One year after the "epic crash," what’s next for the A-shares?

This manuscript author | Godzilla

Data support | Gugu Data (www.gogudata.com)

A year ago, Trump’s tariffs threw a deep-sea bomb into the markets.

On April 7, 2025, the Shanghai Composite Index plunged 7.34% that day, the ChiNext Index fell 12.5%, the Hang Seng Index dropped 13.22% in a single day, and trillions of dollars in market value evaporated.

A year later, developments outside the U.S. are still full of “weird antics.” China-U.S.-Iran back-and-forth has been going at full heat; after Trump’s boast that the war would end in “2–3 weeks,” crude oil futures rebounded quickly, and the risk of a step-up in the situation at the stage level rose rapidly.

What will the market’s next script look like?

01

TACO is not working anymore

On April 1, Trump delivered a nationwide televised address, claiming that the war against Iran had achieved “rapid, decisive, overwhelming victory.” After this roughly 20-minute speech ended, international crude oil prices jumped immediately.

Obviously, the market did not buy Trump’s rhetoric about “core strategic goals nearing completion,” “we will withdraw soon,” and “ending military action in 2 to 3 weeks.” That same night, June-delivery Brent crude futures surged 4.8% to $106.04 per barrel; WTI crude rose 4.2%. U.S. retail gasoline prices reached $4.02 per gallon, a four-year high.

This contradiction reflects Trump’s “time anxiety.” He needs a quick, decisive outcome: to both soothe oil-price pressure and maintain military deterrence toward Iran.

There are also reasons the market doesn’t buy it. Trump’s speech lasted only 30 minutes before Iran responded with missiles, and the U.S. military’s further deployments only intensified market concerns about an escalation of the battle situation.

On April 4, Trump issued Iran a “48-hour final warning,” demanding that it “reach an agreement” by April 6 or “open the Strait of Hormuz,” and threatened it with a “devastating strike.”

If a Middle East war really could end within 2–3 weeks, then in the future the market may face yet another “emotional overshoot.” The storm from a year ago is still fresh for many people.

On April 2, 2025, Trump announced reciprocal tariffs of 34% on Chinese goods, requiring China to cancel its countermeasures within 48 hours or else tariffs would be increased by an additional 50%.

On April 7, the market crashed. The Shanghai Composite fell 7.34% that day, while the Hang Seng Tech plunged 17.16%. Monthly data showed a completely different picture. For all of April, the Shanghai Composite fell only 1.7%. After the rebound started on April 8 through the middle of May, it was basically repaired.

A sudden, unexpected escalation of the trade conflict left the market completely unprepared. But such an extreme one-day drop was more of an emotional shock caused by extrapolating fundamentals too far. As the market gradually came to recognize Trump’s famous Taco model, the impact of trade conflicts on equity pricing diminished over the following months.

However, if Trump’s “2 to 3 weeks” promise falls through, the comparison might come from another entirely different version.

In the 2022 Russia-Ukraine war, at the beginning the market generally thought it would be a short-term conflict. In the end, the war dragged on for an entire year, and hopes of a market rebound were dashed.

The Shanghai Composite fell 15.13% for the full year; the Hang Seng Tech Index dropped 27.19%; and the S&P 500 fell 19.44% for the full year. As for oil prices, before the war Brent was around $95; by the March peak it had surged to $139.13, the highest level since 2008. U.S. CPI jumped from 7.5% to 9.1%, setting a new high in nearly 41 years. The Federal Reserve added 425 basis points over the year, raising interest rates from 0.25% to 4.50%.

Behind the stock-market pullback was a chain reaction triggered by the war.

The war’s delay kept supply shocks going, and oil prices stayed at high levels for months. High oil prices drove inflation up sharply, forcing the Federal Reserve to raise rates aggressively. Aggressive rate hikes triggered a dramatic contraction in liquidity, pushing global stock markets to almost enter a bear market.

From “war shock” to “stagflation,” and then to “recession,” a complete transmission chain comes into view. If a U.S.-Iran and Middle East war dragged on for several months, with oil prices staying in the $100 to $120 range and inflation pressure returning, then the 2022 script could be replayed.

Over the past year or so, the core storyline of global capital markets trading has been “U.S. inflation cooling down, the Fed cutting rates, and the weak-dollar narrative.”

But as the conflict’s goals spill over from crude oil itself into oil-related infrastructure, Brent crude has effectively broken through and held within a wide fluctuation range of $100–$110 per barrel. Input-driven inflation caused by supply-side shocks is forcing global capital to reexamine the risks of “stagflation-like” conditions—and even a genuine recession.

It’s clear that expectations that the Fed would be forced to postpone its rate-cutting cycle have directly led to higher risk-free yields and tighter global liquidity. This is a major negative for high-valuation technology stocks and high-leverage assets that rely on discounting distant cash flows.

