Why do I think we should temporarily leave the A-share market now (March 2026)?

First, the core view: Now (March 2026) we should temporarily leave the A-share market, reduce positions on rallies above the Shanghai Composite Index 4000, and wait for a pullback to within 3800-3850 before considering re-entry.$SSE Index(000001.SH)

Let's first review the reasons for the previous A-share rally.

Internal factors:

• Low valuations, the A-share P/E ratio was at a historical low before September 24, 2024.
• National team increased holdings, insurance funds entered the market, household deposits shifted.
• Many sectors had expectations or narratives of profit improvement or growth, including but not limited to pharmaceuticals, gaming/media, defense, semiconductors, AI, robotics, non-ferrous metals, chemicals, photovoltaics, new energy...
• On the policy front, loose monetary policy and proactive fiscal policy were implemented, along with policies to improve corporate profitability (such as anti-involution).

Regarding monetary policy, interest rate and reserve requirement ratio cuts—think about how much Yu'ebao's yield has dropped this year. Don't look at the absolute value, look at the percentage drop.

External factors:

• The Fed began its rate-cutting cycle in 2024. Trump took office and implemented a weak dollar policy to revitalize manufacturing, leading to a stronger RMB exchange rate which attracted some international capital.
• Sino-US trade negotiations are ongoing, top leaders are about to meet, potentially releasing some positive news.
• China is less affected by geopolitical conflicts.

Now, let's look one by one at whether the drivers that previously supported the A-share rally are still effective.

• Valuations: From this perspective, A-shares are no longer cheap. The P/E ratios of the CSI 300 and CSI 500 are near the peaks of previous bull market cycles.
• National team: Evidence suggests holdings have fallen back to levels before this bull market. Possibly other state-owned capital absorbed the national team's selling, preventing a sharp decline. There are also signs of household deposit shifts, but when per capita income is low and the basic social security system is not sound, expecting China to have a situation where the middle class all holds stocks like in the US is quite difficult. Only when household incomes rise will the willingness for household deposits to enter the market strengthen.

• Industry profit improvement: This has mostly been reflected in stock prices. Sectors like defense, semiconductors, CPO, chemicals, non-ferrous metals, etc., have actually seen very considerable gains. It can be said that expectations for profit improvement are largely priced in. The remaining question is whether annual reports can truly support the excessively risen stock prices.
• Policy: Two rounds of interest rate and RRR cuts in 2024, one round in 2025. In 2026, which aims to "promote a reasonable rebound in prices", whatever the reason for the price increase—be it imported inflation or the effectiveness of anti-involution policies (in any case, price hikes for electronics in 2026 are a very certain event)—this year's CPI is unlikely to remain very low. One must ask, how much room is left for rate and RRR cuts in 2026? Of course, it's more encouraging that fiscal policy will be more forceful this year.
• Dollar interest rates and the DXY: Global dollar liquidity actually peaked in October-November 2025 (as can be seen from the trends of BTC, Cathie Wood's ARK, Chinese concept stocks, and the Mag7, all of which peaked around that time). Due to inflation expectations from rising oil prices, traders' bets on Fed rate cuts this year have gone from 2 to less than 1 (of course, this depends on what the Fed says at the March 18 FOMC meeting, how the next Fed Chair in May will guide, and the course of the Iran war). The DXY has returned to 100 (even putting pressure on gold prices). Objectively speaking, these are all unfavorable factors for A-shares.
• Sino-US trade negotiations: This is an ongoing process. Exhausted positive news can easily turn negative.
• It's true that A-shares are less susceptible to the international macro environment.
• Finally, a technical point: The Shanghai Composite Index shows some divergence on both weekly and daily charts.

Overall, some factors that previously supported the upward movement of A-shares have disappeared or weakened. Therefore, I do not believe A-shares can continue to hit new highs this spring (e.g., challenging 4400 or 4500). On the contrary, an index adjustment of around 8%-10% (4200*0.92=3864, 4200*0.9=3780) would be healthy and necessary.

So, given this judgment, how should we operate next?

My view is: Clear out growth-type holdings (e.g., STAR Market, non-ferrous metals, semiconductors, robotics), quietly wait for the index to adjust to the 38xx range before re-entering. By then, most thematic sectors should have seen around a 20% drop, which, under a long-term bullish view, is also a favorable entry point in terms of risk-reward.

Whether it's a real bull market still depends on whether corporate profits and the economic fundamentals have truly improved, although the stock market often bottoms out before the economy. Whether this bull market can truly become a slow bull depends on whether CN's economy can truly recover, and whether residents can regain confidence in future income growth, which is still quite difficult.

After gradually entering at 38xx, 3500 can be used as a stop-loss level for the end of the bull market. The loss here would not exceed 10%, which is a controllable level (of course, if it really reaches 35xx, close attention must still be paid to how policies guide the capital market). Additionally, if the bull market continues to break upward and has a chance to reach above 4400, the returns would also be considerable.

Overall, I think the risk-reward ratio of this strategy is good.

Furthermore, the index could of course also not pull back to 38xx and directly challenge 4400. Therefore, I recommend keeping some funds for dividend-type fixed investments (although valuations of various dividend indices are not cheap now, the dividend yield is still attractive relative to the gradually declining Yu'ebao yield. Buying more on dips is also a strategy. Anyway, small fund fixed investments are not a big problem, they can be used for retirement at worst. Also, dividend stocks include some so-called HALO assets). If the stock market continues to rise, at least we won't miss the opportunity.