Huatai Securities: Pay Attention to the Intersection of Low Valuation and Low Crowding, and Industries That Potentially Benefit from High Oil Prices

Huatai Securities Research Report points out that, overall, there may be a short-term oversold rebound. It is recommended to control positions and respond flexibly; in terms of style, the large-cap and value styles are favored; at the industry level, focus on the intersection of undervaluation and low crowdedness, as well as sectors that could benefit from high oil prices: 1) Direct beneficiaries: oil and natural gas, but due to large short-term oil price fluctuations and domestic refined oil price regulation, chasing highs is not advised; 2) Substitution effects: coal, power chain (lithium battery materials, power equipment, power operators, etc.); 3) Strong pricing power: chemical raw materials, oilfield services, cement, daily necessities; 4) Essential consumption for defense: low valuation and chips in necessary consumer sectors such as food and beverages, aquaculture, and general retail. In the medium term, patiently wait for the right-side signals, and after sufficient adjustment, continue to focus on the power chain and prosperity indicators for deployment.

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Huatai | Strategy: Response Ideas After Market Adjustment

Core Viewpoints

Short-term sentiment may bottom out and recover, with continued wait for right-side signals in the medium term.

Recently, A-share and H-share markets have experienced increased volatility. We believe the immediate cause is the escalation of Middle East geopolitical tensions and the FOMC hawkish signals last week, which spread “panic” sentiment leading to liquidity feedback; deeper reasons include the global financial conditions easing since Q4 2024, causing major asset prices to rise, but the market has not fully priced in the risk chain of “high oil prices → global stagflation → liquidity tightening” after the US-Iran conflict outbreak, resulting in asymmetric upside and downside risks. As of Monday, our tracked A-share sentiment index again touched the panic zone, and the Hong Kong market sentiment remains pessimistic. After short-term sentiment release, there may be an oversold rebound. In the medium term, as geopolitical tensions gradually clarify and the volatility and correlation of major assets return to normal levels, it is advisable to continue controlling positions and maintaining defensive allocations while waiting for right-side signals.

Market experienced significant adjustments amid escalating geopolitical risks

Today, domestic equity markets saw a large decline: all three major indices fell, trading volume surged, the Wind All A Index dropped over 4%, and over 5,000 stocks declined; Hong Kong stocks followed a similar pattern, with the Hang Seng Index and Hang Seng Tech down over 3%, and A-H premium rebounded. In terms of rhythm, indices attempted recovery after a low open in the morning, driven by new energy vehicles and coal chemical sectors, but lacked momentum; in the afternoon, further escalation of geopolitical risks (according to Xinhua, citing the Jerusalem Post on the 23rd, US officials recently said the US “may have no choice” but to launch ground military operations against Iran’s Halek Island), leading to spreading panic, with the Shanghai Composite barely holding above 3,800 points. Structurally, large-cap and value stocks were relatively resilient, energy sectors (coal, petrochemicals) and the power chain (power equipment, power operators) outperformed, while previously strong AI computing power and some consumer sectors declined sharply. Additionally, traditional safe-haven assets like gold were also sold off, possibly reflecting increased liquidity feedback pressure.

Insufficient macro pricing of geopolitical and oil price impacts may be the fundamental reason for adjustments

In our March 10, 2026 report “Winners and Losers in High Oil Price Environment,” we warned that the market had not priced in the possibility of sustained high oil prices, viewing current geopolitical conflicts as short-term shocks: first, liquidity-sensitive and high-valuation assets generally had limited pullback, with strong bottom-fishing sentiment; Hang Seng Tech rebounded at times, and Korean stocks triggered upward circuit breakers. Second, based on the US VIX index and our tracked sentiment indices for A-shares and Hong Kong stocks, the market had not yet reached panic levels.

