GTHT has released a research report indicating that the geopolitical landscape in the Middle East remains volatile and uncertain, yet the overall trend continues to move toward a scenario where tail risks decrease. While the market may still be affected by corporate earnings verification, returns from the AI industry, and geopolitical factors, short-term fluctuations are not yet fully resolved, but the market's sensitivity to negative information is expected to diminish marginally. The firm recommends overweighting A-shares, H-shares, and US stocks.
The Core Argument: The Middle East geopolitical situation is volatile and uncertain, but the overall direction still points toward a reduction in tail risks. Following the recent market correction, some of the micro-trading risks accumulated from earlier gains, leveraged funds, and other factors have been partially released. Valuation pressures on certain tech and growth assets have eased, improving their risk-reward ratio compared to before the adjustment. The market could still be disturbed by corporate earnings results, returns from the AI sector, and geopolitical events, and short-term volatility is unlikely to disappear entirely. However, the market's sensitivity to negative news is expected to decline on a marginal basis.
For Equity Markets: (1) The US economy shows strong resilience with relatively less exposure to geopolitical shocks. Corporate earnings expectations may still support a gradual upward trend in US stocks, so an overweight position is recommended. The narrative around the AI industry and geopolitical uncertainty continue to disrupt market sentiment and global liquidity expectations, leading to increased volatility in global risk assets. On a micro-trading level, tech risk assets, such as semiconductors, have been oversold, and their downside potential is relatively limited. (2) With declining uncertainty, the release of trading risks, and the entry of incremental capital, market risk appetite is expected to stabilize. An overweight position in A-shares is recommended. The impact of the massive IPO on liquidity is about to pass, and while the US-Iran conflict has resurfaced, its marginal impact is weaker than in March-April, with constraints on both sides. Earnings reports and guidance from North American CSPs are due in the next two weeks, but market expectations have already been lowered. The presence of key stabilizing institutions in the capital market, acting as a "breakwater," is expected to continuously support reducing market volatility and preventing irrational selling. (3) Hong Kong stocks also benefit from the strong and resilient economic performance of mainland China. Therefore, an overweight position in H-shares is recommended.
For Bond Markets: (1) The imbalance between financing demand and credit supply persists, and the high volatility in capital markets enhances the value of bond allocation. A market-weight position in government bonds is recommended. Against a backdrop of improving economic conditions and risk appetite, the imbalance between financing demand and credit supply, while still present, is seeing marginal improvements in supply-demand dynamics. The recent significant volatility in global capital markets has relatively improved the attractiveness of government bond allocation. (2) The US economy still shows resilience, and investors may repeatedly revise their expectations for macro liquidity. An underweight position in US Treasuries is recommended. The lingering uncertainty from geopolitical events may cause investors to repeatedly adjust their expectations for the Fed's monetary policy and global macro liquidity, leading to high volatility in US Treasury yields. The risk-reward ratio for US Treasuries is lower than that for risk assets.
For Commodities: (1) Geopolitical uncertainty may suppress market risk appetite. A market-weight position in industrial metals is recommended. Significant growth in power-related construction equipment and transportation, along with the expansion of AI computing power and military facility upgrades, is creating new demand for industrial metals. Metals like copper may be in a temporary state of supply-demand imbalance. (2) Geopolitical disruptions may raise the global oil price center, so a market-weight position in crude oil is recommended. Crude oil prices could be affected by geopolitical uncertainty in the near term, but global demand for oil is relatively weak, and OPEC+ production policies are variable. In the long term, crude oil prices lack strong upward momentum.
Risk Disclaimer: The analysis has limitations in its dimensions, the model design involves subjectivity, there may be deviations between historical and forecast data, quantitative models have inherent limitations, and geopolitical uncertainty persists.
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