Weekly Research Selection | Oil Prices and Inflation, How Much Longer Will Middle East Tensions Impact Markets?

Source: Shanghai Securities Journal · China Securities Journal

Shanghai Securities Journal China Securities Journal News (Reporter Wang Youruo): This week, two major concerns triggered a market-wide adjustment and rapid sector rotation. On one hand, the Middle East situation remains uncertain, with significant unpredictability in future oil prices and inflation trends, increasing the risk of stagflation. On the other hand, the Federal Reserve kept interest rates unchanged at the March policy meeting but signaled a more hawkish stance, raising concerns about tightening monetary policy. How long will geopolitical tensions persist? Has the phase of greatest impact on A-shares already passed? What chain reactions will Fed monetary tightening bring? See this week’s institutional analysis.

Shenwan Hongyuan: The greatest impact of Middle East tensions may be happening now

The recent deadlock in the Middle East situation and the formation of a new equilibrium will still require a long period of negotiation. This is reflected in ongoing short-term event-driven disturbances, which directly pressure risk appetite in capital markets. Regarding medium-term scenarios, Shenwan Hongyuan explicitly opposes the view that “short-term sharp decline, medium-term slow decline, and the end of large-wave rallies.” The firm believes that the impact of Middle East tensions may be most significant at present. Short-term market pricing of uncertainty and the reduction of absolute return funds have intensified adjustments. However, in the medium term, China’s ability to safeguard supply chain and energy security may be tested again. This presents an opportunity for the stock market narrative to regain strength. The A-share market is still in a consolidation phase between two upward stages, and investors are advised to remain confident and patient.

Industrial Securities: Overly pessimistic market valuation creates a medium- to long-term recovery opportunity

Recent market adjustments mainly stem from two concerns: first, the risk of economic stagflation; second, the escalation of conflicts in the Middle East. Regarding these core concerns and the systemic adjustment risks they may trigger, Industrial Securities believes that the recent market correction has already priced in considerable pessimism, and there is a significant “expectation gap” that could serve as an opportunity for market recovery after the correction. Looking ahead, as external shocks to A-shares gradually diminish, the market will focus more on economic fundamentals during the earnings disclosure season. In terms of allocation, focus on sectors with strong growth prospects such as technology and export-oriented chains. After the previous pricing of geopolitical risks and liquidity tightening expectations, these sectors—less affected by oil prices and with independent industry trends—may become the market’s focus through their fundamental strength. Additionally, with a surge in price increase signals in Q1, sectors related to price hikes are another important clue, especially those driven by rising oil prices, which are likely to show differentiation based on sector fundamentals.

CITIC Securities: Firmly focus on China’s manufacturing pricing power and reassess layout

Currently, market expectations about the Middle East situation are highly divided, with three core issues still unverified: first, to what extent can civil aviation resume after conflict easing; second, whether the Fed emphasizes inflation indicators or employment data; third, whether China faces cost shocks or supply chain re-shoring opportunities. Answers to these questions will gradually emerge after April. Facing great uncertainty, some short-term profit-taking has occurred, with recent strong sectors experiencing notable corrections. Overall, most performance-driven and narrative-driven market signals have returned to the same starting line since the beginning of the year. The first three months can be seen as a market rotation driven by expectations and narratives during spring turbulence and cooling. The broader recovery of PPI and price transmission, along with corporate profit restoration, are the key directions with both expectations and upside potential this year, with decisions to be made in April. For allocation, it is recommended to firmly focus on China’s manufacturing pricing power, including sectors like chemicals, non-ferrous metals, electrical equipment, and new energy. Price increases remain a core trading theme, and increasing exposure to undervalued assets such as insurance, securities firms, and power sectors is advised.

Huaxi Securities: Await more “stabilization of the market” policies

The ongoing escalation of Middle East tensions and the shift in major overseas central banks’ rate cut expectations are intertwined, suppressing global risk appetite in the short term. Compared to this, China’s policy environment is more certain, with regulators explicitly signaling “stabilizing the capital market.” Future policies supporting structural tools, long-term funds entering the market, and counter-cyclical regulatory measures are expected to stabilize the market. Meanwhile, the input-driven inflation caused by Middle East tensions has limited impact on domestic monetary policy, and a loose liquidity environment is expected to continue, with active fiscal policies helping to restore consumer expectations.

