Monthly Breakdown | April Stock Market: Middle Eastern Tensions Reach the Sky, Hong Kong Stocks Steady the Market

Last month’s most震撼 global development was the so-called “destructive strike” launched by the United States, together with Israel, against Iran. For the time being, the situation on the battlefield has matched the popular market slang TACO (Trump Always Chicken Out), meaning that Trump backs down at a critical moment. In order to salvage sagging election prospects, and amid internal political turmoil in Israel, the two countries teamed up to launch an unreasonable preemptive attack on Iran. At the time, Western media were shouting about “ending the fight within three days,” trying to repeat the battle of kidnapping the president of Venezuela. However, they made a grave military blunder: He who underestimates the enemy will lose. Iran is neither Iraq nor Libya. Tehran deployed missile launch silos buried hundreds of meters underground, and the first wave of retaliation crippled multiple U.S. military bases across the Middle East.

In this asymmetric war, Iran is using tens of thousands of low-cost drones and hypersonic missiles, leaving the U.S. and Israel’s expensive defense systems stretched thin. More deadly still, Iran has blocked the Strait of Hormuz, causing global shipping insurance premiums to surge tenfold in an instant. The so-called “surgical” precision strikes launched by the U.S. and Israel against Iran have evolved into a “prolonged war of attrition” that is hard to put back in the box. From the perspective of the long sweep of history, this is not simply a military conflict—it is the final thrashing of the old order before its decline, and the pains that accompany the birth of the new order.

By choosing to intervene in the regional disputes with military force, the foundations of the U.S. credit currency— the U.S. dollar—are also faintly shaking. As tensions in the Middle East heat up, and with the Strait of Hormuz being blocked, the traditional “oil dollar Petrodollar” system is facing the most severe challenge it has seen in half a century. The latest alternative option is not a single currency, but a multipolar network made up of digital currency platforms, bilateral local-currency settlement, and the BRICS system. This includes the “mBridge” multilateral central bank digital currency platform (with e-CNY, the digital yuan, accounting for 95% of settlement volume), “oil yuan Petroyuan” and local-currency settlement (including Russia, Iran, and Saudi Arabia, etc.), the “BRICS” payment system linked to gold and other regional non-U.S. dollar transactions, and so on. In fact, as the cost of green energy falls below that of oil, global demand for oil (and the resulting U.S. dollar demand) is showing a structural decline, accelerating the natural erosion of the petrodollar system. “Oil dollars” have not collapsed immediately, but they have shifted from being the “only standard” to “one of the options.” The U.S.-Israel war against Iran is viewed as a catalyst that speeds up this process, turning the originally slow “de-dollarization” into a systemic migration toward hedging.

Threats are the method; retreat is the result—this is a common TACO phenomenon. Relevant interest groups and big international players repeatedly harvest from this phenomenon; chart-based technical analysis is completely ineffective in the face of this kind of “political boomerang,” and retail investors lose on both fronts, with rivers of blood. Global capital is re-evaluating “safe-haven space.” The speculative funds that once chased risk are withdrawing significantly from turbulent regions and searching for harbors with more institutional security; some “smart money” has already begun re-allocating into A-shares. Because here, policy has continuity—there is none of that Western politicians’ “change course day to day” performance. When the West is playing TACO in the Middle East quagmire, China is quietly taking its own path. Facing high oil prices, China has built a natural safe haven through land pipelines with Russia and Central Asia, as well as oil deals settled in renminbi. The key to “the 15th Five-Year Plan and Beyond” lies in new quality productive forces to fight inflation—also the harvest period for technology. With applications already ahead of the rest of the world in quantum computing, biopharmaceuticals, and the low-altitude economy (eVTOL), it is a powerful “moat.”

Hong Kong has long been a crossroads of East and West cultures and also a barometer of geopolitics. Hong Kong’s fate is closely tied to the pulse of the nation. When the unreasonable actions of the U.S. and Israel lead the Global South to question Western institutions, Hong Kong’s strategic value as a “offshore renminbi center” and a “system bridging outpost” becomes even more prominent. More Middle Eastern funds and Southeast Asian sovereign wealth funds come to Hong Kong to seek asset allocation. What they value is no longer just short-term P/E valuation, but that sense of security away from the battlefield, supported by a massive mainland market.

Based on the political and economic trends summarized above, we believe Hong Kong stocks in April will still face many uncertainties and unforeseeable developments, with significant volatility driven by great-power games, the war in the Middle East, politicians’ remarks, capital flows, financial data, and fiscal and monetary policies, etc. A petroleum crisis, and even more so clean energy, is a top choice. The globally watched artificial intelligence requires a large amount of electricity; without electricity, no matter how much computing power there is, it would be in vain. Therefore, the clean energy, artificial intelligence, and cutting-edge technology sectors must outperform the broader market. With strong hull and heavy guns, only then can one defend the country, deter the enemy—military industry and aerospace technology sectors are also must-have picks for investment. National policy “fifteen-five” will strongly boost consumption, promoting “internal circulation” in coordination with “external circulation,” so the retail industry, electric vehicles, and related industries will certainly benefit.

With smoke rising for days on end, the heart remains calm; move with the trend, choose the better to settle. We need to understand the far-reaching changes that geopolitical conflicts bring to global supply chains, and identify companies with “resilience” and “strategic value.” Investors who can see through the essence of politics, endure loneliness, and wisely move along with the destiny of the country—only then, amid raging waves, can they keep a steady mind and secure victory.

【About the Author】Li Yongliang

Over 40 years of experience working in global financial markets, a professional banking fellow, a senior fellow of the Hong Kong Securities Investment Institute and the Hong Kong Institute of Directors. One of the 18 outstanding alumni from the Faculty of Science at The University of Hong Kong celebrating its 80th anniversary, and one of the 80th-anniversary outstanding alumni of Kowloon Wah Yan College. Skilled at analyzing global stock markets from practical experience in real transactions, and this has inspired the public retail investors’ awareness of trading strategies, investment strategies, confirming real orders, identifying fake orders/messages, avoiding traps, predicting market crashes, and more. In May 2023, he was appointed as a member of the Chief Executive Policy Unit’s expert group.