A-shares plummet! How much impact is there left, should I buy the dip now or cut losses?

How does the US-Iran conflict affect global asset price fluctuations?

This is the 1293rd original article from New Energy Forward

Once again, it’s a major negative, and once again, it’s a major positive. Whether it’s a positive or a negative depends solely on the situation in the US and Iran, or even just on Trump’s Twitter…

Recently, many people have been overwhelmed by news related to the US-Iran situation; one moment there’s talk of escalating war, the next of ending the war, sometimes there’s a threat to close the Strait of Hormuz, and then it’s said that the strait is open again. There are even reports from Iran threatening to cut undersea cables…

01

Respect Common Sense When Looking at the US-Iran War Situation

As the world’s most important bulk assets, oil and gas prices are fluctuating wildly, leaving many people at a loss, unsure of what to do. What should one do at this moment?

First, let me clarify: if you do not want to profit from the ups and downs in the capital markets caused by every change in the situation, then this matter doesn’t have much impact. Ultimately, we must return to common sense. Yes, that’s right—common sense!

The biggest common sense is that no matter what the final outcome of the US-Iran conflict is, the Earth will still turn!

Think back to the pandemic; the severity then was definitely not lower than this, in fact, it was much greater. For a period, the entire world nearly stopped functioning normally, but eventually, things returned to normal.

With this concept in mind, we can calmly analyze the issue and realize that it’s not as terrifying as it seems.

The reason is simple: the disparity in strength between the two countries is too great, which determines that this cannot be a long-term intense confrontation!

Right now, all threats from both sides are just bluster. Considering the strength and real interests of both sides, it’s clear that a prolonged intense conflict is impossible, and the entire world cannot derail from its normal course because of this.

From a very realistic perspective, Iran has too few cards to play. The country is nearly exhausted; its weapons and equipment stockpiles are almost depleted. Without self-production capacity and without allies to support with ammunition, what can it use to resist?

As for the biggest card it has—the Strait of Hormuz—that also requires weapons to defend. And don’t forget, the Strait of Hormuz does not entirely belong to Iran; half of it belongs to Oman and the UAE. Iran previously had a stronger military presence controlling the strait, but as military strength wanes, who controls it is uncertain.

Even if the ownership temporarily remains with Iran, to some extent, it also belongs to the entire world. The more Iran uses the Strait of Hormuz for destruction, the more it will become the enemy of the global population. The more enemies it creates, the harder it will be to get help. This is the tragedy of Iran.

02

No Strength for a Prolonged War

Many online are hyping up Iran’s Revolutionary Guard, believing their strength exceeds many expectations.

Let me say: enough already.

Iran is fundamentally broken; it cannot truly stir up much. A theocratic state combining religion and politics may have periods of strong combat power, but a country like Iran, which hosts two incompatible sects, means its ruling foundation is far from solid. Frankly, if Trump hadn’t been so impatient, Iran might have collapsed internally before now.

After decades of shouting about developing nuclear weapons, they have hardly made any progress—forget atomic bombs, they haven’t even seen many tea eggs. Internally, they are so infiltrated that they resemble a sieve; core scientists and high officials are targeted and eliminated by various countries. How much capital do they have for a long-term war of attrition?

If Iran really could manage, look at North Korea. They are also under sanctions, yet they overcame countless difficulties to develop nuclear weapons. Once they succeeded, their stature strengthened, and they gained the confidence to challenge major powers, making it harder for others to manipulate them easily. If all else fails, they can play the game of mutual destruction.

This is what it means to be barefoot and unafraid; the more ruthless, the less afraid of recklessness; the reckless are less than those who simply don’t care about life.

Clearly, Iran is not like this, which is why I am not worried about a long-term high-intensity confrontation between the US and Iran.

03

The Peak of US-Iran Influence Has Passed

Of course, some might say, maybe Iran’s Revolutionary Guard is different this time and wants to play the game of mutual destruction?

Can we completely rule out this possibility?

We cannot completely rule it out, but the probability is very small. If you must include this possibility in your trading framework, the best approach is to liquidate your positions—don’t look for assets to benefit from.

Because if things escalate uncontrollably, and Iran wants the entire world to perish with them, they might block all ships passing through the strait and destroy all undersea cables. In that case, it’s highly likely that the US and its allies would unleash all kinds of weapons, possibly even nuclear weapons. Then, the capital markets will be trading on expectations of a global recession, with all assets crashing first—whether gold or oil—they will all take a hit.

Someone might say: the US wouldn’t resort to nuclear weapons because of the Non-Proliferation Treaty.

What is a treaty, what are rules?

Rules are constraints imposed by the strong on the weak. Whether the strong adhere to them depends entirely on their mood. If rules were effective, this US-Iran conflict wouldn’t happen, because the United Nations has many rules prohibiting unwarranted violations of other countries.

In recent years, we’ve seen the shamelessness of the Anglo-Saxon nations. Frankly, there’s no real sense of justice or shame; it’s all about interests. As long as their interests are harmed, others won’t have a good time. When their own lives are affected, they will find ways to seize others’ resources—any means necessary.

And don’t forget, Trump, the president whose actions cannot be understood with normal logic, is unpredictable. No one can be sure what he might do. If Iran dares to cut off global maritime communication, Trump might actually give the order to use nuclear weapons.

Of course, that’s unlikely. It’s not that Trump lacks the courage, but the US, although weakened, is not so desperate as to fall into that level of madness. Conventional weapons are enough to deal with Iran unless they are determined to annihilate the country entirely.

So, the situation is quite clear: this conflict will not last long, and the capital markets are already exhausted and fatigued. As time passes, the impact of this event on the markets will diminish, and everyone should continue with their normal activities.

Of course, some industries may face long-term and profound impacts, which creates an expectation gap. We will discuss this specifically next.

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Author’s note: Personal opinions, for reference only.