Escalating Middle East conflicts and a collective hawkish stance from major overseas central banks have intertwined market risk aversion with tightening expectations, creating widespread unease across global capital markets.
Recently, international oil prices have surged persistently, while traditional safe-haven assets like gold and global risk assets have weakened simultaneously. Notably, the Shanghai Composite Index fell below the critical 4,000-point mark. Multiple public fund companies believe the market is pivoting towards "stagflation trading" due to tightening liquidity, where high energy prices and constrained macro liquidity have become the core contradictions driving asset pricing. Investment strategies should focus on controlling position sizes, reducing reliance on index performance, and emphasizing energy security and safe havens. A significant portfolio reshuffling around this new theme is already underway.
The global market has recently witnessed a scenario where rising oil prices correlate with declines across other assets. While tensions flare around the Strait of Hormuz, pushing ICE Brent crude up over 40% since March to briefly exceed $119 per barrel, traditional safe-havens and risk assets have fallen in tandem.
On March 20, the Shanghai Composite Index dropped 1.24%, breaching the important 4,000-point level. The more liquidity-sensitive Hang Seng Tech Index fell sharply by 2.48%. The previously leading non-ferrous metals sector has now been weak for nine consecutive trading sessions. Concurrently, precious metals, often seen as a stabilizing "ballast," experienced a significant sell-off, with COMEX gold falling over 10% in a single week, marking its longest losing streak since October 2023.
Fund companies widely attribute this broad-based asset decline to the interplay of spreading geopolitical conflicts and loud hawkish signals from global central banks, leading to expectations of tighter liquidity.
Regarding the Middle East situation, Liu Yang, a fund manager at Tianhong Fund, stated that joint US-Israel military strikes against Iran add global uncertainty. In the short term, this significantly disturbs crude oil prices, inflation expectations, and the Federal Reserve's interest rate cut trajectory. Related commodities and major national stock markets may enter a period of high volatility alongside the state of conflict.
From a macro liquidity perspective, Huaan Fund noted that last week was a "super central bank week," with the Fed, Bank of Japan, Bank of England, and European Central Bank all announcing interest rate decisions. Against the backdrop of escalating Middle East conflicts and oil prices soaring above $100, major global central banks exhibited a rare synchronized hawkish pivot, becoming the core macro factor pressuring markets.
Liu Yang added that for the macroeconomy, March and April are verification periods for domestic economic recovery—particularly the sustainability of household sector recovery and whether real estate repeats past patterns—as well as for determining if international cycles are bottoming out (mainly affecting the level and sustainability of China's export data). Therefore, the importance of economic data, especially inflation-related figures, is more significant this year than in any previous year. Close tracking of this data is essential. If optimistic economic scenarios materialize, they could substantially impact the overall logic for allocating major asset classes.
The shadow of stagflation looms over global markets. High oil prices boost inflation expectations, while central banks maintaining tight policies to curb inflation could potentially hinder economic growth, highlighting classic stagflation risks. Recently, "stagflation trading" has noticeably heated up, putting pressure on risk assets.
The International Monetary Fund recently stated that if energy prices remain elevated, overall inflation levels could rise. A sustained 10% increase in oil prices through year-end could push global inflation up by 40 basis points, while global output might decline by 0.1% to 0.2%.
Huang Zihan, a senior strategist at Tianhong Fund, pointed out that the threat of a Strait of Hormuz blockade, with no immediate signs of US-Iran conflict de-escalation, keeps supply chain threats alive, intensifying stagflation worries. Simultaneously, the Fed might not cut rates in the first half of the year, worsening overseas liquidity expectations. With no major new catalysts in industrial trends, positioning models suggest maintaining medium to low exposure.
Bridgewater Associates recently indicated that risks are accumulating for a structural rise in US inflationary pressures. Even before the Middle East conflict, structural pressures leading to higher inflation had begun to appear, many mirroring the transmission mechanisms that drove inflation in the 1970s. The current conflict adds a significant new source of upside inflation risk: potential sustained shocks to global commodity supplies.
