0329 Weekly Journal: Will this year's market replicate 2025? Same spring correction, different risk scenarios.

（Source: Kunlun Knight）

Reading Note: This article is for my personal investing and research purposes only. Any individual stocks or funds mentioned in the text do not constitute any investment advice or implication. Any trading based on this is at your own risk.

First, let’s review the performance of the key market benchmark indexes and a few industry indexes that I track.

As the conflict in the Middle East continues, in March, global capital markets have been setting off for the Middle East war effort’s spending, and major mainstream indexes in China and the U.S. all saw declines of varying degrees. Among them, the Sci-Tech 50 had the largest drop, falling 12.6%. Meanwhile, the “cool-eyed” S&P 500 and Nasdaq 100 indexes also fell by more than 7% this month.

Looking at gains year-to-date, many indexes have turned from rising to falling. Indexes leading on the upside are the Hong Kong Stock Connect high-dividend stocks and the CSI RedChip and Dividend index, up 7.9% and 4.3%, respectively—once again confirming their “bear market resilience” characteristics. By contrast, the Nasdaq, the S&P 500, and the Hang Seng Index are among the biggest decliners, down 9.9%, 7%, and 5.3%, respectively.

On the risk-free rate front, China’s 10-year government bond yield has remained stable at around 1.8X%, staying at an overall historical low level. The monetary environment has been relatively loose, and the Middle East conflict has not affected domestic interest rates.

Due to the recent conflict in the Middle East, rumors have circulated that the Federal Reserve may pause rate cuts and even consider rate hikes. As a result, China’s 10-year government bond yield has continued to rebound this month to 4.43%. This has directly put pressure on U.S. stock valuations, which in turn has affected the Hang Seng Index in Hong Kong.

In terms of industries, because of the conflict in the Middle East, it has been a headwind for the vast majority of industries. However, energy sectors such as oil and gas, coal, and solar photovoltaics have benefited from rising prices.

Using the same “difficulties-to-reversal” logic, the real estate sector’s stock prices this year in January and February also showed a pattern of stabilizing and then rebounding after years of drifting lower. But in the first half of March, there was again a wave of declines—possibly because there were no major policy releases at the meeting?

In February, the most dismal performers were Hong Kong stocks’ Hang Seng Tech and the China concept mutual connection. In March they continued to fall, mainly due to the Federal Reserve’s rate cuts coming in less than expected, as well as the Middle East situation causing market risk appetite to decline. Investors shifted to buying safe-haven defensive assets, putting pressure on technology growth sectors. However, the PE and PB percentiles of China concept mutual connection are both in single-digit ranges, implying undervaluation.

Meanwhile, after real estate, baijiu, and consumer sectors had a phase of strong rallies, they continued to pull back. Their year-to-date performance also turned negative, resembling the real estate sector’s trajectory—recovery still requires time.

This week, the market continues to grind down at the base amid ongoing volatility. Looking back at the overall performance since the start of this year, one feeling is that the current market pace is highly similar to 2025—almost as if history is repeating itself in rhyme, except that the “script” of external risk has swapped the starring role.

The stock markets at the start of 2025 and early 2026 have basically traced the same “first up then down” curve. In both years, the market saw a sharp rally at the beginning of the year. Sentiment warmed up quickly, and the willingness of capital to enter the market was strong. Major indexes continuously surged, and investors generally had high expectations for the full-year outlook.

But the similar script suddenly turned around at the key point of April. Under the shock of external, unexpected events, the market swung sharply downward. Early gains were quickly given back, and risk-averse sentiment surged rapidly—switching from “attack” to “defense” almost immediately.

The turning point in 2025’s market stemmed from an escalation in trade frictions.

In early April, the U.S. suddenly announced an increase in reciprocal tariffs. Concerns about a global trade war spread quickly, and the market worried that supply chains would be restructured and corporate profits would be harmed. Risk assets were hit by collective selloffs, leading A-shares to undergo a significant correction. The growth sectors tied to exports saw particularly large declines. The market quickly shifted from optimistic expectations to pessimism.

Meanwhile, the trigger for the adjustment in 2026 is the escalation of Middle East geopolitical conflict.

Since March, the conflict in the Middle East has continued to expand. Oil prices have swung sharply, global inflation expectations have risen again, and combined with a drop in investors’ risk appetite, safe-haven sentiment has come to dominate the market. A-shares also saw rapid declines. Growth indexes such as the Sci-Tech 50 saw significant adjustments, and the market’s earning-effect quickly cooled.

However, although the two rounds of adjustments look similar in terms of their trajectory, there are clear differences in the underlying nature of the risks and the logic of their impact.

In 2025, the tariff war is a shock to the medium- to long-term fundamentals. It directly affects corporate profit forecasts and the global trade framework, making the market suppression more sustained;

This year’s Middle East conflict, by contrast, is more of a short-term geopolitical disturbance. It mainly transmits through sentiment and energy prices, with relatively limited direct impact on domestic economic fundamentals. It is more like a selloff driven by phase-based sentiment.

Overall, both years of market action confirm the rule that “when markets rise too much, they will adjust.” External events are only catalysts that accelerate the timing of the turning point.

After listening to the latest views from several brokerages, all I can hear, everywhere, is: “Track risk events, watch the inflation trend, and wait for the main theme to become clear.”

The logic is correct. But in practical execution, if you end up refreshing your feed every day to see what Old T says, guessing how the Fed will move next month, and then chasing after a sector finally rallies—this doesn’t differ much from throwing darts.

As a value investor, focusing tightly on a company’s fundamentals is the real root.

After many companies recently released their earnings, even if their results meet expectations or only slightly underperform, their stock prices often fall sharply. Fundamentally, this is a selloff driven by market panic sentiment, not a substantive deterioration in company fundamentals.

As long as a company’s fundamentals haven’t been hit meaningfully, short-term fluctuations are mostly just market noise.

Even if short-term earnings fluctuate, as long as the core moat hasn’t been eroded, many disturbances that are hard to see clearly in the moment will look much clearer when viewed over a longer cycle of three to five years.

This is also a reminder to myself: when buying, try to depress the valuation and hold onto a sufficient margin of safety—it will be much more calm and with more room to maneuver.

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