21st Century Business Herald Reporter Yi Yanjun
The escalating situation in the Middle East continues to disrupt global supply chains, significantly putting pressure on domestic and foreign risk assets.
On March 23, major markets in the Asia-Pacific region experienced a &#34;Black Monday.&#34; The Korea Composite Stock Price Index fell by 6.49%, and the Nikkei 225 Index closed down by 3.48%.
The Shanghai Composite Index, ChiNext Index, and Shenzhen Component Index all fell more than 3% throughout the day, marking the largest single-day declines of the year. The Hong Kong stock market was also affected, with the Hang Seng Index dropping 3.54% for the day.
Amidst the panic, the performance of various assets is expected to further diverge. In the medium to long term, China's advantageous manufacturing sector is likely to usher in a new round of value reassessment.
Qiu Xiang, Chief A-share Strategist at CITIC Securities, stated in a recent research report that some core controversies regarding the impact of the Middle East conflict will gradually have answers after entering April. Before that, the market will remain in a narrative game phase, reflecting characteristics of liquidity withdrawal.
From the current global market landscape, Qiu Xiang believes that after the global risk aversion sentiment dissipates, countries strengthening energy resource security layouts and accelerating the electrification process have become new development trends. The competitiveness of China's advantageous manufacturing sector in terms of pricing power and profit margins is just beginning.
&#34;Investors need to remain patient and calmly address stock price fluctuations; April to May will be the decision-making period,&#34; Qiu Xiang reminded.
Recently, A-shares have experienced increased volatility. On March 23, major A-share indices collectively fell. By the close of that day, the Shanghai Composite Index had dropped over 3.6%, closing at 3813.28 points. This means that in the last two trading days, the index has consecutively fallen below 4000 points and 3900 points.
Looking back at the week from March 16 to March 20, most core indices in the Wind A-share market showed a downward trend. Among them, the Wind All A Index, Shanghai Composite Index, and Shenzhen Component Index fell by 4.13%, 3.38%, and 2.90%, respectively. Small-cap stocks performed even weaker, with the Beijing Stock Exchange 50 and CSI 2000 indices both dropping over 5.7%, while the Wind Micro-cap Index saw a decline of 7.12%. The ChiNext Index was relatively resilient, rising 1.26% for the week.
In fact, it is not just A-shares; global financial markets have also entered a phase of severe turbulence.
In the week of March 16, the German DAX, UK FTSE 100, French CAC 40, and Nasdaq indices fell by 4.55%, 3.34%, 3.11%, and 2.07%, respectively.
Data Source: Wind
Gold and oil prices have moved in opposite directions. As of March 20, international gold prices had fallen for eight consecutive trading days, with a weekly decline exceeding 10%. Meanwhile, Brent crude oil prices continued to challenge the $110 mark.
Currently, the evolution of the situation in the Middle East remains one of the key factors dragging down the equity market.
According to Liu Gang, Managing Director and Chief Overseas and Hong Kong Stock Strategy Analyst at CICC, as the situation evolves, market expectations for the end of the conflict have shifted from an initial &#34;quick resolution&#34; to a current &#34;long-term standoff.&#34;
According to the betting odds from Polymarket, the market's expectation for the conflict to end in March has dropped from 78% on February 28 to 4% on March 20, with the highest probability (44%) now for it to end between April 1 and May 15.
&#34;As expectations continue to be pushed back, the trading focus will gradually shift from short-term emotional impacts to more long-term secondary effects, such as the negative feedback of liquidity on assets and the second-order pressure of high energy costs on inflation and supply chains. This may also be one of the reasons for the sudden increase in volatility in gold, U.S. Treasuries, U.S. stocks, and even A/H shares last week,&#34; Liu Gang pointed out in his research report.
A representative from China Europe Fund also mentioned that the core of this crisis is the physical disruption risk of the geopolitical supply chain. Economies worldwide must endure input inflation from soaring energy costs while facing the risk of capital outflows due to the Federal Reserve delaying interest rate cuts because of inflation pressure. This &#34;dual squeeze&#34; has caused widespread and severe fluctuations in energy, metals, major currencies, and capital markets globally.
