the index’s rise, the degree of volume expansion is still insufficient to confirm that the entire rally has fully reversed. There is still a certain “volume-price divergence” concern in the market. Whether the rebound can continue depends on whether trading volume can keep sustaining. If subsequent trading volume continues to increase moderately, the probability that the index’s rebound continues will be higher. Conversely, if volume shrinks, the market may return to a range-bound pattern.

Wang Zhongyuan said that funds are shifting from high-valuation tech to undervalued pharmaceuticals and consumption, and defensive products such as insurance are receiving stage-wise attention. This is normal sector rotation during a process of bottoming out in volatility, not a turning point of a trend. The true turning point will have to wait until mid-to-late April when first-quarter report performance becomes clear, domestic policy direction becomes even clearer, and after the Middle East and regional geopolitical situation stabilizes in stages. Before then, the market will most likely maintain “transition period” characteristics: the main line is unclear, sectors rotate, and direction is ambiguous.

For the overall A-share performance in the second quarter, Wang Zhongyuan maintains a view of volatile and differentiated movement, with three core variables:

First is policy guidance. Domestic counter-cyclical adjustment policies continue to provide support, and the monetary environment remains relatively loose, but the transmission effect needs to be observed. Policy signals at key moments such as meetings of the Politburo have a greater impact on market sentiment.

Second is performance validation. From mid-to-late April through June is a concentrated disclosure period for first-quarter reports and interim report previews. The quality of enterprises’ earnings growth will be tested. If performance continues to validate areas such as technology and new energy, the index may receive support; if performance falls short of expectations overall, the market will need time to digest the pressure.

Third is Middle East and regional geopolitical risk. This is the biggest external tail risk currently. If the situations in Iran and Israel escalate further, oil price fluctuations will transmit to global inflation expectations, thereby affecting global liquidity expectations and risk appetite.

How to position holdings

In March, the market traded lower amid volatility; in April, it opened with a strong start. With the earnings disclosure window period overlapping, how should investors manage their holdings and allocate sectors?

Analyzing today, Li Shiyu said pharmaceutical biology, communications, and nonferrous metals sectors led the gains. The key commonality is outstanding performance. Entering April, as annual reports and first-quarter reports are disclosed in a concentrated wave, investors can focus on industries and companies whose performance exceeds expectations. Among them, the next “big bull stock” may very well appear.

Wang Zhongyuan, founder of Ziruixing Investment, told reporters that today’s rally is not a “rebound after overselling,” nor does it constitute a new round of offensives. It is the market’s sentiment repair regarding the Trump administration’s TACO trade and the Middle East conflict. In the short term, the technology main line faces dual pressure: first, mid-to-late April brings a dense schedule of first-quarter report disclosures, requiring earnings validation of valuations; second, early large gains in areas such as computing power and AI applications means the digestion of profit-taking has not been completed.

Bi Mengjuan suggested focusing on high-prosperity tracks and adopting a strategy of “balanced allocation plus controlling position size,” seizing investment opportunities brought by first-quarter performance validation. At the same time, investors should also do a good job with stop-losses and position management to maintain overall investment soundness.

Zheng Yanxin suggested staying rationally optimistic, not chasing after price spikes, and emphasizing sector structure. Maintain a moderate position size. While continuously monitoring trading volume performance, investors can diversify their allocations along the technology growth main line, and also add certain nonferrous metals and high dividend-yield products as supplementary.

Wang Zhongyuan suggested keeping position size at 50% to 60%, balancing offense and defense. When the direction is unclear, controlling drawdowns is more important than chasing upside momentum. In the second quarter, focus on two types of opportunities: first, products with sufficient adjustment, reasonable valuations, and first-quarter reports exceeding expectations; second, structural opportunities benefiting from policy or event catalysts, such as innovative pharmaceuticals, special valuation for state-owned enterprises under the “China SE valuation” (中特估) theme, and the like. On the risk side, investors need to guard against systemic shocks caused by geopolitical situation worsening, as well as the impact of overseas liquidity changes on the flow of foreign capital.

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Editor: Yang Hongbu