Recent global markets have been influenced by a combination of central bank policy cycles and geopolitical conflicts, with stagflation narratives continuing to dominate. This has led to significant divergence in the performance of various asset classes. Domestically, equity markets have shown weakening risk appetite alongside increasingly prominent bottom-level valuation characteristics.
Global Asset Classes: Commodities Lead Gains, Equities Face Multiple Headwinds - A super week for global central banks, coupled with escalating tensions involving Iran, drove another sharp rise in oil prices. Market expectations for interest rate cuts by major economies have been pushed further out, solidifying stagflation as the primary market theme. The performance ranking for major asset classes is: Commodities > Chinese Bonds > U.S. Treasuries > U.S. Dollar > U.S. Stocks > Chinese Stocks > Gold. - In the commodities market, supply-side disruptions intensified due to geopolitical conflicts. Against the backdrop of supply disruptions in the Strait of Hormuz and production cuts of Middle Eastern crude, oil prices continued their upward trend. Influenced by the hawkish tone of the Fed's March meeting and vanishing expectations for rate cuts, gold and copper prices declined, while palm oil prices rose in tandem with stronger energy prices. - U.S. stock markets were pressured by geopolitical tensions, oil price volatility, and hawkish policy signals from the Fed. Sector performance was highly divergent, with energy and banking sectors posting gains against the trend, while automobiles & parts, utilities, and food sectors led the declines. - In the Hong Kong market, China-concept indices weakened, with mixed sector performance. Banking, energy, and healthcare sectors were among the top gainers, while materials, media & entertainment, and telecommunications services sectors underperformed.
Domestic Equity Assets: Risk Appetite Weakens, Undervalued Traits Stand Out - Risk appetite in domestic equity markets has recently weakened. From an asset allocation perspective, stocks still offer value relative to bonds. Over the long term, the trend of significant capital shifting from fixed-income to equity assets by 2026 appears clear, highlighting the attractive valuation of equity assets. - At the sector level, influenced by overseas stagflation concerns and rising safe-haven demand, performance has diverged noticeably: defensive sectors like banking and food & beverage showed relative resilience, while the communications sector led gains, benefiting from chip price increases and catalysts from computing industry events. Cyclical sectors such as non-ferrous metals, steel, and basic chemicals collectively led the declines, weighed down by a loosening commodities trading narrative, hawkish signals from the Fed, and weaker-than-expected peak season demand. - Regarding market style, a marginal reversal between large-cap and small-cap styles has been observed since September 2024, with large-cap style recently taking the lead. - In terms of sector crowding, sectors like entertainment & light industrial, carbon fiber, passenger vehicles, and energy storage have seen increased crowding. Conversely, smart grid, building decoration materials, precious metals, and rare earths have experienced decreased crowding. Sectors such as hydropower, coal, wind power, and condiments maintain relatively high crowding levels.
Financial Markets: Divergent Fund Flows, Sentiment Bottoming with Volatility - Regarding capital flows, overseas active funds showed structural divergence, with developed Europe and emerging Asia (ex-China) markets seeing inflows this week. Both overseas active and passive funds witnessed outflows from the A-share market, while southbound funds continued their net inflow trend, primarily into mainland banking and consumer sectors. - In terms of market sentiment and trading, sentiment cooled significantly, with the Shanghai Composite Index falling below the 4000-point mark. The market is currently in a phase of sentiment bottoming after the decline, with weak trading willingness, and is likely to continue a volatile search for a bottom in the short term. Regarding institutional positioning, weekly data showed continued reductions in allocations for balanced hybrid, ordinary stock, and partial equity hybrid funds. Market adjustments triggered by geopolitical factors have led to decreased risk appetite among funds. Subsequently, institutions will focus closely on earnings season performance.
Policy Front: Multi-dimensional Policies Warrant Attention, Awaiting Implementation Signals - Future policy developments require close attention across multiple areas. Regarding monetary and fiscal policy, the focus remains on the potential for RRR or interest rate cuts by the central bank in the first quarter, and progress related to the 2026 visit. - On the supply side, policies for industries like steel, petrochemicals, chemicals, and photovoltaics are key. In the property sector, monitoring changes in fund support for acquisitions and subsidized loan policies is essential. - Internationally, attention is on tariff adjustments, potential personnel changes at the Fed, and the pace of its rate-cutting policy. - For industrial policy, ongoing monitoring of the latest developments in the AI industry and the implementation of tax-credit subsidy support policies targeting specific groups is recommended.
Investment Implications: Near-Term Cautious Neutrality, Focus on Undervalued and High-Conviction Sectors - Current escalating geopolitical conflicts are boosting inflation expectations. The Federal Open Market Committee meeting conveyed cautious hawkish signals, leading to a significant rise in U.S. Treasury yields, an adjustment in U.S. stock markets, and a notable increase in global market uncertainty. Supply-side disruptions in the commodities market persist, with commodities like crude oil and LNG showing strength due to geopolitical influences, while gold and copper remain weak under pressure from the Fed's hawkish stance. - Domestic economic data largely met expectations, with holiday consumption and a strong start to the year being key drivers. However, uncertain geopolitical conflicts combined with market anticipation for Q1 2026 earnings previews suggest short-term market style will likely trend towards balance. - A-shares & H-shares: Influenced by overseas stagflation worries and rising safe-haven demand, defensive sectors like banking and food & beverage showed relative resilience. The communications sector led gains, catalyzed by chip price increases and computing industry events. Cyclical sectors like non-ferrous metals, steel, and basic chemicals collectively led the declines, hampered by a loosening commodities narrative, hawkish Fed signals, and disappointing peak season demand. - U.S. Stocks: Geopolitical tensions, oil price volatility, and the latest hawkish Fed policy stance weighed on U.S. equities. The energy and banking sectors advanced, while automobiles & parts, utilities, and food sectors led the declines, albeit with overall increased volatility. - Considering the current market environment, near-term investment strategy should focus on undervalued sectors poised for recovery and those with high earnings certainty to mitigate risk. For sector allocation, adjustments such as moving the automotive sector from underweight to neutral, the chemicals sector from neutral to overweight, and the computer sector from neutral to underweight, may serve as a reference for subsequent positioning.
A MACD golden cross signal has formed, and select stocks are performing well.
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