Under this pricing, upside and downside risks are asymmetric, and the medium- to long-term impacts of geopolitics and oil prices remain to be assessed: 1) Rising inflation hampers monetary easing, and increased demand for settlement and hedging pushes the dollar higher, constraining financial conditions in emerging markets. Last week, US February PPI exceeded expectations, and the FOMC hawkish signals were released; CME FEDWatch shows the market expects a 20 basis point rate hike this year. 2) Rising prices in oil, gas, coal, and electricity sectors not only impact the traditional economy but also increase costs for AI training and data centers, potentially disrupting hardware production like chips, raising concerns about global stagflation or recession risks.

Follow-up response: short-term oversold rebound, but the right-side turning point still requires waiting

In the past two weeks, we have repeatedly advised investors to reduce positions and leave room for uncertainty (“Position Control and Stock Picking to Respond to Uncertainty,” March 15, 2026). Looking ahead, after the short-term panic is fully released, an oversold rebound is expected: 1) Sentiment: our tracked A-share sentiment index touched the panic zone on March 9, and today again entered this zone. Using this index, a simple “buy in panic zone (≤10%), stay out in greed zone (≥90%), and maintain 50% positions otherwise” strategy has yielded an absolute return of 97% since 2020, with over 40% excess return; 2) Valuation: based on our A-share risk premium model, the Shanghai Composite PETTM may have already priced in the pressure of USD index breaking above 100 as of last Friday, and may be overshooting due to spreading panic; 3) News: after hours, Trump posted on social media that the US and Iran had “productive” talks over the past two days, and announced a “five-day pause” on military strikes against Iran’s power plants and energy infrastructure. Significant movements occurred in crude oil, US stock index futures, and A50 futures, which also surged rapidly.

However, in the medium term, before geopolitical tensions clarify and asset volatility and correlations normalize, heavy participation in rebounds is not advisable. Maintain defensive allocations: 1) The Middle East situation still has uncertainties; over-reliance on “TACO trading” thinking underestimates tail risks; 2) Funds and sentiment: retail net outflows last week, reduced margin trading activity, but margin balances and average collateral ratios declined modestly; sector ETFs experienced net outflows, but broad-based and Smart Beta ETFs saw net inflows, indicating prior ETF market funds mainly adjusted structure without significant position changes; Hong Kong sentiment index has not yet reached panic levels; 3) Recently, major broad-based indices’ 2026 Wind consensus net profit estimates have been upwardly revised over the past two weeks. If geopolitical conflicts and oil prices continue to rise beyond expectations, downward pressure may emerge. Watch for right-side signals: 1) decline in asset volatility and correlation, convergence of implied volatility in index options; 2) significant net inflows into broad-based ETFs; 3) after the A-share and Hong Kong sentiment indices reach panic levels, a rebound to pessimistic or neutral zones.

Of course, we also emphasize that China has a high degree of energy diversification, and related industries are exportable advantages. Under supply shocks, some tradable commodities’ global share may increase, and long-term Chinese assets may demonstrate relative resilience.

Allocation suggestions: Focus on the intersection of undervaluation, low crowdedness, and sectors that could benefit from high oil prices

Overall, a short-term oversold rebound is possible. It is recommended to control positions and respond flexibly; in style, large-cap and value are favored; at the industry level, focus on sectors with low valuation and low crowdedness, as well as those that could benefit from high oil prices: 1) Direct beneficiaries: oil and natural gas, but due to large short-term fluctuations and domestic refined oil price regulation, chasing highs is not recommended; 2) Substitution effects: coal, power chain (lithium battery materials, power equipment, power operators); 3) Strong pricing power: chemical raw materials, oilfield services, cement, daily necessities; 4) Defensive essentials: low valuation and chips in necessary consumer sectors such as food and beverages, aquaculture, and general retail. Wait patiently for the right-side signals, and after sufficient adjustment, continue to focus on the power chain and prosperity indicators.

Risk warnings: Overseas geopolitical risks; liquidity below expectations; domestic policies and fundamentals below expectations.

(Source: Jiemian News)