A-shares decline with decreasing volume, and the reason has been found!

On April 2, influenced by the uncertainty brought by Trump’s remarks, China’s A-share market opened lower and kept falling, staying lackluster throughout the day, with nearly 4,400 individual stocks turning green. Sectors including computer, electronics, media, and power equipment led the declines.

Interviewees said that the tail-end geopolitical risk in the Middle East has not been eliminated, and combined with the risk of companies blowing up during the April earnings disclosure period, investors need to stay alert. Most likely, China’s A-share market will show the characteristics of index trading ranges, structural divergence, and converging volatility. Under a market-divergence setup, a balanced allocation between the technology sector and the resources sector is a better choice, as it can balance return elasticity with volatility control.

4378 stocks closed lower

With weak index performance, the market accelerated its downturn in the afternoon, and the ChiNext and STAR Market indices both fell sharply. The Shanghai Composite Index closed down 0.74% at 3,919.29 points; the ChiNext Index closed down 2.31% at 3,172.65 points; the Shenzhen Component Index closed down 1.6%. The STAR 50 closed down 2.77%, while the CSI 300 and SSE 50 fell about 1%. The Beijing 50 finished slightly up.

Trading volume shrank by 8B yuan, and daily turnover fell to 1.86 trillion yuan. The risk-avoidance sentiment from leveraged funds was also evident: as of April 1, the margin balances across the Shanghai, Shenzhen, and Beijing markets (for northbound and other margin trading under the financing and securities lending system) stood at 2.61 trillion yuan.

On the trading board, shale gas, oil and gas equipment services, banks, port shipping, coal, pig meat concept, and chicken meat concept surged; while AI chips, semiconductors, computer software, precious metals, electronic components, and ZhiPu AI fell sharply.

Among 31 Shenwan first-level industries, the oil and petrochemicals sector rose nearly 2%. Beijing’s BoHui Co., Ltd. (“20cm”) hit the daily limit. CNOOC Engineering, Heshun Petroleum, Compton, Blueflame Holdings, and Baker Energy all hit the daily limit. Sectors such as agriculture and animal husbandry, coal, banks, food and beverage, biopharmaceuticals, and transportation all closed higher.

The computer sector fell by more than 3%, while electronics, media, real estate, power equipment, communications, machinery and equipment, nonferrous metals, and defense and military industry all posted among the largest declines.

Individual stocks saw more losers than winners. In total, 4,378 stocks closed down, with 16 hitting the daily limit down. 1,052 stocks closed up, with 32 hitting the daily limit up. Today, only two stocks had daily turnover exceeding 10 billion yuan: Sunshine Power fell 5.36% to 127.25 yuan per share, and Inspur/Intercon? (中际旭创) fell 3.3% to 582 yuan per share.

Insufficient market follow-through

How should we understand today’s A-share decline on reduced volume? With the Qingming Festival holiday coming up, what’s the mood in the market?

“Trump’s TV remarks lacked substantive content to resolve the supply chain crisis, which made the crude oil market uneasy.” Hong Lei, chairman of JIYuan Investment, told reporters from the International Finance News, “As a result, the three major A-share indices opened lower and lower.”

Pingpaiwang Wealth analysts said there are mainly two reasons for today’s A-share rout on shrinking volume: first, as the Qingming small holiday approaches, risk-avoidance sentiment has intensified, leading to insufficient follow-through and reduced trading volume; second, the market has entered a concentrated period for annual report disclosures, and high-valuation technology growth sectors face performance-verification pressure, prompting capital to leave early to hedge risk.

Cheese Fund investment manager Pan Jun said today’s three major A-share indices all weakened together, especially after U.S. President Donald Trump delivered remarks, when the market saw accelerated selling. Trump’s speech did not send clear signals of easing tensions as the market expected; instead, it brought more uncertainty, implying that the war may still continue.

