Equity Markets Continue to Decline, All Stock-Type FOFs Turn "Negative," Dividend Assets Become Safe Haven Again

Why Are Dividend Assets the Top Choice for Capital Hedging?

Reporter: Ren Fei Editor: Peng Shuiping

Last week, the A-share market experienced a significant decline, with most equity asset prices adjusting broadly. As a result, public fund FOF equity segments became a drag, with very low success rates; all stock-type FOFs posted negative returns. Market participants are waiting for signs of a bottom to emerge from this decline, but before that, the market may face a prolonged period of fluctuation and consolidation. In terms of sector allocation, the market may once again focus on the value of resource-based dividend assets.

Shanghai Composite Index fell 3.38% over the week; public FOF investment success rates remain low

In the past week (March 16–22), influenced by multiple factors including geopolitical conflicts, weakening expectations of Fed rate cuts, and market sentiment, the A-share market experienced volatility and adjustments, with most broad-based indices declining. The Shanghai Composite fell 3.38%, and the All A-Share Index dropped 4.13%. Among major broad indices, only the ChiNext Index rose 1.26%, while the CSI 50 and CSI 1000 declined over 5%. Other indices fell more than 2%.

From a style perspective, large-cap stocks outperformed last week, with five major style indices generally retreating. Cyclical styles fell over 7%, while stable, growth, and consumer styles also declined over 2%. Sector-wise, most primary industries declined. Only communications and banking rose, while non-ferrous metals, basic chemicals, and steel saw larger declines.

As a result, public FOF success rates were low, with all stock-type FOFs posting negative returns. Wind data shows that last week’s top-performing FOFs were concentrated in retirement target-date funds, with Shenwan Lingxin Retirement Target Date 2045 achieving a weekly return of 0.33%, the highest among all FOFs last week.

However, from the perspective of core holdings, many bank ETFs heavily held by Shenwan Lingxin Retirement Target Date 2045 gained about 0.3% last week, while other major holdings declined. Notably, some ETFs investing in the Nasdaq and ultra-long-term government bonds also saw significant drops last week, driven by recent changes in inflation expectations.

On one hand, geopolitical tensions have heightened the risk of Strait of Hormuz blockades, reinforcing energy security narratives, with market pricing reflecting stagflation expectations and marginal tightening of liquidity easing expectations. On the other hand, short-term U.S. Treasury yields surged, and the yield curve widened, with a simultaneous decline in stocks, bonds, and gold reflecting a flight to safety and tightening expectations.

This has led to some pressure on both equity and bond markets. The safe-haven value of dividend assets has re-emerged, especially cyclical dividend assets, which have once again become the preferred short-term hedging instruments. Last week, several domestic dividend ETFs saw high weekly net capital inflows, making them a key defensive focus for investors.

Top Public FOF Performance Products Last Week (Source: Wind)

Market May Face Long-Term Consolidation; New Capital Still on the Way

As major A-share indices continue to decline, the market is waiting for a bottom. From an institutional perspective, this consolidation phase may last longer, but there’s no need for excessive pessimism. From the perspective of incremental capital, public funds remain promising.

According to public market data, since 2026, 302 new public funds have been launched, with a total issuance scale of 285.423 billion yuan, a 44.18% increase compared to 2025, reaching a new high since 2022. Investor enthusiasm remains high, with 101 funds closing early this year, some due to strong subscription demand triggering proportional allotments.

Additionally, media reports indicate that the China Securities Regulatory Commission recently approved a new batch of hard-tech themed funds, with 15 products approved on the same day. These include seven passive funds tracking the Innovation and Entrepreneurship AI Index, targeting AI and strategic emerging industries, signaling that incremental capital is ready to flow in.

CITIC Securities believes that, currently, due to the escalation of conflicts involving the U.S., Israel, and Iran, the weak dollar hypothesis faces challenges. Under high oil prices, the Fed’s rate cut expectations have shifted significantly. As a result, the core momentum driving the recent rally has weakened. Going forward, the market may shift from valuation-driven gains to performance-driven gains (digesting valuations). If earnings growth expectations remain positive, the A-share market could continue to rise. However, before growth expectations are confirmed, the market may face a transitional pain period.

From the Hong Kong market perspective, Hengsheng Qianhai Hong Kong Stock Connect Value Hybrid Fund Manager Xing Cheng said that due to concerns over geopolitical conflicts, the Strait of Hormuz blockade, rising energy prices, U.S. inflation, and monetary policy, the market may overshoot in the short term. After a pullback, there could be room for a short-term rebound.

Looking ahead, the Hong Kong market is generally optimistic, supported by earnings recovery, improved liquidity, low valuations, and policy support. The AI wave continues to evolve as an industry trend, with the scarce Hong Kong tech sector potentially offering significant upside. High-quality blue-chip stocks with reasonable valuations, such as leading internet companies, are expected to gradually stabilize. It is recommended to focus on investment opportunities in broad growth sectors represented by internet technology, healthcare, and new consumer industries.

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