A GF Securities strategy report analyzes the impact of US-Iran geopolitical tensions and China's Two Sessions on financial markets, recommending a focus on sectors with high first-quarter earnings certainty, such as memory chips and semiconductor equipment.
Before the escalation of US-Iran tensions, global non-US assets broadly extended their bullish atmosphere, with multiple stock indices reaching record highs, exhibiting a "Davis Double Play" scenario. Non-US markets benefited from reduced attractiveness of dollar-denominated assets, while improving OECD leading indicators and expectations for economic improvements in AI-industrial and resource-rich economies supported fundamentals.
Since last year, global capital has flowed into European markets (eased Russia-Ukraine tensions, Renaissance), Chinese Hong Kong markets (Deepseek breakthrough), Vietnamese markets (manufacturing PMI highs), South Korean markets (semiconductor memory advantages), and Brazilian markets (energy resources). Essentially, markets with positive economic or industrial developments attracted additional foreign inflows after dollar assets lost appeal. From this perspective, Chinese stocks also possess marginal improvements in 2026 and conditions for a Davis Double Play.
Following the Iran incident, markets worry about inflation and stagflation disrupting this logic, with short-term oil price spikes triggering risk-off sentiment. In the short term, geopolitical unpredictability advises a defensive allocation strategy. The "April Decision" period should focus on fundamentals and financial reports, favoring sectors with high Q1 earnings certainty to hedge against uncertainty. Key sectors showing improved annual forecasts and Jan-Feb operational data include: (1) AI supply chain (price-related): memory, MLCC, electronic cloth, optical fiber (2) AI supply chain (volume-related): optical modules, optical chips, semiconductors, ByteDance ecosystem, power consumption (3) High-end manufacturing: lithium mines, battery materials (4) Global demand: copper/aluminum trends, potential H2 recovery in US export chains (5) Domestic supply-demand dynamics: building materials (anti-involution/urban renewal)
Mid-term visibility improves regarding the situation. First, US stock valuations are near dot-com bubble peaks, with long-term bond yields remaining resilient—both highly sensitive to global inflation expectations. Second, delayed US rate cuts could impact fundamentals via higher AI financing costs, consumer credit, and mortgage rates, suppressing aggregate demand. Third, historical parallels (1990s dot-com bust, Kosovo War-induced oil spikes/Fed hikes) suggest profound impacts. Fourth, Trump's stated 2026 midterm election focus on "prices" and "cost of living" makes prolonged conflict undesirable. Consequently, non-US asset bull markets will likely continue post-tension resolution, with Chinese stocks maintaining optimistic Davis Double Play potential. After short-term geopolitical risks subside, markets may present the year's best buying opportunity.
Regarding post-Two Sessions PPI trends and market styles, 2026's 4.0% deficit target implies only modest fiscal expansion (~1% GDP), resulting in limited PPI elasticity—similar to 2012-2014's weak beta/strong alpha dynamics. Current conclusions include: cyclical sectors dominating during early PPI recovery; growth sectors entering high-volatility phases but retaining momentum; tempered financial sector expectations; and flexible consumer sector positioning. Historical PPI cycle analysis shows small-cap outperformance during upswings, with style rotations progressing from growth→finance→cyclicals→utilities. Growth sustainability depends on industrial cycles (e.g., AI). With PPI still rising, index risks remain low until cyclical peaks approach.
Key weekly changes: Property transactions declined YoY, steel prices fluctuated, and oil prices surged. Equity declines were led by media/nonferrous metals/IT sectors, while petroleum/coal/utilities gained. Valuation metrics dipped slightly overall. Liquidity saw net central bank withdrawals. Overseas, major indices fell amid mixed US/Eurozone data. Upcoming releases include China's February PPI, trade data, and US CPI figures.
Risks include geopolitical tensions, overseas inflation, and domestic policy uncertainties.
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