Zhongtai: It is expected that the market will continue to fluctuate in the short term. Adjustments present opportunities for strategic positioning. Emphasis should be placed on the defensive attributes of dividend assets.

Zhongtai released a research report stating that the short-term market may still face volatility, but there is no systemic risk of a large decline in the index. Overseas financial markets have not reached the level to trigger a "TACO" event, such as the adjustment range of the S&P 500, the VIX, and the increase in US bond yields are relatively limited. The possibility of continued fluctuations in geopolitical risks in the short term cannot be ruled out. Currently, the skewness of the A-share index options is bottoming out and rising, with out-of-the-money put options relatively becoming more expensive, reflecting the market's concerns about a second geopolitical shock are converging, and market risk appetite is unlikely to stabilize in the short term. Configuration strategy: Focus on the defensive attributes of dividend assets, and allocate to recovery varieties after the marginal convergence of geopolitical risks. (1) High-dividend dividend assets: In an environment of frequent geopolitical conflicts and weak global economic growth momentum, dividend assets have extremely high allocation value due to their certainty and defensive attributes. (2) Global-priced commodities: After this round of emotional turmoil, with the marginal convergence of geopolitical risks, commodities such as copper and gold will present clear allocation opportunities. (3) Low positioning in the growth track: Low positioning in the technology industry shortage track, and the direction of overseas expansion of manufacturing industry with global competitiveness, seize the profit and valuation double recovery opportunities after market sentiment stabilizes. Zhongtai's main points are as follows: In March, A-shares experienced a process of "adjustment-rebound-second decline". As of March 26, most major indexes recorded declines. The Shanghai Composite Index fell by 6.58%, the CSI 300 fell by 4.95%, the CSI 2000 fell by 10.92%, the Growth Enterprise Market Index and the ChiNext Index fell by 1.14% and 13.39% respectively. The average daily turnover was 2.393 trillion yuan, an increase of 82.2 billion yuan from February. The pace went through the process of "adjustment-rebound-second decline," transitioning from a one-off event shock to stagflation trading. The trend of the index this month is dominated by overseas factors, with the escalation of the US-Iran conflict and stagflation trading being the main themes of the month. (1) The escalation of the US-Iran conflict and stagflation trading are the main themes throughout the month. From the perspective of geopolitical risks, the intensity of this round of US-Iran conflict is short-term and not as intense as the conflicts between Russia and Ukraine in 2022 and Iran and Israel in 2025, but it is still ongoing. Due to the blockade of the Strait of Hormuz leading to a surge in oil prices, the pricing of this conflict has transitioned from a one-off shock event to stagflation trading. (2) The release of a hawkish tone by the FOMC of the Federal Reserve is the direct cause of the second decline in A-shares. The FOMC meeting in March released a hawkish tone, tightening global liquidity expectations. The core contradiction in the market has shifted from the decline in risk appetite to the valuation suppression brought about by the tightening of liquidity. (3) The overall adjustment range of A-shares US stocks < other emerging markets, with significant style differentiation. As of March 26, using the Shanghai index as a benchmark, the performance of A-shares in the global stock market is relatively leading, equivalent to US stocks, especially before the conflict, the adjustment range of A-shares was much lower than that of Japan, South Korea, and Europe. The main reason is that the ban on the Strait of Hormuz has a greater impact on the energy supply of Japan, South Korea, and Europe, and China and the US are relatively independent. The resilience of the technology sector upstream is outstanding, and the energy chain in the cyclical sector is strengthening. (1) The differentiation within the technology asset class has intensified, and the resilience of the upstream is significant. The logic of differentiation within the technology asset class lies in the difference in profitability visibility at different levels of the industry chain. The communication and power equipment sectors in the upstream of the technology sector have clear performance realization capabilities and sustained industry prosperity support, coupled with long-term themes such as energy security and domestic substitution, making them more resilient in the market where risk appetite is declining; while most targets in the downstream application end have longer profit realization cycles and higher sensitivity to valuation changes, indicating more pressure. (2) In the cyclical asset class, the energy chain is strengthening against the trend, and cyclical industrial varieties are significantly retracting previous excess returns. The energy chain mainly benefits from the escalation of geopolitical conflicts and the continuous strengthening of global energy security logic; excess returns in non-ferrous metals are mainly due to the significant fluctuations in this important winning factor of the loose expectations of the Federal Reserve; sectors such as chemicals, building materials, and steel previously benefited from supply-side optimization and expectations of domestic demand recovery. Although there have been no significant changes in the fundamentals in March, the valuation odds have been in a relatively tense state in the short term, with greater downward elasticity. (3) The defensive attributes of dividend stocks are highlighted, and the consumer sector lacks rigid support. The overall decline in dividend assets is significantly smaller than other style sectors, mainly benefiting from the continuous increase in risk aversion in an environment of increased uncertainty. The consumer sector is the core concentrated sector of the industry with negative returns this year, with the degree of improvement in industry prosperity not exceeding expectations. In January and February, with the ample market liquidity, it achieved a slight positive return, but with the tightening of global liquidity expectations, valuations are under pressure. Looking ahead, the short-term market may still face volatility, but there is no systemic risk of a significant decline in the index, and structurally, it may evolve around independent prosperous tracks. 1) The short-term market may still face volatility, but there is no systemic risk of a significant decline in the index. Overseas financial markets have not reached the level to trigger a "TACO" event, such as the adjustment range of the S&P 500, the VIX, and the increase in US bond yields are relatively limited, and the possibility of continued fluctuation in geopolitical risks in the short term cannot be ruled out. Currently, the skewness of the A-share index options is bottoming out and rising, with out-of-the-money put options relatively becoming more expensive, reflecting the market's concerns about a second geopolitical shock are converging, and market risk appetite is unlikely to stabilize in the short term. 2) However, the bank also believes that there is no need to be overly worried, as the market is not expected to face systemic risks. The key is that market stabilization policies have not changed. On March 18, the central bank stated that it will "firmly maintain the stable operation of the stock, bond, foreign exchange and other financial markets," and the bank's calculations show that the net outflow position of ETFs held by the State Administration of Foreign Exchange has changed to a net inflow position. Therefore, after the index further adjusts, there is a possibility of rapid intervention by long-term stable market funds. 3) In terms of structure, it is expected to revolve around independent prosperous tracks. Looking back on the two typical overseas geopolitical risk events in 2022, the Russia-Ukraine conflict, and the Iran-Israel conflict in 2025, in the first month after the peak of geopolitical risks, the market still focused on energy- and supply-demand-driven cyclical resources directly related to the conflict; in the second month after the peak of geopolitical risks, sectors significantly inflated by events driven only by geopolitical events were likely to significantly retract their excess gains, and the sectors leading the decline before the peak of risks were unlikely to become the main line of the subsequent rebound in the short term; after the pricing of geopolitical risks is completed, sectors with a strong independent and high prosperity industrial logic, not directly related to conflicts, are more likely to sustainably achieve excess returns.