March concludes with increased market volatility Snowball: The current core of allocation should be "primarily cautious, with selective positioning"

Source: Xueqiu

On March 31, the A-share market wrapped up the month, with the Shanghai Composite Index down 6.51% for the month.

The wrap-up day continued the tone of turbulence in global financial markets from last week—ongoing geopolitical conflicts, repeatedly shifting liquidity expectations, and changes in fund structure jointly drove market performance, with clear differentiation among major asset classes.

Based on its assessment of strategies for private funds currently on standby, Xueqiu’s private fund research team pointed out that, amid an environment of broad market declines, Xueqiu’s various private-fund strategies showed distinct differentiation.

Jiang Yuting, head of Xueqiu’s finance and product research department, said: “With current market volatility and disturbances, the core of allocation should be ‘stable first, with best-choice positioning’—strategies should be matched as needed, balancing returns and risks.”

A manager of one of Xueqiu’s private-fund strategies on standby said that the current market has already priced in extreme precautionary sentiment that the U.S. might initiate ground operations in Iran. From a short-term perspective, even if related events are realized in the next one to two weeks, precautionary sentiment may have already approached prior extremes, making it less likely that the index will fall significantly further.

Another manager of Xueqiu’s private-fund strategies on standby said that the market may continue to be a structurally differentiated market featuring oscillation. Macro-level prosperity and micro-level performance are even more important. There are three directions worth paying attention to: first, a resource-price uptrend catalyzed by the escalation of overseas geopolitical conflicts, such as oil, coal, new energy, and aluminum; second, a defensive dividend theme, such as banks and utilities, as well as domestic-demand-tilted services consumption, agriculture, and food and beverage; third, directions with stronger earnings certainty, such as AI hardware and software, advanced manufacturing, defense industry, and innovative drugs—after the market’s risk appetite stabilizes, they may also perform.

Breakdown of Xueqiu’s various private-fund strategies on standby

(1) Market-neutral highlights defensive value: According to data provided by Xueqiu’s private-fund research team, last week the market-neutral strategy rose against the trend by 1.08%, becoming a bright spot among equity strategies. On the stock side, it delivered excess returns returning to the mid-range level; weekly excess performance remained differentiated as well. On the hedging side, the expansion of the stock index futures basis (at a futures discount) contributed positively to portfolio returns.

(2) Equity strategies show internal differentiation: Xueqiu’s quant long strategy averaged a decline of 0.29% last week, with absolute returns showing a differentiated pattern, but most products still delivered good excess returns. The discretionary long strategy fell 1.26% over the week; most products saw pullbacks. Funds heavily invested in energy materials and power, such as, saw leading gains. From the market environment, overall liquidity remained relatively loose. Financing balances were basically unchanged from the previous week. The overnight funding rate stayed at a relatively low level. Market sentiment improved somewhat compared with the previous week, but overall it remained at a neutral-to-weak level, and trading volume was clearly lower than earlier periods.

(3) CTA strategies affected by market environment: The commodities market performed well earlier, but it has also shown some degree of volatility recently. Last week, the Nanhua Commodity Index dipped 0.25%, with significant differentiation among its internal sectors. Quantitative CTA strategies fell 0.35% over the week. Xueqiu’s private-fund research team noted that the core reason is that the market’s overall trend strength is at a below-average weak level. Although market activity has been relatively high, cross-sectional stability is poor, and geopolitical news has repeatedly perturbed the market. Discretionary CTA strategies also showed differentiation; at present, the market’s degree of influence from sentiment is far greater than that from underlying industry fundamentals, presenting a back-and-forth oscillating pattern.

(4) Weak performance in macro and multi-asset strategies: Although domestic assets have gradually begun to be less sensitive, correlations among assets have gradually returned to normal, overall performance is still relatively weak, and liquidity shocks have not fully dissipated. Therefore, last week most macro strategies ended lower, while multi-asset strategies showed a differentiated pattern.

(5) Defensive highlights for fixed-income in a choppy market: Fixed-income strategies became defensive highlights amid market volatility. Last week, pure bond strategies performed well. The SSE Composite Index of convertible bonds (CITIC) rose, and fixed-income products overall performed strongly.

Resilience has started to become evident

As a leading domestic private-fund service platform, Xueqiu relies on a vast amount of on-standby private-fund data resources to build a comprehensive product selection mechanism and strategy research-and-assessment system.

Regarding current market conditions, Xueqiu’s private-fund research team further noted that, for equity strategies, investors should continue to position at favorable prices and focus on products with excellent long-term performance. In particular, for discretionary stock long strategies, market liquidity remains ample, and sentiment has started to recover. After entering the annual report season, products that emphasize value discovery will present a good opportunity to initiate positions. For commodity and CTA strategies, the team said that quant CTA strategies currently face an overall weak environment, but medium- to long-cycle trend products still have value. With recent market volatility increasing, discretionary CTA strategies are advised to prioritize managers with strong trend-following capabilities and strict risk control. For macro strategies, although geopolitical conflicts continue, correlations among assets have gradually been repaired. Some macro assets have already shown resilience. Even if long-term inflation expectations are realized, multi-asset strategies with hedging capability—benefiting from their advantage in capturing returns—will help seize structural trading opportunities among assets.

(Editor: Xu Nannan)

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