Geopolitical Storm Sweeps Globally: How Can A-Shares Break Through Structurally Under Stagflation Narrative?

Ask AI · Why does the A-share technology sector demonstrate resilience against the backdrop of stagflation?

Last week, global capital markets were driven by a dual narrative of geopolitical tensions and macroeconomic expectations. From the continuous decline of U.S. stocks to extreme divergence in commodities, and then to a structural breakout in A-shares, markets are undergoing a sharp reconfiguration of risk appetite. Overall, major global indices declined, risk aversion increased, but performance varied significantly across markets—all rooted in the sudden escalation of Middle East geopolitical tensions.

The ongoing escalation of Middle East conflicts is the key driver of this week’s market volatility. Since the U.S. and Israel launched military strikes on Iran, the conflict entered a new phase—Israel’s air force attacked natural gas facilities in southern Iran, while Iran claimed to have “destroyed” several U.S.-related oil facilities in the Middle East. As a result, international oil prices surged—by March 20, Brent crude futures closed at $104.41 per barrel, briefly exceeding $112 during the week, up over 50% from pre-conflict levels. The spike in oil prices reignited fears of deep stagflation, as rising energy costs intensify global economic slowdown and inflation concerns.

In this context, risk assets worldwide experienced broad sell-offs: the three major U.S. indices fell over 2% each, with the Dow Jones Industrial, S&P 500, and Nasdaq posting their longest weekly declines since February 2023; European markets also declined—Germany, France, and other major indices down more than 3%. Markets are pricing in a stagflation scenario of “high inflation, weak growth,” with energy commodities favored as inflation inputs, while most risk assets remain under pressure amid tightening interest rate expectations.

The “dual nature” of commodities markets vividly illustrates this logic. On the energy side, geopolitical risk premiums pushed oil prices higher; but on the other hand, fears of global recession and a strong dollar outlook led to sharp declines in industrial and precious metals.

COMEX gold futures fell over 11% this week—the largest weekly drop in recent years, breaking below $4,500 per ounce—while LME copper and COMEX copper also declined more than 7.8%. This rare divergence between energy and metals/precious metals reflects a global consensus of liquidity tightening and economic slowdown. The Federal Reserve kept interest rates unchanged at its March meeting, but the dot plot indicated a significant reduction in rate cuts this year, signaling a clear tightening stance. Under these rate expectations, the safe-haven function of gold is overshadowed by the strong dollar, further highlighting the market’s core contradiction: reassessment of global inflation and interest rate paths.

Chinese markets this week also reflected this macro narrative but with more complex structural features. Major A-share indices broadly retreated: the Shanghai Composite fell 3.38%, but the ChiNext Index rose 1.26%, making it the only bright spot among main indices. This divergence clearly indicates capital flows.

On one hand, the sharp decline in international commodities—metals, chemicals, steel—hit cyclical sectors hard, with declines exceeding 10%. This isn’t fully explained by domestic demand data; the direct pressure stems from the downward revision of global earnings expectations triggered by falling upstream raw material prices like copper and oil, embodying the “weak demand” side of the “global stagflation trade.”

On the other hand, the communication sector led gains with a 2.10% increase, supported by sustained demand for AI computing power and policies promoting AI application scenarios. The strong rise of optical modules confirms the resilience of the tech theme amid current uncertainties. Meanwhile, the banking sector edged up 0.36%, reflecting capital’s flight into undervalued defensive stocks amid declining risk appetite.

Hong Kong stocks performed somewhat in between: the Hang Seng Index dipped only 0.74%, relatively resilient, but internal sector divergence was sharp. The Hang Seng Tech Index fell 2.12%, resonating with the A-share ChiNext, while the local state-owned enterprise index dropped 5.18%. Notably, sectors like electrical equipment, software, and automobiles bucked the trend—electrical equipment rose 8.67% this week, indicating continued optimism from southbound funds on AI hardware and new energy vehicle supply chains.

Additionally, events like Alibaba’s restructuring of AI assets and the RMB reaching a three-year high provided partial positive catalysts amid macro uncertainties.

Looking ahead to next week, the key short-term variable remains the evolution of geopolitical risks. Oil prices will be a critical indicator of inflation expectations; further escalation could push prices beyond previous highs, increasing market turbulence.

From a global macro perspective, the recently concluded “Super Central Bank Week” sent clear policy signals: in response to Middle East energy shocks, major central banks have generally paused easing, adopting a “mostly stable, hawkish tone”—marking a key phase of monetary policy watchfulness. Under this backdrop, the dollar index remains strong, global financial conditions tighten, and emerging market assets face ongoing pressure. Market pricing is shifting from economic cycle-driven to risk premium-driven, with energy, financials, and essential consumer sectors with stable cash flows becoming relatively attractive.

In Hong Kong, southbound funds have shown a “buy more as prices fall” pattern, with net purchases exceeding HKD 26 billion on March 19, acting as a market stabilizer. Valuation-wise, the Hang Seng Tech Index’s P/E ratio is about 20.5x, significantly lower than the CSI 300 Tech and NASDAQ 100, offering clear valuation advantages. Short-term volatility may increase, but sectors with solid earnings—tech hardware, innovative pharmaceuticals, high-dividend stocks—remain key focus areas.

From a medium- to long-term perspective, three main themes emerge:

First, the tech theme focusing on AI computing power and domestic substitution. The resilience of the communication sector is not isolated; it reflects the industry trend of AI computing demand shifting from expectations to actual deployment. With national initiatives to implement hundreds of AI applications, segments like optical modules, data centers, and computing power leasing are expected to remain prosperous. The rise of domestic AI chips has become a consensus, with 2026 widely regarded as the year of domestic AI chip volume growth. Advanced packaging benefiting from AI chip demand will see sustained growth, with related testing and packaging firms improving their outlook. Focus on opportunities in communications, semiconductor equipment, advanced packaging, and AI application segments amid market fluctuations.

Second, defensive allocations should prioritize undervalued and high-dividend stocks. As risk appetite declines systemically, the slight gains in banks and interest in utilities highlight defensive appeal. Banks remain the top defensive choice; oil & petrochemicals, transportation, coal, and state-owned enterprises can serve as supplementary defensive positions. The power sector is evolving from “industrial staple” to “computing infrastructure,” with high-dividend water utilities, valuation recovery in thermal power, and long-term growth in nuclear power forming key defensive options. Recommend including banks, power, and utilities as core “stabilizers” in portfolios.

Third, the Hong Kong market’s focus should be on southbound capital-driven tech hardware and new energy vehicles. The strength in electrical equipment, software, and auto sectors this week correlates with persistent southbound inflows. Data shows that despite international funds withdrawing, southbound funds have been increasing their holdings, acting as a market ballast. The low valuation and high dividend yields of Hong Kong stocks are attractive for risk-averse investors seeking stable cash flows. For new energy vehicles, policies like “old-for-new” replacements and new model launches post-holiday support short-term demand, while long-term prospects include overseas commercialization and intelligentization of EVs. Monitor opportunities in electrical equipment, software, EV supply chains, and consumer staples for potential recovery.

Disclaimer: The information in this report is sourced from public data and does not constitute investment advice. Investors should make independent decisions based on their risk tolerance. Markets carry risks; invest cautiously.

Author’s note: These are personal opinions for reference only.