A review of global capital markets for the week of March 20-27, 2026, shows that ongoing Middle East geopolitical conflicts continue to drive oil prices higher. US economic data indicates weakened consumer confidence and rising inflation expectations, intensifying stagflation risks and delaying expectations for interest rate cuts. 1) In fixed income, the 10-year US Treasury yield edged up 5 basis points to 4.44%, while the US Dollar Index rose 0.67%. 2) For equities, South Korean markets experienced significant declines this week. Chinese A-share indices closed lower across the board, except for the China Convertible Bond Index. 3) In commodities, gold fell 1.72%, while crude oil rose 2.12%, driven by escalating geopolitical risks.
One month into the US-Israel-Iran conflict, what is the current sentiment and value proposition for major asset classes? 1) Short-term technical indicators reflect relative pessimism in US stocks. As of March 27, 2026, the US stock market fear index recorded 10.22, compared to approximately 4 on April 7, 2025, and May 11, 2022. The AAII Individual Investor Sentiment Index stood at 49.79% on March 26, 2026, which is 25.3% higher than before the Middle East conflict on February 27, 2026, but 15.5% lower than during the tariff period in April 2025, essentially flat compared to the US stock low in May 2022. 2) Regarding implied volatility, gold, aluminum, and US stocks are at absolute highs; crude oil and copper volatility are at relatively high levels, while A-share volatility remains neutral. The implied volatility for Shanghai gold, copper, aluminum, and crude oil are at historical percentile levels of 98.6%, 87.7%, 99.3%, and 69.6%, respectively. For A-shares, the implied volatility of the CSI 300 and CSI 1000 indices are at the 49.7% and 83.8% historical percentiles. For US stocks, the S&P 500 and Nasdaq 100 indices' implied volatility are at the 96.2% and 90.9% historical percentiles. Both A-shares and US stocks saw an overall increase in implied volatility across option strikes this week compared to last week. In terms of option positioning, as of March 27, 2026, open interest for CSI 300 April expiry call options in the 4800-5000 point range declined sequentially, indicating some weakening of bullish sentiment. 3) From a medium-term value perspective, risk assets are generally neutral, still some distance from the lows seen in April 2025 and 2022. Looking at stock market price-to-earnings ratio percentiles, the valuation percentile of the Shanghai Composite Index is lower than South Korea's KOSPI 200 (91.3%) and France's CAC 40 (93.2%), but exceeds the S&P 500 (80.8%), standing at the 89.8th percentile over the past 10 years. However, its absolute valuation level remains significantly lower than major developed markets like the US, Japan, and Europe. From an Equity Risk Premium (ERP) perspective, Brazil's Bovespa, the CSI 300, and the Shanghai Composite Index still maintain relatively high ERP percentiles. In terms of stock-bond allocation value, Chinese equities still offer relatively favorable allocation value compared to global markets. Looking at risk-adjusted return percentiles, US stocks appear more fully adjusted. As of March 27, 2026, the risk-adjusted return percentile for the S&P 500 fell to 6%, and the Nasdaq's dropped from 9% to 5%. The risk-adjusted return percentile for the CSI 300 rose from 39% to 42%. The risk-adjusted return percentile for the commodity GSCI Composite Index remained persistently high at the 85th percentile.
Tracking global fund flows: As of March 25, 2026, foreign capital continued to flow into Chinese stock markets, while domestic capital saw overall outflows. Regarding overseas active and passive flows, overseas active funds saw outflows of $180 million over the past week, while overseas passive funds saw inflows of $1.61 billion. Comparing domestic and foreign flows, foreign capital inflows totaled $1.43 billion over the past week, while domestic capital outflows were $680 million. Globally, money market funds experienced significant outflows over the past week. For fixed income funds, US fixed income funds saw noticeable inflows of $5.1 billion this week. In equity funds, US stock markets saw substantial outflows of $27.02 billion. Regarding relative fund flows, Chinese equity funds showed relatively significant outflows in the most recent week. At the sector level, US stock funds saw significant inflows into Financials, Utilities, and Healthcare, while Technology and Industrials sectors experienced large outflows. In Chinese stock markets, funds flowed into Technology and Healthcare sectors. For commodities, among overseas-listed commodity ETFs this week, both copper and gold saw marginal positive inflows, with copper showing greater resilience. Crude oil and agricultural products continued their inflow trends from the previous week.
Global asset risk sentiment indicators: For US stocks, at the index level, the S&P 500 is below its 20-day moving average, and the put-call ratio remained flat compared to last week. Global economic data: US inflation expectations have declined. Signals for China's economic recovery await further confirmation. Federal Reserve rate cut expectations: As of March 28, 2026, expectations for a Fed rate cut within the year have slightly increased. Important economic indicators for next week: China's March Manufacturing PMI and US March employment data.
Risk warnings: Short-term fluctuations in asset prices may not represent long-term trends. A deep recession in Europe and the US could be more severe than expected. Major shifts in US policy direction could occur during a potential Trump administration.
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