The Rebalancing of Safety and Growth: Reflections After Market Divergence Intensifies (With Preview of Next Week)

This week, global financial markets experienced significant volatility amid risk aversion, with geopolitical risks becoming a key factor influencing market direction. All three major U.S. stock indices closed lower, with the Nasdaq down 1.26%, the S&P 500 falling 1.60%, and the Dow Jones Industrial Average nearly dropping 2%. In Asia, the Nikkei 225 plunged 3.24%. Global funds are shifting from high-valuation sectors to defensive assets, with market risk appetite clearly cooling.

The A-share market showed notable structural differentiation this week. The Shanghai Composite Index slightly declined 0.70% to 4,095.45 points, while the Shenzhen Component Index rose marginally by 0.76%. The ChiNext Index performed the strongest, gaining 2.51% for the week. However, the Sci-Tech Innovation 50 Index fell sharply by 2.88%, indicating increased adjustment pressure on the tech sector. Trading remained highly active, with total A-share turnover reaching 18.48 trillion yuan for the week, averaging over 3.7 trillion yuan daily, but the number of declining stocks far exceeded those rising, reflecting overall cautious market sentiment.

From a global asset allocation perspective, international institutions have recently shown keen interest in China’s independent value. UBS noted that the correlation between A-shares and global indices is significantly lower than that of Hong Kong stocks and Chinese concept stocks, offering feasible diversification options for global investors. Amid rising geopolitical risks, China’s low dependence on oil and ample oil reserves mean external shocks have limited downward transmission to the domestic market, which is one of the core reasons foreign capital prefers A-shares in the current environment.

In Hong Kong, the Hang Seng Index fell 1.13% to 22,657.38 points, while the Hang Seng Tech Index rose slightly by 0.62%, indicating resilience among some tech giants.

Sector rotation was particularly prominent this week. Among the primary industries, coal led with a 5.03% increase, followed by low-valuation, high-dividend sectors such as construction and decoration, utilities, and banking, reflecting a defensive capital stance. Meanwhile, the power equipment sector also gained 4.55%, driven mainly by policy support for the new energy industry chain and the economic viability of renewable energy amid high oil prices. Defense and military sectors plunged 6.64%, with oil, petrochemicals, diversified metals, and media declining over 3%.

In Hong Kong, the healthcare technology sector surged 22.03%, with electrical equipment and basic chemicals also performing well, benefiting from policy support and expectations of global supply chain restructuring.

Commodities markets experienced intense volatility, becoming a key variable affecting stocks this week. Due to ongoing tensions in the Middle East, INE crude oil prices soared 13.81% over the week. Recent updates indicate that U.S.-Israel military strikes against Iran have entered their 14th day. Iran has stated that some foreign ships are allowed to pass through the Strait of Hormuz, but countries involved in attacking Iran do not enjoy “safe passage.” The surge in energy prices has dual effects on the A-share market: directly boosting upstream sectors like coal and chemicals, and also raising concerns about stagflation risks, which suppress valuations in consumer and tech sectors. Iron ore futures rose over 5%, soybean futures increased 6.67%, while precious metals prices declined slightly.

Notably, uncertainty around the Federal Reserve’s policy path is increasing. Recent data show weakening U.S. consumer momentum and downward revisions to economic growth, prompting markets to reassess the pace of rate cuts this year. This external liquidity expectation fluctuation resonates with the sharp volatility in domestic crude oil prices, further amplifying the structural differentiation in the A-share market.

On the policy front, the draft outline of the 14th Five-Year Plan has been submitted for review, explicitly emphasizing the promotion of deep integration of technological innovation and industrial development, with a focus on key areas such as integrated circuits, industrial mother machines, and biomanufacturing. The draft includes 109 major projects, with 28 related to enhancing industrial foundational capabilities, cultivating new industries and tracks, and tackling frontier technologies. These policies provide clear support for mid- to long-term sectors like power equipment and new energy. In terms of monetary policy, China’s 7-day reverse repo rate remains at 1.40%, with no adjustments to MLF or LPR rates, maintaining a stable and neutral liquidity environment.

Looking ahead, the market may enter a phase of “short-term consolidation and medium-term recovery based on fundamentals.” In the short term, geopolitical conflicts and institutional rebalancing may suppress risk appetite, leading to range-bound fluctuations; however, in the medium term, continued policy support, steady inflow of new funds, and gradual corporate earnings recovery will lay the foundation for upward movement.

Investment strategies should balance defense and growth: In the near term, focus on low-valuation, high-dividend sectors like coal, construction, and banking for risk mitigation, as well as chemical sectors benefiting from high oil prices and seasonal demand for trading opportunities. In the medium term, as earnings season approaches, a “performance-driven” approach may re-emerge, with opportunities to buy on dips in growth sectors supported by policies and benefiting from oil price increases—such as power equipment and the new energy chain (where higher oil prices reinforce substitution demand), as well as tech stocks related to AI computing power, semiconductors, and biomanufacturing, representing new productive forces. Amid ongoing macro uncertainties, maintaining resolve during volatility, balancing safety margins with growth potential, is a prudent approach to navigating market fluctuations.

Author’s note: These are personal opinions and for reference only.