Zhongjin: Currently may be a relatively low point in the mid-term for A-shares, deep adjustments have brought opportunities for layout.

Zhong Jin released a research report stating that the main reason for the market's sharp correction is the escalation of the situation in Iran. In the recent period, geopolitical conflicts have not eased but instead intensified. In terms of pace, the market's interpretative logic has changed, shifting from the initial emotional impact to concerns about macroeconomic fundamentals. At the beginning of March, during the initial outbreak of the geopolitical conflict, the escalation of geopolitical tensions usually manifested as emotional impact and a surge in risk premium in the stock market, resulting in increased volatility and fund reallocation, with funds tending to move from equity assets to safe haven assets. The bank believes that after the subsiding of emotional impact, the market focus will gradually shift to fundamentals and policy themes, with the substantive changes in the global industrial chain and macro environment brought about by geopolitical conflicts becoming the dominant logic. Key points from Zhong Jin include: - Under external shocks, the market undergoes a deep correction, with the Shanghai Composite Index breaking key levels. On March 23rd, the A-share market experienced a sharp decline, with the Shanghai Composite Index, the Wind Full A Index, and the ChiNext Index falling by 3.6%, 4.1%, and 3.5% respectively. The Shanghai Composite Index briefly fell below the key level of 3800 during the trading session. Stock markets in the Asia-Pacific region generally experienced a deep correction, with the Korean Composite Index plunging by 6.5%, and the Nikkei 225 Index and Hong Kong's Hang Seng Index having similar declines as A-shares. The performance of A-share styles and sectors also showed a clear "valuation killing" feature: in terms of size, small and micro-cap stocks with high valuations performed weaker, with the Wind Micro-Cap Index and the CSI 2000 Index falling by 6.4% and 5.4% respectively, higher than the large-cap stocks; in terms of industries, sectors such as petroleum, coal, electricity, batteries, and power grid equipment, which have pricing increase and energy substitution logic, companies with high dividend yields, and sectors with good fundamental expectations like optical communications and PCBs showed strong resilience, while sectors like consumer services and software led the declines. - Recent concerns in the market in these two areas have increased: 1) Cost pressures and profit differentiation, as China is a typical energy-importing country, the rise in energy prices puts direct or indirect cost pressures on most industries domestically, and if the impact spreads to global trade, it may also affect China's export demand. This concern has been accompanied by the rise in oil prices, with increasing attention recently, mapping to the capital market and impacting the profit assessment of A-shares, especially non-financial sectors, after the subsiding of emotional impact; 2) The linkage effect between macro inflation and interest rates. High oil prices push up inflation expectations, which in turn affect the pace and direction of the Federal Reserve's monetary policy, with historical experience showing that an early end to a loose global liquidity cycle will suppress equity market performance. At this point in time, should one buy or sell? Short-term rebounds are expected, but attention should still be paid to the evolution of conflicts and the A-share funding environment. As of the release of the report, there have been significant changes in the news. According to media reports, on March 23rd, President Trump stated that the U.S. and Iran had conducted "very good and fruitful" talks in the past two days, and the U.S. will "delay" the strike on Iranian power plants for 5 days. Subsequently, Iranian media quoted the Iranian Foreign Ministry as saying that there are no talks between Iran and the U.S. The combined impact has led to a rapid decline in oil prices, a narrowing of the decline in gold prices, and a rebound in U.S. stocks. Short-term developments in events are expected to bring about a rebound in A-shares, but attention should still be paid to the subsequent evolution and the recent funding situation of A-shares, such as institutional redemption pressure, from the perspective of market stability monitoring, it is necessary to guard against negative feedback from the funding situation on index. The current point in time may be the relative low point for A-shares in the medium term, and the deep correction has brought about good opportunities for positioning. Although there is still some uncertainty in the short-term trend, after the adjustment, the risks in the A-share market have been further released. The bank believes that valuations are at a relatively reasonable level, and if measured by risk premium, as of March 23rd, the equity risk premium of the CSI 300 Index compared to the yield of the 10-year national bond is 5.5%, at the 42nd percentile since 2010. The dividend yield of the CSI 300 Index is 2.7%, and the price-to-earnings ratio of stocks and bonds still has an advantage. In the medium term, there has been no fundamental change in the macro environment in which the market is located, and the logic of supporting the A-share market to "move forward steadily" still holds. The release of risks and the drop in adjustments are expected to bring good opportunities for allocation. China's manufacturing advantage is evident, and artificial intelligence is currently in a stage of new technological iterations and applications, with the demand for energy and costs in training new models showing an exponential growth, supporting upstream demand, driving the price increase of products of related listed companies and improving profitability. In terms of allocation, focus on several themes: 1) Prosperity and growth: industries benefiting from the deployment of AI technology such as optical communications and storage; new energy-related batteries and energy storage, etc. 2) Cyclical resource stocks: considering the position in the production cycle, focus on sub-sectors with supply-demand patterns supporting price increases and performance certainty, such as power grids, chemicals, etc. 3) High-dividend stocks may still show phased, structural performance this year, focus on their alignment with cash flows.