Additionally, Golden Eagle Fund reminded that, essentially, this round of adjustment is more likely due to the market's early pricing in of &#34;tail risks.&#34; In conditions of incomplete information and unclear paths, the probabilities of some extreme outcomes (such as a blockade of the Strait of Hormuz leading to a surge in global energy prices) are discounted into asset prices, thereby raising the overall risk premium level, rather than a substantial downward revision of corporate earnings expectations or a sudden change in macro fundamentals. This also means that current market prices have, to some extent, included elements of &#34;emotional overreaction.&#34;
In the current uncertain situation regarding the direction of the Iran conflict and the navigation conditions in the Strait of Hormuz, what certainties and uncertainties do investors face?
Qiu Xiang, Chief A-share Strategist at CITIC Securities, believes there are three core questions that cannot currently be verified and are difficult to answer: First, to what extent can navigation be restored after the intensity of the conflict decreases? Second, does the Federal Reserve pay more attention to inflation indicators or actual employment conditions? Third, is China facing a cost shock or an opportunity for supply chain shifts?
&#34;These questions may only gradually become clear by April. In the face of significant uncertainty, the market has seen some reduction in positions in the short term, with those that rose significantly earlier experiencing more declines recently. However, overall, most performance-driven and narrative-driven market clues have essentially returned to the same starting line in terms of yield since the beginning of the year. The first three months can be seen as a market rotation driven by the interplay of expectations and narratives during the spring excitement and cooling process, rather than a decisive factor for the entire year,&#34; Qiu Xiang noted in his research report. The broader recovery of PPI and price transmission, as well as the restoration of corporate profitability, are the directions that combine expectation differences and space this year, with decisive factors to be observed in April.
He believes that the second quarter is a key window for rebuilding confidence on the slow bull path of A-shares. The space for continued recovery of index valuations is limited, and the rebound of corporate profit margins is crucial for the next phase of the A-share bull market. The disruption of the global supply chain once again presents an opportunity to validate China's advantageous manufacturing pricing power
&#34;This round of energy and chemical cost shocks brought about by the Middle East conflict has given us a window to observe and verify whether China's advantageous manufacturing industry can truly reflect pricing power structurally. Is it that the high dependence on imported crude oil, severe internal competition, and oil price compression are squeezing manufacturing profit margins, or is it that industries in China that already have a sufficiently high monopoly share globally are beginning to continuously pass on cost pressures? We will have the opportunity to see more real evidence of these two narratives in the second quarter. The petrochemical chain is currently the best observation sample, and it is entirely possible to replicate the situation of order transfers to China after the global supply chain disruptions of 2020-2021,&#34; Qiu Xiang specifically analyzed.
Some buying institutions hold similar views.
A person from Qianhai Kaiyuan Fund pointed out that in the medium to long term, facing unprecedented changes in a century, our country possesses the most complete global supply chain and the largest manufacturing capacity. Our advantageous industries will further gain market share from regions with unstable external supplies, ushering in a dual increase in volume and price.
Focusing on market styles, Qiu Xiang pointed out that the Middle East conflict is a catalyst for style switching this year. Against the backdrop of rising global costs and weakening financial conditions, low valuations and pricing power are the two most important factors. In terms of industrial trends, code expansion and physical scarcity manifest in China as an increase in pricing power for advantageous manufacturing, accelerated disruptive innovation from AI, and disturbances in the global energy and chemical supply chain are all strengthening this trend.
Overall, Minsheng Jianyin Fund pointed out that geopolitical conflicts have shifted the core contradictions in the market towards supply security and strategic resources, with the driving logic switching from risk aversion to concerns about re-inflation. Rising oil prices reinforce inflation expectations, suppressing the prospects for interest rate cuts and impacting most assets. The short-term rise in oil prices leading to re-inflation trades and the delay in the Federal Reserve's interest rate cut expectations will have a certain impact on market risk appetite, causing A-shares to remain primarily volatile, with significant structural differentiation in the market.
