Sino-Canada Fund Allocation Weekly Report | Domestic Inflation Rebounds, Middle East Tensions Continue to Escalate

MaticHoleFiller

2026-03-23 07:26:13

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Important Information Review

China’s February CPI increased by 1.3% year-on-year, the highest in nearly three years. Core CPI, excluding food and energy prices, rose by 1.8% year-on-year. Due to rising international commodity prices, rapid demand growth in certain domestic industries, and the continued effectiveness of macro policies, the national PPI decreased by 0.9% year-on-year, narrowing the decline for the third consecutive month.
According to customs statistics, in the first two months of this year, China’s total import and export value was 7.73 trillion yuan, up 18.3% year-on-year. Exports totaled 4.62 trillion yuan, up 19.2%; imports totaled 3.11 trillion yuan, up 17.1%. In the first two months, China’s import and export to the U.S. was 609.71 billion yuan, down 16.9%; trade with ASEAN and the EU both grew by about 20%.
The latest U.S. inflation data shows that in February, the seasonally adjusted CPI rose 0.3% month-on-month and 2.4% year-on-year. Core CPI increased by 0.2% month-on-month and 2.5% year-on-year, all in line with market expectations. However, markets generally believe that the February data does not reflect the impact of the surge in oil prices caused by the Iran situation. When the Federal Reserve will cut interest rates again still requires more data.
Central bank data shows that in the first two months, RMB loans increased by 5.61 trillion yuan; social financing scale increased by 9.6 trillion yuan, up 3,162 billion yuan year-on-year. As of the end of February, M2 grew by 9% year-on-year, and the stock of social financing increased by 8.2% year-on-year. The average interest rate for new corporate loans and new personal housing loans in February was about 3.1%.
The International Energy Agency (IEA) agreed to release 400 million barrels of strategic petroleum reserves to address the risk of energy supply disruptions caused by the Iran conflict. This is the largest coordinated release in the agency’s history. G7 energy ministers issued a joint statement supporting the use of strategic reserves to stabilize energy markets when necessary. U.S. President Trump stated that the U.S. will “slightly” reduce strategic petroleum reserves to lower oil prices. Japanese Prime Minister Suga Sano announced that about 80 million barrels of strategic reserves will be released as early as March 16. Germany also confirmed the release of 2.4 million tons of reserves.
Iran’s Supreme Leader Ayatollah Ali Khamenei issued his first statement since taking office. The statement said Iran will not give up revenge, will continue to use strategic means including blocking the Strait of Hormuz, and will open new fronts if necessary. It called on neighboring countries to close U.S.-used military bases within their borders. Iran’s targets are only military facilities. The statement emphasized that Iran will seek compensation from enemies at all costs. Meanwhile, Iran’s Deputy Foreign Minister said that Iran has allowed some ships to pass through the Strait of Hormuz.
U.S. President Trump claimed that the U.S. is destroying Iran militarily, economically, and in other ways, and that the U.S. military will carry out “fierce airstrikes” on Iran next week. Trump refused to comment on whether the U.S. would seize Iran’s oil hub, Hormuz Island, but reiterated that escorting might be necessary. U.S. officials revealed that as Iran continues to blockade the Strait of Hormuz, the Pentagon is deploying more Marine Corps units and warships to the Middle East. There are also reports that the U.S. Department of Defense is considering deploying more destroyers to escort through the Strait.

Market Review

1. Futures Market

Data source: Wind, China-Canada Fund; as of March 13, 2026. Futures price changes are based on settlement prices.

Futures Prices

Last week, various futures prices rose, with oil seeing the largest increase and gold the largest decline. ICE Brent crude closed at $103.89, up 12.08%; COMEX gold closed at $5023.1, down 2.63%.

Last week, the U.S. dollar index rose by 154.82 basis points, driven by ongoing Iran Strait blockade and rising oil prices, which increased inflation expectations and strengthened the dollar. Against this background, the RMB appreciated by 16 basis points last week, while the Japanese yen depreciated by 193.55 basis points.

2. Stock Market

Data source: Wind, China-Canada Fund; as of March 13, 2026.

A-shares

Major sectors declined last week, with the Sci-Tech Innovation Board 50 dropping 2.88% (largest decline), and the ChiNext Index rising 2.51% (largest gain). The escalation of Middle East conflicts led to a decline in global risk appetite, affecting A-shares. The equity fund index fell by 2.70%.

Data source: Wind, China-Canada Fund; as of March 13, 2026.

Hong Kong Stocks

Hang Seng Index fell 1.13%, while the Hang Seng Tech Index rose 0.62%. Despite the escalation of Middle East conflicts, advances in AI technology caused Hong Kong stocks to fluctuate.

Data source: Wind, China-Canada Fund; as of March 13, 2026.

U.S. Stocks

Last week, U.S. stocks declined, with the Nasdaq down 1.26% (best performance), and the Dow Jones down 1.99% (worst performance). The ongoing Iran situation continued to dampen risk appetite, leading to a decline in U.S. stocks. It is worth noting that with the U.S. resuming tariffs and initiating a new round of trade tensions, the global economy may face certain impacts. Attention is on whether the U.S. can achieve a soft landing amid high interest rates.

2. Bond Market

Data source: Wind, China-Canada Fund; as of March 13, 2026, with the past 5-year percentile ranking.

Bond Market

Last week, short-term interest rates declined while long-term rates rose. 1Y rated AA and AA- credit bonds fell by 3 basis points, the largest decline; 5Y and 10Y government bonds and 5Y AA+ credit bonds rose by 3 basis points, the largest increase. On one hand, strong inflation and export data pushed long-term rates higher; on the other hand, declining risk appetite led to lower short-term rates. Looking ahead, although U.S. tariffs may suppress exports, domestic policies to curb internal competition and rising tensions in the Middle East have recently boosted inflation expectations. The focus will be on the duration and strength of inflation rebound.

Data source: Wind, China-Canada Fund; as of March 13, 2026.

U.S. Treasury

Last week, yields rose, with the 2-year yield increasing by 17 basis points, the largest rise. The ongoing Middle East tensions pushed oil prices higher, increasing inflation expectations and rates. Additionally, with tariffs being implemented broadly, the future trajectory of the U.S. economy under international political disturbances remains a concern.

Asset Allocation Viewpoint

Resilient Domestic Exports, Rising U.S. Re-Inflation Concerns

Last week, China released February trade, inflation, and financial data. CPI rose from 0.2% in January to 1.3%, and PPI from -1.4% to -0.9%, indicating some effects of domestic policies to curb internal competition. Moreover, January-February exports grew by 19.2% year-on-year, supporting the exchange rate and economic growth. Looking ahead, domestic demand is supported by continued relaxation of real estate policies and increased birth subsidies, which may help stabilize growth. Amid significant external uncertainties, the economy is expected to experience some oscillation and recovery. On the international front, the U.S. announced February inflation data, which, while in line with expectations, does not yet reflect the impact of Middle East conflicts. Therefore, March data may show some rebound. Regarding rate cuts, the escalation of Middle East tensions has driven up oil prices, weakening expectations for rate cuts. Currently, the Fed’s rate cut probability for March 2026 has decreased from 4% to 2%.

Data source: Wind, China-Canada Fund; as of March 13, 2026.

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