In the current era of major competition, the joint US-Israel strike on Iran has propelled non-ferrous metals higher, with oil prices breaking out of their consolidation range. While US equities repeatedly fail to breach the 7000-point mark, other global equity markets continue to show broad-based strength. Against the backdrop of the Kondratiev Winter, this reflects pricing trends driven by global dollar liquidity flows. In 2026, the "Three Unchanging Trends" characteristic of this depression phase indicate an acceleration of existing trajectories, not a reversal.

Core Views

1. The First Unchanging Trend: RMB Appreciation Continues, Only the Pace is Managed The offshore RMB exchange rate hitting a new high results from accelerating cross-border capital inflows. Even with central bank intervention, the focus is on managing the pace of appreciation, not reversing its direction. Historically, similar regulatory measures have rarely altered the fundamental exchange rate trend, with limited market impact. The appreciating currency is already beginning to attract foreign capital inflows. Faced with a weakening US stock market trend, we have observed active funds starting to flow into other markets since the beginning of the year. This represents an opportunity for equity markets in catch-up economies during the Kondratiev Winter.

2. The Second Unchanging Trend: Global Secondary Inflation Remains Inevitable The widely anticipated "soft landing" is merely a short-term data illusion; secondary inflation is ultimately unavoidable. January's US PPI data exceeded expectations, driven primarily by core goods and trade, indicating an inflation surge not reliant on consumer spending. Domestically, the price increase trend is even more pronounced, largely attributable to capital repatriation. Historical data shows a clear positive correlation between PPI and the effective exchange rate, a relationship that has strengthened significantly post-2022. Consequently, we believe this round of price increases will be more persistent and broader-based than generally expected.

3. The Third Unchanging Trend: De-globalization Leads to a Commodity Supercycle Amid escalating geopolitical tensions, non-ferrous metals have surged again, accelerating the logic underpinning the commodity supercycle. Geopolitical risks are fueling strategic inventory demand, with "strategic stockpiling" being one of the drivers we previously identified for a commodity supercycle. Historical precedent suggests that during wartime, fiat currencies depreciate rapidly, a process that translates into sharp increases in commodity prices. We reiterate the importance of the ongoing commodity supercycle.

4. Dollar Liquidity Flows in the Kondratiev Winter The "Three Unchanging Trends" confirm that 2026 will be a year of acceleration, not reversal. Within the broader Kondratiev Winter context, combined with dollar liquidity flows since 2022, a clear asset rotation is observable: (1) 2022: The US dollar's dominance, absorbing global liquidity; (2) 2023-2024: US equities lead global markets; (3) 2024-2025: The commodity supercycle begins; (4) 2025+: Following the commodity bull market by about three quarters, A-shares rally, while US equities begin facing liquidity challenges.

5. Embracing the Commodity Supercycle and the Prosperity of Catch-up Economies This is an era of major competition. The end of 1978 saw the Iranian Revolution trigger the second oil crisis. Similarly, the 2026 US-Israel conflict with Iran is poised to propel the commodity supercycle into a new phase. For A-shares, moderate inflation in 2026 is expected to translate into a period of prosperity for catch-up economies, benefiting sectors like refining, precious metals, non-ferrous metals, coal, and oil shipping.

Risk warnings include changes in the international situation, unexpected rises in US Treasury yields, and shifts in industrial policy.

Market Review and Outlook

Recent performance across A-shares, overseas markets, and other major asset classes shows gains. The E-Trade Full A Index rose 2.43% this week, the Shanghai Composite gained 1.98%, the CSI 300 increased 1.08%, the CSI 500 advanced 4.32%, the ChiNext Index was up 1.05%, and the STAR 50 Index climbed 1.20%. Among market styles, small-cap value and growth outperformed. Sector-wise, midstream materials and resources led gains, while financial services and consumer staples lagged. Industrials such as steel, non-ferrous metals, and basic chemicals were top performers; media, retail, and food beverages declined.

Global markets were mixed, with the S&P 500 down 0.44% and the Hang Seng Index up 0.82%. Commodities generally rose, with Brent crude up 2.68% and COMEX gold gaining 4.24%. China's 10-year government bond yield closed the week at 1.78%, down 2.70 basis points.

Valuation metrics showed increases in A-share P/E and P/B ratios. The创业板的 relative P/E versus the CSI 300 rose, while the科创板的 relative P/E declined. The total market capitalization of A-shares increased by 2.21%, and non-financial market cap rose 3.03%. The equity risk premium for non-financial A-shares decreased slightly.

Key economic developments include the cancellation of VAT export rebates for photovoltaic products effective April 1st, aimed at curbing unhealthy competition and promoting industry upgrades. While increasing short-term costs, particularly for smaller firms, the policy is expected to accelerate industry consolidation long-term. Separately, the People's Bank of China issued rules to standardize cross-border RMB interbank financing, enhancing capital account openness and supporting RMB internationalization.

Upcoming data releases to watch include US ISM Manufacturing PMI (March 2), Japan's unemployment rate (March 3), China's official Manufacturing PMI (March 4), US initial jobless claims (March 5), and the US unemployment rate (March 6).