&#34;If the conflict eases, risk appetite and liquidity are expected to recover; if it escalates into a long-term war, it will trigger more severe global liquidity shocks. Sectors such as oil and gas, and shipping directly reflect supply and transportation risks, and A-shares in oil, shipping, and coal may perform relatively well. Overall, under liquidity shocks, the index may be relatively weak in the short term,&#34; the company stated.
Amid the fog, the industry configuration of A-shares may have three key words: advantageous (advanced) manufacturing, price increase logic, and low volatility dividends.
Qiu Xiang suggested firmly focusing on the revaluation layout of China's advantageous manufacturing pricing power. &#34;The current bottom warehouse recommendation remains in industries with share advantages, high difficulty in overseas capacity reset costs, and supply elasticity easily influenced by policies, based on new energy, chemicals, electric equipment, and non-ferrous metals. Recent liquidity shocks have brought many varieties' valuations back to cheap areas, with extreme negative interpretations and narratives somewhat similar to the overseas varieties after April 7 last year, bringing back huge expectation differences and undervaluation. Based on the above bottom warehouse, it is recommended to continue increasing exposure to undervalued factors, with a focus on insurance, brokerage, and electricity.&#34;
Regarding the recently popular HALO concept, Qiu Xiang believes that the core of overseas HALO trading is to select defensive targets that can avoid damage to free cash flow or downward pressure on capital returns under the impact of AI disruptive innovation, which is essentially a passive defensive switch
&#34;The logic in China is different; it essentially seeks industries and companies where production capacity is difficult to replicate globally, and where significant share advantages gradually translate into price pass-throughs under the government's conscious control of production capacity, thereby increasing profit margins and cash flows. This is also the core logic behind our continued recommendation of chemicals, non-ferrous metals, power equipment, and new energy,&#34; pointed out Qiu Xiang.
He further analyzed that if we apply the HALO framework to the A-share market, there is no significant difference in valuation between high HALO score combinations and low HALO score combinations. Since 2025, the high HALO combination has not shown significant excess returns compared to the low HALO combination. HALO is not a logic that can be simply applied to the A-share market, which differs from North America.
Qianhai Kylin Fund believes that two directions can be focused on in the future: first, varieties that benefit from rising energy prices, such as coal, electricity, chemicals, and agriculture; second, sectors with independent industrial growth logic, such as advanced manufacturing (new energy, machinery, military industry).
A person from Zhongou Fund mentioned that global inflation and the increasingly tense geopolitical situation will further drive the performance of cyclical commodities. In the context of rising volatility, the allocation value of low-volatility assets is gradually recovering, and attention can be paid to three directions: first, traditional low-volatility dividends; second, the coal chemical sector in the chemical chain, where profit margins are expected to improve beyond expectations; finally, the oil and gas sector, which benefits from the long-term rise in product price centers.
Additionally, Ping An Fund mentioned three clues: first, the technology growth sector benefiting from policy support and industrial upgrades, including computing power infrastructure, semiconductors, and high-end manufacturing, which has medium to long-term growth potential under the logic of global industrial chain restructuring and self-sufficiency;
second, high-dividend assets with stable cash flows and dividend capabilities, which continue to highlight defensive attributes and allocation value in an environment of fluctuating interest rate centers and increasing market uncertainty;
third, the upstream energy and bulk commodity sectors benefiting from the rise in resource prices, which have certain hedging attributes in an inflationary environment, while profit elasticity is relatively clear.
Overall, Ping An Fund believes that the short-term market may still maintain a high volatility pattern, but the medium to long-term logic has not been disrupted, and structural opportunities are still worth actively seizing

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The escalation of the situation in the Middle East is affecting global supply chains, leading to market panic, with major markets in the Asia-Pacific region experiencing significant declines. Qiu Xiang, Chief Strategist at CITIC Securities, believes that China's advantageous manufacturing sector will undergo a value reassessment in the medium to long term, and investors need to remain patient, as April to May will be a decisive period. Recently, A-shares have seen increased volatility, with major indices collectively falling, and global financial markets are also facing severe fluctuations

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