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(The author of this article, Yang Delong, is the chief economist of Qianhai Kaiyuan Fund)
1. Middle East Conflict: Disturbing the Rhythm Rather Than Changing the Trend
In the first quarter, the A-share market showed a pattern of volatility and differentiation. At the beginning of March, the Shanghai Composite Index fell sharply from a high of 4182 points, with the core driving reason for this significant adjustment being the escalation of the situation in the Middle East. The U.S. and Israel launched a brazen attack on Iran, targeting Iran's Supreme Leader Khamenei and senior military officials, which triggered retaliation from Iran. Iran blocked the Strait of Hormuz, a vital artery for global oil transportation that controls 20% of the world's oil and gas transport, causing international oil prices to soar from $73 per barrel before the conflict to $120 per barrel, raising investors' concerns about the possibility of global stagflation. At the same time, the Federal Reserve had to delay the pace of interest rate cuts to respond to potential inflation, and it might not cut rates again this year, which also led to a significant decline in the A-share market.
Compared to the market adjustment in March 2025, the core driving factors for this decline are quite different. The sharp decline at that time was due to Trump's announcement of tariffs on the entire world, initiating a trade war. Later, after the sharp drop, with institutional funds entering the market and the national team stepping in, the market experienced a significant rebound. Technically, the Shanghai Composite Index has broken through the 4000-point level and has fallen below the 60-day bull-bear dividing line. Whether this Middle East conflict will end the slow bull market is a question in the minds of many investors. My view is very clear: the core logic of this slow bull market has not fundamentally changed. This conflict has disrupted the rhythm of the bull market but has not changed its trend. The market's decline is an opportunity to position in quality stocks or quality funds. As the policy bottom gradually emerges, the market may experience repeated fluctuations, gradually approaching a true market bottom.
2. Historical Comparison: The Logic of Rebound After Adjustment
From April to June last year, the market experienced a V-shaped recovery after a sharp decline, driven by the resonance of policies and fundamentals pushing the index upward. In the second quarter of this year, the A-share market may replicate the recovery trend of the same period in 2025, experiencing a significant rebound, and may even create an independent market trend, reaching new highs for the year. This is because, in the second quarter, with the disclosure of annual reports, some sectors and stocks with better-than-expected annual report performances may have the opportunity for valuation recovery. Additionally, Trump is currently facing significant anti-war pressure domestically in the U.S. and has shown a desire to find a dignified way to exit the war. Once the situation in the Middle East eases and the Strait of Hormuz resumes normal navigation, the A-share market is also expected to welcome significant upward opportunities.
Currently, external markets are experiencing continued volatility, expectations for Federal Reserve interest rate cuts are converging, and the geopolitical conflict in the Middle East is repeatedly escalating. These external disturbance factors have changed the operational rhythm of the A-share market but have not altered its long-term trend. For the A-share market in the second quarter, the biggest marginal influencing factor remains when the war will end
It is expected that in April, the three parties involved in the conflict may resolve major differences through negotiations, temporarily cease fire, and even possibly end the war in April, which will have a significant impact on the market and is expected to drive a rebound from the bottom.
At the end of the first quarter, the financing balance decreased, indicating a temporary exit of funds. However, institutions still maintain high positions and plan to invest in technology-related sectors and heavy asset, low volatility HALO assets (such as AI infrastructure) during the second quarter. If the market experiences unexpected volatility, it may see a repeat of stabilizing operations such as central bank purchases of ETFs and insurance funds and public funds increasing their positions, attracting off-market funds. Incremental funds mainly rely on institutional increases and the return of long-term allocation funds, with the core trigger condition still being a significant easing of the Middle East conflict and signs of its resolution.
III. Investment Main Line: Price Increase Concept + AI Technology Dual Drive
The market generally expects that in the second quarter, A-shares will shift from liquidity-driven to profit-driven. With the preliminary announcement of annual report performances and the concentrated disclosure period for quarterly reports in mid to late April, this shift may gradually be completed. Sectors and stocks with good performance growth may attract capital inflows, while companies unable to deliver on performance may see significant adjustments. The directions that exceeded expectations in the first quarter are still concentrated in technology sectors, including high-prosperity areas such as chips and semiconductors, computing algorithms, and power grid equipment.
The main line of this market trend is the price increase concept and AI big technology crossing through volatility. The core driving logic of these two main lines is expected to gradually materialize in the second quarter. The price increase concept mainly focuses on industries such as lithium batteries, chemicals, and new productivity-related tracks. The sub-sectors of AI technology may perform more prominently, becoming the core investment main line in the second quarter, such as previously strong-performing but recently adjusted sectors like chips and semiconductors, humanoid robots, and computing algorithms. Investors can seize opportunities by investing in related high-quality leading stocks or quality thematic funds.
In the adjustment period of March 2025, small-cap stocks significantly outperformed large-cap stocks. In the first quarter of 2026, the AI growth track led the market, while defensive sectors like banks and coal lagged behind. In the second quarter, the A-share market may see a certain style switch, with some rotation between large and small caps and technology stocks. The recent strong performance of traditional blue-chip stocks also reflects a market style switch. In terms of asset allocation, investors can maintain balance by evenly distributing their investments, with half in growth stocks and half in value stocks.
The core risks that need to be closely monitored in the A-share market in the second quarter of 2026 mainly include the risk of the Middle East conflict spiraling out of control, which is the primary risk. Another concern is the potential for companies to experience significant performance declines. Recently, some ST stocks have seen substantial adjustments, and for stocks with deteriorating fundamentals and potential performance disasters, investors must remain cautious and avoid poor-performing stocks, especially ST stocks. ST stocks typically report losses for two consecutive years, and if performance does not improve later, they may face delisting risks. In the current context of overall economic growth slowing down, ST stocks are unlikely to show particularly bright reversals, as many are speculative stocks based on themes and concepts
The second quarter is likely to be a volatile market. Investors can maintain a moderate position of around 50% to 60% in their portfolio management. In terms of portfolio structure, half should be allocated to leading technology stocks and half to well-performing blue-chip stocks. This way, it is a balanced configuration that combines offense and defense, rather than leaning too much towards one side. In the current uncertain international situation, adhering to the value investment philosophy is crucial.
This article only represents the author's views and does not constitute investment advice.

(This article is from Yicai Global)

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This article analyzes the outlook for the A-share market in the second quarter, pointing out the impact of the Middle East conflict on the market. Although it has caused short-term fluctuations, it has not changed the long-term trend of the bull market. The author believes that now is the time to position quality stocks, expecting the market to experience repeated fluctuations before ultimately reaching a market bottom. Historical data shows that the market may experience a V-shaped rebound after a sharp decline, and a significant rebound trend may occur in the second quarter, especially in sectors with annual report performances exceeding expectations, which will welcome valuation recovery opportunities

腾讯新闻 - 财经

Shenzhen Index

CSI 300

CHENGDU RAINBOW APPLIANCE(GROUP)SHARERS

Huaan SSE 50 ETF

SSE 50

Huatai-PB CSI 300 ETF

ChinaAMC CSI 300 ETF

E Fund SSE 50 ETF

HFCC

STAR 50

E Fund CSI 300 ETF Initiating Fund

Second Quarter A-Share Outlook: Opportunities and Allocation Strategies in a Volatile and Divergent Market