Middle East geopolitical conflicts persist, gold continues to decline, Shanghai Composite Index breaks below 3900 points

How does the Middle East conflict trigger sector differentiation in the A-share market?

On March 23, the three major A-share indices all declined in the morning session. By midday, the Shanghai Composite was at 3,858.18, down 2.5%; the Shenzhen Component was at 13,515.13, down 2.53%; and the ChiNext Index was at 3,270.16, down 2.44%. The total half-day trading volume was 1.4691 trillion yuan, with nearly 5,000 stocks falling.

Ongoing Middle East Conflict

Gold drops below $4,400

In terms of sectors and themes, coal mining and processing, oil and gas exploration and services, photovoltaic equipment, and power sectors led gains; specifically, in coal mining, Yunnan Coal Energy, Shanxi Coking Coal, and Liaoning Energy hit the daily limit; in oil and gas exploration, Bomaike hit the limit, and Shouhua Gas rose 6.24%; in photovoltaic equipment, Huamin Shares surged 20%, Oupu Tai rose 12.31%, and Chint Power hit the limit. The precious metals sector declined collectively, with Chifeng Gold hitting the limit down, and Sichuan Gold dropping over 9%.

On the news front, recent Middle East tensions show no signs of cooling. According to Xinhua News Agency, U.S. President Trump posted on social media on the evening of the 21st, threatening Iran to open the Strait of Hormuz within 48 hours or face destruction of “various power plants” in Iran. On the 22nd, Iran’s Foreign Ministry issued a statement saying the Strait of Hormuz has not been blocked. Ships can still navigate through the waterway under necessary measures taken due to the war situation, but vessels belonging to the U.S., Israel, and other invading countries do not meet normal and non-hostile passage conditions, and Iran will handle them lawfully. The statement emphasized the need to fully restore the sustainable security and stability of the Strait of Hormuz, stop Iran’s military aggression and threats, halt actions by the U.S. and Israel that undermine Iran’s stability, and fully respect Iran’s legitimate interests.

Gold prices continued to decline, and as of press time, London gold has fallen below $4,400. On March 23, the Shanghai Gold Exchange issued a notice on strengthening recent market risk control work, noting that many factors are affecting market stability and that precious metal prices are experiencing significant volatility. Member units are advised to closely monitor market changes, prepare detailed risk emergency plans, and maintain market stability. Investors are also reminded to manage risks prudently, control positions reasonably, and invest rationally.

How does geopolitical conflict influence the A-share trend?

Yang Delong, Chief Economist at Qianhai Open Source Fund, believes that although the market has adjusted recently due to external risks, the A-share market in the Year of the Horse is expected to continue this slow and steady bull run. However, the main investment themes and strategies will shift somewhat compared to last year. Yang pointed out that “HALO assets” are a focus for major banks like Goldman Sachs and Morgan Stanley. HALO, an acronym for heavy assets and low淘汰 (淘汰 meaning淘汰淘汰, or淘汰淘汰淘汰), reflects a recognition of the importance of resource acquisition amid global turmoil. This year, sectors like petrochemicals and non-ferrous metals have performed well, as these industries are less likely to be淘汰 in the AI era. Another key area benefiting from AI includes sectors like humanoid robots, semiconductors, computing algorithms, quantum technology, and biomedicine, which are accelerating development through AI applications.

China Galaxy Securities research reports suggest that the duration and evolution of geopolitical conflicts remain highly uncertain, and short-term disruptions to global risk assets are unlikely to subside soon. The global equity markets are expected to remain highly volatile. However, supported by domestic logic, the downside for A-shares is relatively limited, and the market is likely to digest external pressures through oscillation, differentiation, and structural rotation. Market focus remains on inflation dynamics, with oil price movements under geopolitical conflict continuing to be a key variable influencing recent market structure.

CITIC Securities research indicates that, due to the outbreak and escalation of the US-Israel-Iran conflict, the assumption of a weak dollar faces challenges. Under high oil prices, the Federal Reserve’s rate cut expectations have shifted significantly, weakening the core momentum that previously drove this bull market. As previously noted, in the latter half of the bull market, the market will shift from valuation expansion to performance growth (digesting valuations). If earnings growth expectations remain positive, the bull market in A-shares could continue. However, before growth expectations are confirmed, the market will face a transitional pain period from valuation expansion to earnings realization.

Huaxi Securities research suggests that the ongoing US-Iran conflict and the shift in overseas rate cut expectations are intertwined, suppressing risk appetite in global markets in the short term. Compared to this, domestic policy environment is more certain, with regulators clearly signaling “stabilizing the capital market.” Future policies such as “stabilization funds,” support for structural tools, long-term capital inflows, and counter-cyclical regulatory measures are expected to stabilize the market. Meanwhile, imported inflation has limited impact on domestic monetary policy, and a loose liquidity environment will continue, with active fiscal policies helping to restore investor confidence.

Reporting by Zhao Yuan, Southern Metropolis Daily Finance Reporter