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■ He Wanan

The Middle East geopolitical conflict has lasted for two weeks, and when it will end remains unknown. Undoubtedly, the energy supply shocks caused by the conflict have a significant impact on global capital markets.

Over the past two weeks, New York crude oil prices have risen from $67.29 per barrel to $95.59 per barrel, a 42% increase; gold has fallen from $5,296 per ounce to $5,093 per ounce, a 3.9% decline.

As a result, global stock markets have experienced significant volatility, with Japan and South Korea being the hardest hit. Over the two weeks, the Nikkei 225 index and the Seoul Composite Index have fallen by 9.3% and 12.13%, respectively; Europe’s Stoxx 50 index dropped 6.36%; the U.S. Dow Jones Industrial Average declined 4.3%, and the Nasdaq fell 1.6% (all figures up to this Thursday). The only major market to rise was Russia’s stock market, with a gain of 3.1%.

Undoubtedly, the main reason for the decline in capital markets is the high dependence of Japan, South Korea, and Europe on energy. Japan relies on over 90% of its crude oil imports, and Europe around 60%, much of which transits through the Strait of Hormuz.

In comparison, the A-share market’s decline has been relatively modest. The Shanghai Composite Index fell 1.6%, the Shenzhen Component Index dropped 1.5%, and the ChiNext Index remained flat. The Sci-Tech Innovation Board 50 and the Beijing Stock Exchange 50 declined more sharply, by 7.8% and 9.2%, respectively. Over the two weeks, out of 5,600 stocks in the market, only about 1,500 gained, while more than 3,900 declined, with over 70% of stocks falling.

Looking at industries and sectors, among the 56 industries classified by the China Securities Regulatory Commission, only coal, power, and oil sectors saw gains; 41 sectors declined, with the largest drops in internet, non-ferrous metals, and aviation.

Why did the indices not fall much, while individual stocks declined sharply? One key reason is that large-cap stocks in sectors like banking, power, coal, and oil have significant weight in the indices. Data shows that 80% of retail investors’ holdings are concentrated in the bottom 50% of market cap stocks, which, during the US-Iran conflict, on average fell more than 3%, while the large-cap stocks’ average decline was less than 0.5%. Notably, the long-dormant banking stocks have also become active again, with the banking sector index rising 3.2% over two weeks, with major banks like ICBC, CCB, Bank of Communications, China Merchants Bank, Pudong Development Bank, Hangzhou Bank, and Huaxia Bank all showing two consecutive weekly positive candles.

Additionally, some high-performing stocks that have already disclosed their annual reports and posted good results have performed well. CATL (with a 79% profit increase and a valuation of 21 times) rose 14.74%; Baofeng Energy (also with a 79% profit increase and a 21x valuation) increased by 44.4% over two weeks; Dakin Heavy Industries (with a 133% profit increase and a 46.6x valuation) gained 15.86%. Meanwhile, the dividend index has also increased by 4.1% over the same period.

On the other hand, why did the Sci-Tech Innovation Board 50 and Beijing Stock Exchange 50 decline more sharply? The reason is high valuations combined with external shocks, with the average P/E ratio on the Sci-Tech Innovation Board reaching 73.11 times, and on the Beijing Stock Exchange, 62.46 times.

In a column I wrote last week, I pointed out that under the backdrop of escalating geopolitical conflicts, the “electricity-related” sectors in A-shares have become a new mainline. Last week, the power industry index rose 4.6%, and this week it increased another 3.34%; the electrical equipment sector index rose 1.82% last week and gained another 4.45% this week. Moreover, the hot spots have expanded from “electricity-related” sectors to coal, green energy, electric power construction, and chemicals. There are clues behind this trend.

Since crude oil prices have surged sharply and uncertainties remain high, the “electricity-related” sectors largely depend on coal. Additionally, media reports indicate that nearly one-third of global urea exports, 44% of sulfur exports, and nearly one-fifth of ammonia exports pass through the Strait of Hormuz. The smooth operation of this vital waterway directly affects the global fertilizer supply chain and, consequently, food security. Monitoring data shows that since the outbreak of Middle East conflicts, due to shipping disruptions, international prices of urea, diammonium phosphate, and potassium chloride have continued to rise over the past two weeks. With the peak of spring fertilization approaching, rigid demand is being released in full force. As a result, some well-performing fertilizer stocks have begun to surge. For example, Chuanjin Nuo, with a profit forecast growth of 144%–172%, saw its stock price jump 14.8% this Friday; similar gains were seen in Chitianhua, Putailai, Jinniu Chemical, and Zhengdan Shares.

At this point, I cannot help but recall a stock market proverb: “When rising, focus on momentum; when falling, focus on quality.” Usually just words, but when it really matters, it becomes a classic rule summarizing extensive investment experience.