Everbright Securities: Consolidation with anticipation of a breakthrough

External factors currently exert some pressure on A-shares, and the market turning point may still require patience. On one hand, tensions in the Strait of Hormuz persist, causing turbulence in global energy markets and raising inflation expectations. On the other hand, the Fed’s hawkish stance has also put liquidity in global capital markets under pressure. However, some positive factors remain, such as the central bank’s proactive stance, strong economic data in January and February, and relatively limited impact from Middle East tensions on China. Overall, the market is expected to fluctuate mainly sideways. Structurally, focus on hot sectors, with short-term attention on Middle East developments and medium- to long-term opportunities in growth and cyclicals.

Guoxin Securities: The Fed’s policy changes have a short-term impact on A-shares

Recently, resource prices, especially crude oil, have surged rapidly, likely elevating the long-term price level of strategic resources. This may temporarily boost inflation and disrupt the Fed’s rate cut pace but is unlikely to reverse monetary policy. Historical review of previous rate hike cycles shows that Fed policy changes influence A-shares mainly in the short term. The geopolitical situation remains uncertain, and the Fed’s hawkish signals suppress risk appetite, possibly causing short-term volatility. However, the current upward cycle since September 24, 2024, remains intact. Domestic policies continue to be positive, with signs of improvement in production, consumption, and investment data. As fundamentals gradually recover and residents’ funds keep flowing into the market, the A-share rally could enter its second half by 2026. Structurally, technology during consolidation, strategic resources, and domestic demand-related undervalued assets are key areas to watch.

Kaiyuan Securities: A bright future for A-shares with repair potential

Recently, Middle East geopolitical tensions have spilled over into markets. Since 2020, A-shares have shown resilience when facing global shocks, with negative impacts usually ending within a week. Investors are advised to adopt a “stay calm and avoid overtrading” approach during short-term shocks. When shocks last longer and their scope is unclear, reducing positions and controlling risks is recommended. When impacts are clear or receding, it signals a good entry point for funds. Kaiyuan Securities believes that the A-share index is likely to rebound to pre-shock levels. Even if there are unexpected escalations, gradually increasing positions is feasible.

China Galaxy Securities: Crude oil prices are a key variable affecting recent market structure

The duration and evolution of Middle East conflicts remain highly uncertain, and short-term disruptions to global risk assets are expected to persist with high volatility. Under the “China-centric” logic, downside space for A-shares is limited, and the market is likely to digest external pressures through oscillation and sector rotation. The focus remains on inflation-related logic, with crude oil price movements under geopolitical tensions continuing to be a key factor influencing recent market structure.

GF Securities: Seeking sectors with sustained high growth in the future

The outlook for AI-related industries like optical communications remains positive and is a core holding for many institutions. However, these are linked to the evolving Middle East situation (oil prices → US interest rate environment → US AI → domestic supply chain), making short-term volatility hard to control. Based on historical experience, GF Securities recommends identifying industries that can maintain high growth independently of geopolitical disturbances and high oil prices. To control portfolio volatility and hedge risks, sectors such as energy storage (inverters/lithium batteries) and domestic AIDC chains are in an upward trend and less affected by oil prices.

Zhongtai Securities: Focus on new energy and global manufacturing restructuring

In the short term, reduce exposure to conflict-sensitive sectors like shipping, ports, and coal chemicals. In the medium to long term, focus on two main themes: first, new energy sectors such as photovoltaics, energy storage, and power equipment, driven by energy security and expanding electricity demand; second, the risk of geopolitical tensions pushing global manufacturing toward “security-first” restructuring, with demand for non-ferrous metals, engineering machinery, and high-end equipment shifting upward, offering long-term investment opportunities.

Risk warnings: Intensified international trade frictions; unexpected tightening of overseas liquidity; overseas economic recession exceeding expectations; geopolitical conflicts exceeding expectations. All views are from publicly available securities research reports and do not represent the platform’s stance. Investors should be aware of investment risks.