Caixin Research Report: Middle East Conflict Triggers Market Trading "Stagflation-like" Logic

Ask AI · How the duration of the situation between Iran and the U.S. determines the market logic—from an inflation boom to stagflation

△ Image description: Huang Hongwei, Chief Macro Strategy Analyst, Research and Development Center of Cixin Securities (Practicing certificate No.: S0530519010001)

“Before the end of April, we expect that the market will most likely continue to maintain a period of consolidation and range-bound trading, and that a trend-driven行情 still needs to wait,” this is Huang Hongwei’s overall strategy view on this week’s market.

Huang Hongwei emphasized: The foundation of this round of A-share market performance remains solid. We expect that this Middle East conflict will only affect A-share market sentiment in the short term and the market’s operating pace, and will not change the market’s direction.

In terms of technical analysis, Huang Hongwei suggested focusing on bottom-shape indicators in the A-share market.

From mid-to-late March to the present, the moving averages of the Shanghai Composite Index have shifted from sticking together to diverging, and the market index has shown bearish characteristics. Referring to history, a market’s intermediate-term bottom can generally be divided into two types: a V-shaped reversal and a sideways base-building grind. Among them, the “V-shaped reversal” usually appears in the context of a sudden and drastic change in sentiment or external events. This pattern tends to have a short duration at the bottom and a low probability of occurrence. The “sideways base-building grind” usually appears in the context of a slow change in sentiment or external events. This pattern tends to last longer at the bottom and has a higher probability of occurrence. Specifically regarding the impact of this “Middle East conflict,” the subsequent “V-shaped reversal” can be further divided into two types: first, under conditions of a sudden shift in sentiment, whether a rebound emerges after panic—focus on whether CSI 1000 IV (a volatility indicator) reaches 40 points; second, when external events change sharply, observe how the Iran-U.S. situation evolves—focus on the trend of international oil prices. The subsequent “sideways base-building grind” can also be divided into two types: first, market-initiated stabilization and a rebound—this usually goes through a consolidation and range-bound period—focus on the “index not making a new low for three days” pattern; second, the “quasi-money market fund” function continues to play a role—track four key CSI 300 ETFs to see whether volume expands. “We believe that under market-initiated stabilization and a rebound, the consolidation and range-bound trading is likely to be the way the market plays out going forward.”

Huang Hongwei also pointed out that in terms of performance: if the market indexes stabilize and then move into a trend-driven行情, we expect the technology line and the price-increase line to remain the two main themes for the market. Among them, there is a certain possibility that the domestic computing power chain, AI applications, and the chemical sector could deliver performance that exceeds expectations.

The Middle East conflict is currently the most watched focus. Huang Hongwei believes the market has started pricing in a “quasi-stagflation” logic. Against the backdrop of a significant rise in international crude oil prices, the global market is currently still pricing in the first stage—an “inflation boom” expectation—and has not yet transitioned to the “stagflation” logic. Going forward, how long the Iran-U.S. conflict lasts and when the Strait of Hormuz will be reopened will be the key to moving from “inflation boom” to “stagflation.” Based on experience-based rule of thumb: if the Strait of Hormuz is locked down for one month, the market may again expect the Iran-U.S. conflict to become prolonged and accelerate the “inflation boom” trading; if it is locked down for three months, the world’s major economies’ strategic petroleum reserves may run short, and it is not ruled out that the market will start trading the “stagflation” logic by then.

In addition, Huang Hongwei also suggested paying attention to opportunities for bottom allocation in gold.

Since this round of the Middle East conflict, the price trends of crude oil and precious metals have mostly shown an inverse relationship. The underlying reason is that a rise in crude oil prices may increase inflation expectations and compress expectations for Fed rate cuts. But starting last Friday, precious metals and crude oil rose together, and gold prices began to decouple from the move—gold has not fallen despite bad news. We expect it may enter a phase of a bottom. “We believe that the core support for this round of commodity price increases is a decline in the credibility of the U.S. dollar, and among commodities, gold is the best option in terms of sustained performance.”

Xiaoxiang Morning Post · Morning Video reporter Chen Haijun

Risk reminder: There are risks in the stock market; invest cautiously.

Reporting and rights-protection channel: Download the “Morning Video” app, search for “Reporting” to reach it instantly, or call the hotline 0731-85571188. For content cooperation, please call the government-enterprise service desk 19176699651; for business cooperation, contact 0731-85572288.