Sinolink Securities released a research report stating that the current situation presents a dual scenario. On one side, the prolonged closure of the Strait of Hormuz is impacting fragile global industries, with effects now spreading through monetary policy and political factors to even the most resilient sectors. On the other side, high-growth industries are beginning to diffuse their prosperity into traditional sectors. Should the Strait of Hormuz reopen, the combined forces of this diffusion and economic recovery could create a powerful resonance for global pro-cyclical assets and physical assets, potentially heralding a new round of HALO trading. Conversely, if the strait's continued closure ultimately triggers a shift in monetary policy, it could signal the end of the rebound in global risk assets. The main views of Sinolink Securities are as follows.
The extreme divergence driven by fundamentals is leading the search for the next turning point. Recent high-level market volatility has shown a certain "contraction" characteristic: the proportion of rising stocks and rising industries are at their lowest levels since the rebound began in April. Amid this extreme divergence, the technology sector is attempting to spread from its main channels to upstream and peripheral areas to find paths of lesser resistance. This market divergence is underpinned by an extreme divergence in fundamentals. From a market perspective, the relative performance of TMT compared to the CSI Dividend Index has surpassed levels seen in early 2026. Simultaneously, whether measured by trading volume share or turnover rate, the disparity between TMT and the CSI Dividend Index has reached the 99th percentile of historical levels since 2011. However, the current valuation divergence is not yet extreme; it has not reached the levels of Q3 2025 and remains significantly distant from the historical extremes seen in mid-2025 and mid-2020. This suggests that the profitability and growth momentum of the TMT sector continue to be a crucial support for the divergence. The future direction of market style will depend not on changes in discount rates but on the trend of fundamental growth at the corporate earnings level and whether this growth diffuses. This implies that the diffusion of technology should focus more on the transmission of fundamentals rather than thematic rotations. Furthermore, from a cross-market correlation perspective, the relationship between U.S. stocks, the MSCI World Index, and U.S. Treasury yields and oil prices has shifted from positive correlation back to negative correlation. Considerations of inflation and monetary policy may be returning to the forefront.
Two critical variables will determine the outcome in June. Current market pricing is approaching a crucial juncture, with two subsequent variables warranting close attention. First, the minutes of the April Federal Open Market Committee meeting and statements from committee members, notably Christopher Waller, have leaned hawkish. The market has begun pricing in the possibility of the Federal Reserve considering interest rate hikes as a policy option in 2026. Following the formal appointment of the new Fed Chair, whether controlling inflation becomes a policy priority, potentially even leading to a shift towards rate hikes, requires continuous monitoring. Second, the recovery of traffic through the Strait of Hormuz has been relatively slow, leading to increasing global supply chain pressures that are now transmitting to the manufacturing sector. Supply chain delivery times continued to lengthen in May for both the U.S. and Europe, accompanied by significant increases in input costs, with Europe's economic fundamentals facing greater pressure. The interplay between the Federal Reserve's monetary policy gate and the Strait of Hormuz gate will converge in June. If the strait reopens subsequently, it would constitute a positive pricing change for global pro-cyclical assets. U.S. AI investment is diffusing into broader manufacturing sectors. Recent quarters have shown marginal signs of a bottoming recovery in capital expenditures by U.S. small and medium-sized enterprises. The initiation of a global inventory replenishment cycle, combined with upstream demand from the technology sector, could resonate with physical assets, increasing the probability of a HALO trading scenario similar to Q4 of last year. It is worth noting that China's exports have shown relative resilience, benefiting from stable energy supply and supply chain advantages. Structurally, besides the strong performance of technology products, external demand for capital goods, represented by new energy-related equipment, has also been notable. On the energy side, China's crude oil import sources have become more diversified, and the export share of petroleum products such as fuel oil and kerosene has continued to rise since 2010, reflecting the value of China's refining capacity in the global energy supply chain. Of course, another possibility is that the closure of the strait ultimately forces the Federal Reserve's monetary policy gate to shut, which could also pose a potential shock to current high-growth assets.
Oil: New Changes in Supply-Demand Dynamics Under U.S.-Iran Conflict Warrant Attention. Unlike the supply surplus pattern of recent years, new marginal changes are emerging in crude oil supply and demand, which may push the price center upward. On the supply side, global oil and gas exploration investment has remained low over the past decade, at approximately 42% of the peak level in 2013. Concurrently, the U.S.-Iran conflict has damaged OPEC production capacity, with short-term recoverable spare capacity nearing zero. The number of U.S. drilling rigs has been declining in recent years, suggesting that subsequent supply recovery may be slow. From an inventory perspective, global oil inventories are currently undergoing accelerated destocking. OECD commercial petroleum inventories are approaching the low levels of March 2022. According to EIA forecasts, even if the strait reopens, the slow pace of supply recovery might necessitate a period of destocking before replenishment begins. At that point, OECD commercial petroleum inventories could fall to their lowest level since 2003. Measured by commercial petroleum inventories relative to petroleum demand, even based on the oil inventory replenishment pace anticipated by the EIA, this value by the end of 2027 would still be below the historical median. Meanwhile, the fragility of the supply system may lead global economies to prefer holding more physical assets to enhance their risk resilience. It is anticipated that the subsequent crude oil inventory replenishment cycle will possess sustainability.
Post-June: Observing Resonance in the Physical Side. The equity market will find its answer in June. The firm offers the following recommendations with an optimistic mindset. First, focus on two main themes: the diffusion of macro recovery and AI investment into traditional economic sectors and the associated price transmission. Beneficiaries include industrial metals (copper, aluminum, lithium), chemicals (upstream AI materials, refining, etc.), and sectors benefiting from the energy restocking cycle and the construction of safety inventories for other bulk commodities (oil shipping, dry bulk). Second, sectors related to the upward shift in the energy price center (oil, coal, lithium batteries, wind, and solar). Third, sectors where the capacity cycle has bottomed out and which are poised for high elasticity with the subsequent recovery in global industrial demand, such as commercial vehicles, power grid equipment, textile manufacturing, and electronic chemicals.
Risk warnings: slower-than-expected recovery in the domestic economy and a significant downturn in the overseas economy.