CICC: At this time, only US dollar cash and internal defensive sectors of A-shares may provide effective hedging.

On March 23, China International Capital Corporation (CICC) research report pointed out that since the outbreak of the Iran situation on February 28, the conflict has entered its fourth week, and there are no signs of easing—in fact, it continues to escalate. Under the ongoing “substantive” blockade of the Strait of Hormuz, Israel’s direct strikes on Iran’s key energy facilities have intensified the impact on the global energy markets, with Brent crude prices rising above $110 per barrel and TTF natural gas prices surging 13% in a single day. The escalation and energy “crisis” have also triggered increased turbulence in financial markets, with gold plunging 15%, U.S. Treasury yields soaring to 4.4%, and volatility in U.S., A-share, and Hong Kong stocks intensifying—U.S. bond volatility has even reached its highest level since April 2025.

As the situation develops, market expectations for the end of the conflict have shifted from an initial “quick resolution” to now anticipating a “long-term standoff.” According to Polymarket betting odds, the market’s probability of conflict ending in March has dropped from 78% on February 28 to 4% on March 20. Currently, the highest probability (44%) is for the conflict to end between April 1 and May 15. As these expectations are pushed further out, trading focus will gradually shift from short-term emotional shocks to longer-term secondary effects, such as liquidity feedback on assets and the second-order pressures of high energy costs on inflation and supply chains. This may also be one of the reasons for the sudden increase in volatility in gold, U.S. bonds, U.S. stocks, and even A/H shares last week.

At the industry level, if the Iran situation continues to escalate, it could first impact market expectations for the external demand sector (fearing high oil prices could lead to recession), then the cycle (reintroducing demand-shock logic and shifting to supply-side concerns), and finally technology (due to valuation pressures).

At this point, only U.S. dollar cash (short-term bonds) and defensive positions within A-shares may serve as effective hedges (such as low-volatility dividend stocks, consumer real estate with low expectations, or low-priced stocks that have already corrected or are undervalued). Additionally, based on our credit cycle framework, since we have already judged that the second quarter is the weakest phase of the credit cycle, making moderate adjustments to positions during this period to hedge against uncertainties is also a prudent strategy.