[Shenwan Hongyuan Strategy] One month after the Israel-U.S. conflict, how is the current valuation of major asset classes? — Weekly Focus on Global Asset Allocation (20260320-20260327)

(Source: Shenwan Hongyuan Strategy)

One month after the U.S.-Iran conflict—how is the current valuation attractiveness of major asset classes?

— Weekly Focus on Global Asset Allocation (20260320-20260327)

Investment highlights for this issue:

Review of global capital markets: This week (20260320-20260327), the ongoing geopolitical conflict in the Middle East continued to push up oil prices. In the U.S., economic data showed consumer confidence was dented and inflation expectations moved higher, increasing the risk of stagflation; expectations for rate cuts were pushed back. 1) For fixed income, the 10Y U.S. Treasury yield rose by 5 bps at the margin to 4.44%, and the U.S. Dollar Index rose by 0.67%. 2) For equities, this week the Korean market saw a larger decline, while China’s A-share indexes closed lower across the board except for the CICC Convertible Bond Index. 3) For commodities, gold fell 1.72%, while crude oil rose 2.12% driven by a warming geopolitical risk premium.

One month after the U.S.-Iran conflict—where do the current sentiment and valuation attractiveness indicators for major asset classes stand? 1) In terms of short-term technical indicators, U.S. stocks reflected relative pessimism. As of March 27, 2026, the CBOE Volatility Index recorded 10.22; around April 7, 2025 and May 11, 2022 it was about 4. The AAII retail investor sentiment index value for 20260326 was 49.79%, compared with the 25.3% high before the Middle East conflict in 20260227; compared with the tariff period in April 2025, it was 15.5% lower; and it was roughly in line with the U.S. stock low point in May 2022. 2) In terms of implied volatility, gold, aluminum, and U.S. stock volatility are at absolute highs; crude oil and copper volatility are also at relatively high levels, while A-share volatility is at a neutral level. The implied volatility of Shanghai gold, Shanghai copper, Shanghai aluminum, and crude oil are all at historical percentile ranks of 98.6%, 87.7%, 99.3%, and 69.6%, respectively. For A-shares, the implied volatility of CSI 300 and CSI 1000 is at historical percentile ranks of 49.7% and 83.8%. For U.S. stocks, the implied volatility of the S&P 500 and Nasdaq 100 indexes is at historical percentile ranks of 96.2% and 90.9%. Regardless of whether it is A-shares or U.S. stocks, the implied volatility of options at different strike levels this week rose overall versus last week. At the same time, regarding option positioning: as of 2026/3/27, for the April-expiry CSI 300 call options in the 4800–5000 points range, open interest fell on a month-over-month basis, indicating bullish sentiment weakened. 3) In terms of medium-term valuation attractiveness, risk assets as a whole are biased toward neutral, still not far enough from the risk-asset lows of April 2025 and 2022. From the market PE valuation percentile perspective, the valuation percentile of the SSE Composite Index is lower than Korea’s KOSPI200 (91.3%) and France’s CAC40 (93.2%), exceeds the S&P 500 (80.8%), and sits at 89.8% over the past 10 years; however, the absolute valuation level remains significantly lower than major developed markets such as the U.S., Japan, and Europe. From the ERP perspective, the ERP percentile ranks for São Paulo, Brazil, CSI 300, and the SSE Composite Index are still relatively high. From the perspective of the equity-to-bond valuation and return ratio, China’s equity market still offers better allocation value compared with the rest of the world. In terms of risk-adjusted return percentile ranks, U.S. stocks have been adjusted more sufficiently. As of 2026/3/27, the risk-adjusted return percentile rank of the S&P 500 fell to 6%, and the risk-adjusted return percentile rank for Nasdaq fell from 9% to 5%; the risk-adjusted return percentile rank for CSI 300 rose from 39% to 42%. For commodities, the risk-adjusted return percentile rank of the GSCI broad index has continued to stay at the 85th percentile rank.

Tracking global fund flows: As of 2026/03/25, foreign capital continued to flow into China’s stock market, while domestic capital on the whole flowed out; on the overseas side, regarding active and passive flows, overseas active funds saw outflows of $180 million over the past week, while overseas passive funds saw inflows of $1.61 billion. In terms of foreign and domestic capital, foreign capital flowed in by $1.43 billion over the past week, while domestic capital flowed out by $680 million. Over the past week, global capital saw a sharp outflow from money market funds. For fixed-income funds, U.S. fixed-income funds saw clearly positive inflows; this week inflows reached $5.1 billion. For equity funds, U.S. equity markets saw a sharp outflow of $27.02 billion. In terms of relative flows, over the most recent week, China’s equity funds saw a clear net outflow relative to other flows. By industry, U.S. stock market funds saw large inflows into financials, utilities, and healthcare, while tech and industrials experienced relatively large outflows; in China’s stock market, funds flowed into tech and healthcare. For commodities, among the commodity ETFs listed overseas this week, both copper and gold marginally received positive inflows, with copper showing stronger resilience. Crude oil and agricultural products continued the prior week’s inflow trend. Global asset risk sentiment indicators: For U.S. stocks, at the index level, the S&P 500 is below the 20-day moving average, and the ratio of put-to-call options this week is unchanged versus last week. Global economic data: U.S. inflation expectations have eased. China’s recovery signals are waiting for further confirmation. Federal Reserve rate-cut expectations: as of 2026/3/28, the Fed’s expectation for rate cuts within the year rose slightly. Key economic indicators next week: China’s March manufacturing PMI and the U.S.’s March employment data.

Risk warning: Short-term fluctuations in asset prices may not represent long-term trends; a deep recession in the U.S. and Europe or worse-than-expected outcomes; during Trump’s administration, there were major changes in U.S. policy direction.

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