With the current war still ongoing, it’s impossible to judge which side time will favor. But the shift in the weak-dollar narrative, the systematic lift in the oil-price midpoint, and changes in liquidity expectations have had far-reaching effects on how China’s A-share market structure and style will evolve.

02

How April “decides”

“April decides” is an important concept in China’s A-share market. It means that the judgments made at the April time point provide important guidance for investments throughout the year.

Because before that—November to March—was a “policy-dense period” plus an “earnings vacuum period.” Market performance was led more by expectations. After entering April, as macro and microeconomic data are released, market focus has to shift more toward fundamentals.

For example, in 2016, the rebound in PPI growth was already basically clear around April; in 2017, an earnings inflection point appeared; in 2018, deleveraging and credit contraction occurred; and in 2020, global monetary policy became extremely loose. All of these were essentially already evident around that time in each year and became important factors shaping the market’s full-year outlook.

From the economic baseline, in February the month-on-month year-over-year export growth rate surged to 39.6%, accelerating sharply compared with January’s +10%. It more directly pulled forward the repair cycle of manufacturing inventory. In February, inventories of finished goods held by industrial enterprises above designated size recorded year-over-year +6.6%, the highest growth rate since 2023.

Although the rise in upstream bulk commodity prices poses an inflation threat to overseas markets, domestically it has become a tailwind for improving PPI on a sequential basis. In February, PPI’s year-on-year growth narrowed to within -1%. Within the year, PPI is very likely to turn positive on a year-on-year basis, providing support for the valuation reshaping of A-share cyclical sector themes.

In this round of geopolitical turmoil, because China’s consumption of primary energy has a low share of oil and gas and the level of electrification is higher than globally and in Europe, it greatly improves the country’s resilience in responding to external energy crises. Even if the oil-price midpoint becomes normalized at $100–$120 as a routine, the impact on A-share overall earnings remains controllable.

But there is also a hidden risk: replenishing inventories relies on overseas demand for durable goods. If the U.S. truly enters stagflation or even recession, external demand will lag.

From the funding side, as of early April, the financing balances across both markets still remained at a relatively high level of RMB 2.58 trillion, only a slight drop compared with the peak at the beginning of March.

Trading volume shrank from the high to RMB 1.67 trillion, but it did not break below the low point in December 2025.

In March, 4.6 million new accounts were opened, second only to October 2024 and January 2026. Retail investors’ enthusiasm to enter the market was not suppressed. During market volatility and adjustment, funds did not rush out in large amounts—they are simply waiting.

As the April earnings release window opens, technology-sector subthemes that have not yet delivered enough earnings and are still stuck at the “telling stories at elevated levels” stage may face a phase of retreat. Meanwhile, directions with strong earnings certainty and solid cyclical logic—for example, the North America computing power chain—are more likely to become the main focus after the market turns its attention to them.

Based on the previews of Q1 earnings released by the first batch of companies, the earnings leverage of high-quality A-share firms is beginning to show: the proportion of companies with positive guidance exceeds 90%, and for some companies, year-on-year net profit growth in Q1 is projected to be more than 100%.

In addition, given the situation of a higher oil-price midpoint, historically in overseas stagflation environments, the broad energy sector has consistently been the best-performing asset.

Moreover, this round of Middle East conflict has not only catalyzed the price-raising logic for traditional fossil energy (oil and coal); at the strategic level, it has also significantly raised the urgency of “energy substitution.” Beyond the power and coal “traditional dividend” base driven by hedging sentiment, investors should also focus on the new energy industry chain (batteries, new energy vehicles, solar photovoltaics, wind power, and power grids).

For Hong Kong stocks, where the liquidity shock from overseas is the most direct, whether it can reverse in Q2 still requires patience while geopolitical risks settle or a domestic policy announcement beyond expectations fires the starting gun.

Currently, the valuation of the Hang Seng Tech Index has fallen to historical extreme lows. But after valuation expectations for sectors such as innovative drugs have been adjusted substantially, they have already quickly repaired along with positive earnings catalysts. Once the market launches an offensive, these high-quality assets that were mispriced will surely experience a sharp valuation recovery.

03

Epilogue

The sword of Damocles of geopolitics is still hanging overhead, and global capital markets are still treading carefully under the shadow of “stagflation-like” conditions.

This round of conflict has given the market some new understandings—for example, Trump’s repeated TACO approach is not always effective; at the very least, it has not worked as well as last year.

Besides the inherent rules of how A-shares portray a bull-market stage, and the support from the next round of rising PPI for earnings repair, for the rest of this year, the market will still gradually need to adapt to the tighter liquidity environment brought by the higher oil-price midpoint.

This means that “multiple expansion” in this year’s stock market may be difficult to proceed as smoothly as it did last year. People will pay more attention to earnings growth and place more emphasis on the certainty of that growth. (Full text ends)