Huatai Securities: Sentiment Indicators Approaching Panic Threshold But Not Yet Breaking Through; Market May Continue Bottom-Grinding Consolidation in the Near Term

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（Source: Huatai Securities Research Institute）

Last week, A-shares experienced a structural adjustment under the dual pressures of rising overseas stagflation expectations and cooling domestic easing expectations, with further sector divergence. In the short term, the risk chain of “high oil prices → global stagflation → liquidity tightening” may still need attention, and tail risks should not be ignored. However, from a medium-term perspective, this logic has clear uncertainties: China’s low inflation base, room for independent monetary easing such as rate cuts and reserve ratio reductions, and the trends in AI industry and anti-involution policies form unique sources of alpha for Chinese assets. On the liquidity front, sentiment indicators are close to panic levels but have not yet broken through; the support from increased allocations by insurance funds and deposit shifts may still be in place. The market is expected to continue short-term consolidation and volatility, but confidence in the medium-term upward trend remains. In terms of allocation, high-dividend defensive stocks and cyclical investments outperform thematic plays, with alpha being sought in the power chain (batteries, traditional energy, operators) and essential consumer goods.

Core Views

Market segmentation intensifies, fundamental factors become important safe havens

Last week, amid the “easing expectations cooling domestically and increased external disturbances,” the A-share market showed significant sector divergence. Domestically, the 3-month LPR remained unchanged for the tenth consecutive month on March 20, with a rate cut window still open but not yet implemented. The index closed at 3,957 points, while the ChiNext Index rose 1.3% on Friday against the trend, with the divergence reaching its highest level this year. Sector trading signals clearly point to a “growth replacement cycle”: growth sectors such as compute leasing, storage chips, and photovoltaic equipment saw concentrated capital inflows, while previously strong weight and resource sectors like oil & petrochemicals, coal, and banks experienced sell-offs, indicating that market pricing of geopolitical risks is shifting from short-term disturbances to medium- and long-term impacts. Technology and stable dividend sectors serve as short-term safe havens, with rotation accelerating.

External disturbances persist, Fed rate cut expectations decline

On the external front, last week’s variables created pressure. The Federal Reserve held steady on March 18, as expected, but Powell explicitly stated that inflation has not fallen as expected. The dot plot now shows 7 officials expecting no rate cuts this year, and futures markets have delayed the first rate cut to September-October, even beginning to price in the possibility of rate hikes. This suggests rising odds of global liquidity tightening rather than easing, which could transmit to A-shares via three channels: slowing northbound capital inflows, short-term pressure on the RMB, and declining risk appetite. In the short term, high-dividend, low-volatility defensive assets may regain safe-haven premiums. Meanwhile, conflicts in Iran have nearly halted the Strait of Hormuz, pushing spot crude oil prices higher. If stagnation persists, the risk of “rising oil prices → overseas stagflation → Fed forced to hike rates” may increase, causing turbulence in A-shares.

Investor sentiment declines but may not have bottomed out

From the sentiment and liquidity perspective, last Friday’s market sentiment index fell close to panic levels. Over 4,700 stocks declined, with only 55% hitting their daily limit-up. The A-share sentiment index dropped again to about 11% (below 10% indicating panic). The margin ratio for margin trading is at 280%, and further deleveraging depends on the extent of margin reduction. The weekly put-call spread widened but not to extremes; short-term market adjustments may continue. If the spread widens to extreme levels, it could signal a bottom reversal. However, there’s no need for excessive pessimism: insurance funds continue expanding equity allocations, deposit maturities are flowing into equities, and the PBOC’s 800 billion yuan buy-and-hold reverse repos support liquidity at quarter-end. The incremental long-term funds suggest systemic valuation risks are limited; adjustments are more structural than trend-based.

Profit expectations for cyclical and tech sectors continue upward

Last week was a quiet period before annual report disclosures and expectation revisions. Consensus earnings forecasts for major broad indices remain divergent: the CSI 300’s expected earnings (26E) are roughly flat, while the ChiNext and STAR Market 50 see upward revisions supported by high prosperity in the AI industry chain. Industry-wise, driven by soaring oil prices, profit expectations for upstream resources like oil & petrochemicals and non-ferrous metals continue to rise; meanwhile, banks and real estate face margin pressure due to stable interest rates and weak demand, with expectations flattening. Alibaba Cloud announced last week that AI computing power and storage products increased prices by up to 34%, confirming strong demand for computing power and providing a new catalyst for upward revisions in tech sectors like communications, electronics, and computing. Coupled with policy expectations from the Zhongguancun Forum this week, the prosperity logic for tech themes may shift from anticipation to actual performance realization.

Risk warnings: geopolitical risks overseas; AI narrative underperformance; domestic policy surprises.