However, regarding the domestic Chinese market, funds maintain a relatively optimistic view. Yu Guang, Head of Equity Investment and Fund Manager at Invesco Great Wall, believes domestically, February's inflation data was relatively positive, with CPI turning positive and PPI rising month-on-month, while the year-on-year decline narrowed further. Looking ahead to March, expectations for stabilizing inflation and high investment activity in emerging industries should continue to drive structural market opportunities. Strategically, the focus is on upstream resources after pullbacks and leading high-end manufacturers with cost advantages, technological leadership, and international expansion capabilities. Such companies, whether in emerging or traditional sectors, may see their valuation systems reassessed.
Liu Yang commented that although short-term oil price fluctuations might increase China's imported inflationary pressure, considering the current domestic deflationary environment, the impact is manageable. Long-term, China's strategic direction towards technological self-reliance will strengthen further. For domestic capital markets, this may increase volatility but won't disrupt China's inherent operational rhythm. The country's economic issues are internal, and solutions lie within; steadfastly managing its own affairs will enable it to weather any storm.
Facing expectations of liquidity tightening and stagflation risks, fund managers are adjusting their portfolios to navigate high volatility in risk assets.
Zhou Hanying, a fund manager in the International Investment Department at Invesco Great Wall, believes the recent Middle East escalation carries risks of global stagflation and economic recession. Portfolio adjustments have been made to manage market volatility through position sizing, allocating to HALO assets, high-quality cash flow, and high ROE assets, while avoiding high-volatility assets with short-term earnings uncertainty, such as new energy vehicles and innovative drugs.
Another fund manager noted that the current macro narrative offers little divergence in expectations, with potential mispricing more focused on domestic demand, but verification also requires time, making profitability more challenging. Therefore, learning from 2022 experience, it's advisable to continue exploring strategic resources with broader pricing power, control position sizes wisely, de-emphasize the index, and focus more on individual stocks and sectors, which might be a smarter choice.
Huabao Fund also stated that the A-share market overall might continue in a wide-ranging震荡 pattern, with energy security and避险 likely remaining the short-term main themes.
Huabao Fund elaborated on specific investment strategies: short-term, the基调 for tech should be caution, with few immediate catalysts. Combined with inflation and potential stagflation expectations from rising oil prices, tech stocks are prone to short-term disturbances. Energy prices are likely to remain high, possibly hitting new peaks. In the current environment, energy security and supply chain security hold greater importance. Even if geopolitical tensions ease, the energy security theme is unlikely to reverse sharply; the market is willing to assign a higher valuation premium to energy and supply security. The chemicals sector may see significant divergence, with coal chemical performance明显优于 others, driven primarily by energy price movements. If oil prices don't retreat, coal chemicals might remain a阶段性主线. For non-ferrous metals, focus is on aluminum. While the Qatalum plant maintaining about 60% capacity, less than the expected full 650k ton shutdown, caused short-term sentiment impact, Alba's announcement of shutting three production lines totaling 300k tons due to reduced raw material supply provides support. From a trading perspective, LME aluminum prices remain in a strong phase, warranting attention around the $3,300 level.
Amid increased equity market volatility, fund companies are re-evaluating traditional safe-haven assets. Despite short-term pressure, the long-term allocation value of bonds and gold continues to attract institutional attention.
Regarding the bond market, some fund managers believe imported inflation from oil price rises will have limited impact on domestic bonds. Lü Ruijun, manager of the Bosera China Development Bank Bond ETF, analyzed that this round of price increases is primarily driven by supply-side factors, which typically struggle to pass through to the consumer end. Subsequent CPI year-on-year figures may remain weak, and the domestic low-inflation environment likely persists. Therefore, oil price increases are seen more as a short-term disturbance, maintaining a positive outlook on the domestic bond market.
As for gold, which has suffered recent heavy losses, institutions generally believe its long-term allocation value remains intact. Huaan Fund analysis points out that historically, during the inflation shock from the 2022 Russia-Ukraine conflict, gold's maximum drawdown was around 20%. The current pullback from the peak of $5,599 has reached 16%,接近 historical extreme adjustment levels. At this stage, investors are advised to stay patient and watch for technical oversold rebound opportunities.
From a longer-term perspective, Huaan Fund believes the core structural factors supporting gold have not been shaken by short-term volatility. Gold's strategic value in hedging against "international order fragmentation risk" and "sovereign credit currency risk" continues to emerge—central bank gold buying demand is expected to persist amid global de-dollarization trends, and the long-term erosion of US dollar credibility from expanding US debt continues. Gold's role in diversifying risk and stabilizing returns within investment portfolios remains solid.