Apart from external disturbances, in April the market enters a concentrated period for earnings reports and first-quarter reports. The market shifts from theme-driven speculation to performance verification. Technology growth stocks that had risen significantly earlier face valuation-reversion pressure. Capital moves toward defensive sectors with lower valuations, higher dividend yields, and stronger performance certainty, further intensifying the pullback in growth stocks.

May continue a pattern of range-bound base-building

After yesterday’s strong start to April, the market weakened today. The market is still in a range-bound mode. What’s likely to happen to the A-share market in the near term?

Pingpaiwang Wealth believes that in the short term, the market is highly likely to continue the range-bound base-building走势, with an overall pattern of “support underneath and pressure overhead.” If the market continues to fall in the near term, it may trigger a technical rebound, but the upside space for the rebound is limited, and the downside depth is also constrained.

“Current tail-end geopolitical risks in the Middle East have not been eliminated, and combined with the risk of companies blowing up during the April earnings disclosure period, investors need to stay vigilant. Most likely, China’s A-share market will show the characteristics of index range trading, structural divergence, and converging volatility.” Hong Lei reminded investors that cycle stocks will fluctuate alongside oil prices at high levels, the differentiation in the export chain will increase, technology growth is driven by both policy and earnings, and high-dividend/high-quality dividend-yield sectors will perform steadily. The main line of the April market will gradually shift from valuation repair to earnings-driven factors, and the market style will also gradually move from extreme structural opportunities to more balanced positioning.

“Generally speaking, the market will likely maintain recent index range trading and a sector rotation pattern. Geopolitical conflicts and recent adjustments in U.S. stocks weigh on market sentiment toward A-shares, and volatility will be relatively higher in the technology growth direction.” Yuan Huaming, general manager of Huahui Chuangfu Investment, analyzed that in the short term, the market will maintain index-range oscillations and sector rotation. Since it is also the period for annual and quarterly report disclosures, investors should watch out for the risk of earnings missing expectations.

“Over the short term, the market will continue in a pattern of range-bound digestion and structural divergence, with no one-way trend. The Shanghai Composite Index is likely to trade in a wide range of 3,900 to 4,050 points. Both upside and downside space are relatively limited. The market’s core contradiction will shift from index gains and losses to the divergence of structural opportunities and risks.” Pan Jun reminded investors that investors should be alert to a possible escalation of the Middle East situation beyond expectations and the Fed releasing an overly hawkish signal, which could push U.S. Treasury yields higher, strengthen the U.S. dollar, and cause Northbound funds to pull out sharply—leading to a “pulse-like” shock to China’s A-share growth sectors and the market’s overall risk appetite. In addition, the biggest risk in the earnings-report season comes from a mismatch between earnings and valuations. Investors should focus on avoiding pure theme stocks that saw outsized gains earlier without fundamental support, as well as those whose industry cycle is deteriorating and whose earnings expectations have been revised down sharply.

Balanced allocation between technology and resources

How should positions be managed and sector layouts handled before the holiday?

Yuan Huaming believes that under a pattern of market divergence, a balanced allocation between the technology sector and the resources sector is a better choice. It can combine return elasticity with volatility control. The ratio between the two can be adjusted dynamically: when market risk appetite improves, modestly increase the weight of the technology sector; otherwise, modestly increase the proportion of the resources sector.

Hong Lei said that in thematic investing, high-priced individual stocks without earnings support carry higher risk. The core of execution is “don’t chase high prices, don’t concentrate,” focusing on allocating to high-dividend/high-dividend-yield sectors (coal, banks, utilities). At the same time, reduce positions tied to short-term geopolitical games, control position sizing, diversify appropriately, prepare plans for extreme scenarios, and stick to a long-term investment philosophy.

Pan Jun said that in the near term, A-shares are in a period of range-bound base-building. It is recommended to control overall exposure. Focus on two types of directions: first, defensive high-dividend dividend-yield assets; second, the energy security main line, including oil and gas extraction, oilfield services engineering, coal, new energy, and other sectors. Since they benefit from international oil prices staying at high levels due to geopolitical conflicts, they feature both defensive characteristics and earnings elasticity.