4500 stocks declined, major financials surged against the trend, signaling an important message

Today, A-shares rebounded then pulled back, with major indices closing lower, and a trading volume of 2.22 trillion yuan remaining high. The market showed sharp divergence: large financial and consumer sectors rose against the trend, while communication, electronics, and other tech growth sectors declined sharply, with over 4,500 stocks falling. Rising oil prices driven by escalating Middle East tensions increased risk aversion, intensifying fund reallocation from high-valuation growth stocks to low-valuation value sectors. In the short term, the market may continue its style rotation; a balanced allocation is recommended, focusing on large financials for defensive value and leading tech stocks after adjustments.

At the close, the Shanghai Composite fell 0.85% to 4,049.91 points, the Shenzhen Component dropped 1.87%, the ChiNext index declined 2.29%, and the STAR Market 50 decreased 2.23%. The total market turnover was 2.22 trillion yuan, slightly down from 2.34 trillion yuan the previous day. Over 4,500 stocks declined, indicating weak profit-taking sentiment.

Sector-wise, extreme divergence was evident. Among the first-level industries in Shenwan’s classification, only non-bank financials (+1.28%), banks (+0.85%), food and beverages (+0.55%), and real estate (+0.37%) finished in the green. The communication sector plunged 4.69%, leading the decline, while electronics, defense and military, machinery, and other sectors fell over 2.5%. Popular concept indices showed mixed performance: the near-term new stock index rose 3.34%, the insurance select index up 2.10%, and central enterprise bank stocks up 1.61%. Meanwhile, the optical module (CPO) index plummeted 7.74%, cultivated diamond index down 6.93%, and optical communication index fell 6.67%.

The core logic behind this market divergence is fund reallocation across sectors, compounded by profit-taking pressures on previously hot tracks. Notably, rising oil prices due to tense Middle East tensions and increased risk aversion further intensified this style shift.

Recent Middle East geopolitical tensions have pushed international oil prices higher, with Brent crude stabilizing above $100 per barrel. The rising oil prices have raised inflation concerns, dampening risk appetite and prompting funds to shift from high-valuation tech growth sectors to low-valuation value sectors.

The large financial sector, leading the gains, is supported by solid fundamentals. Recent trading volumes have consistently exceeded 2 trillion yuan, with brokerages and margin financing revenues improving. The sector is in a “high prosperity + low valuation” stage, with clear medium-term valuation recovery prospects. Insurance stocks benefit from market recovery, with strong performance expected in 2026’s “good start,” and debt side improvements are evident. Banks, due to valuation restructuring of state-owned enterprises, with low valuations and high dividend yields, offer defensive value amid market volatility.

The consumer sector’s counter-trend rise is supported by macro data: January-February retail sales grew 2.8% year-on-year, exceeding expectations, with categories like grains, oils, food, tobacco, and alcohol growing over 10%. Continued policies to expand domestic demand are driving valuation recovery. The real estate sector saw slight gains, linked to expectations of marginal easing policies.

Conversely, declines in communication, electronics, and other growth sectors are mainly due to profit-taking on previously hot tracks. Concepts like computing hardware, optical modules, and optical communications have seen large gains, with clear signs of fund rotation from high-valuation growth to low-valuation value stocks. The optical module index dropped 7.74%, related to delays in Nvidia’s new technology deployment and unmet short-term positive expectations. Under the backdrop of sustained high oil prices and rising risk aversion, valuation pressures on tech stocks are intensifying.

Looking ahead, based on current market consensus, A-shares are at a critical style balancing window.

In the short term, the market is likely to remain volatile and differentiated. Reflation trades driven by geopolitical factors and delayed Fed rate cuts will continue to suppress risk appetite. The market may stay in a volatile pattern with clear structural divergence, benefiting resource sectors. As PPI rebounds and positive expectations emerge, market positioning may further shift toward value and cyclical sectors with rising prices. The Middle East tensions are a key catalyst for style switching this year; rising global costs and weakening financial conditions make low valuations and pricing power central to current market focus.

In the medium term, market valuation logic is shifting from “liquidity-driven” to “profit-driven.” As the effects of recent steady growth policies continue to unfold, a genuine improvement in corporate profitability will become the core support for future market trends. When earnings, rather than liquidity, lead the market, the upward foundation becomes more solid, enhancing sustainability and resilience. Even if short-term fluctuations occur, the overall medium-term pattern remains an upward trend with volatility.

In terms of allocation, “tech growth + cyclical sectors” are the main focus. On one hand, the long-term core theme of new productive forces like AI is further consolidating; investors can consider buying tech growth stocks less affected by oil price fluctuations, such as AI computing power, semiconductors, and humanoid robots. On the other hand, China’s competitive advantage in cyclical industries is re-estimating its pricing power, making sectors like chemicals, non-ferrous metals, and electrical equipment worth attention.

As the reporting season for annual and first-quarter results approaches from late March to April, the “earnings are king” logic is expected to reassert itself, with opportunities to focus on stocks exceeding earnings expectations.

In summary, a balanced approach that considers both safety and growth remains the preferred strategy for steady progress amid market volatility.

Note: Markets are risky; please invest cautiously. This content is based on publicly available information and does not constitute investment advice.

Author’s statement: Personal opinions are for reference only.