Recently, the A-shares have been adjusting continuously. Is the bull market still ongoing?

How the Middle East Conflict Reshapes Global Asset Pricing Logic?

The recent continuous adjustments in the A-share market have left many investors anxious. After Black Monday, although there was some rebound, the overall weak trend still causes unease. To answer the question “Is the bull market still on?”, it is crucial to separate the short to medium-term logic from the medium to long-term logic—these two sometimes resonate and sometimes conflict, and we are currently in a typical phase where “short to medium-term suppression” obscures “medium to long-term support.”

First, let’s look at the short to medium-term logic. The direct trigger for the recent market decline is the escalation of the situation in the Middle East, but this escalation is different from previous instances; it is reshaping the global asset pricing logic.

Past tensions in the Middle East revolved more around the competition for transportation routes; as long as they were cleared, supply could resume. But this time, the conflict has directly targeted the core areas of oil and gas production—the world’s largest liquefied natural gas export base has been attacked, and restoring production will take months; the Strait of Hormuz, a global oil transportation artery, has essentially been blocked, with over 40 energy facilities across nine Middle Eastern countries suffering severe damage. This means that the actual reduction in crude oil supply is no longer just an emotional concern, but a physical one, potentially leading to a supply gap restructured over years.

It is this change that has fundamentally shifted market expectations regarding inflation and monetary policy. The certainty of increased oil prices is a “stagflation” time bomb for the global economy—it simultaneously raises prices and suppresses growth, which is precisely the most challenging situation for central banks. Although the Federal Reserve maintained interest rates in its recent meeting, it has clearly raised inflation forecasts and reduced this year’s rate cut expectations from two times to one, with the market even starting to price in the possibility of interest rate hikes. For the stock market, this means dual pressures: first, the rising risk-free rate suppresses valuations; second, corporate profits may be harmed by rising costs and declining demand.

At the same time, risk aversion is not flowing evenly to all assets. The stock market has experienced significant volatility after the escalation of the conflict, with highly leveraged funds facing the pressure of margin calls and even forced liquidations. In this moment of liquidity strain, assets that had accumulated considerable floating profits have become the easiest to liquidate, resulting in passive selling. This explains why risk assets and safe-haven assets might display similar volatility in the short term—the market is not reallocating but is overall deleveraging.

From these phenomena, it can be seen that the core contradiction facing the global market is the stagflation risk triggered by geopolitical conflict, rather than the emotional disturbance of a single event. The market is re-pricing inflation expectations and monetary policy paths, and this process of pricing adjustment will inevitably lead to significant volatility in the stock market.

But does this mean the bull market has ended? It would be rash to conclude that.

From a medium to long-term perspective, the foundation of the long-term bull market in A-shares has not been destroyed. The underlying logic of macro policy and economic growth has undergone substantial changes. With 2026 marking the start of the “14th Five-Year Plan,” macro policies are forming a collaborative force of “fiscal strength and monetary easing.” The government work report has set an economic growth target of 4.5%—5%, which connects with the long-term goals for 2035 and leaves room for structural adjustments. More importantly, large-scale equipment upgrades and consumer product replacement policies are being accelerated—the People’s Bank of China has increased the quota for re-lending for technological innovation and transformation from 800 billion yuan to 1.2 trillion yuan, combined with fiscal interest subsidies, with policy implementation continuing until the end of 2026. This “real monetary” policy support is fundamentally different from the previous simple expectation guidance.

The industrial logic of transitioning from old to new driving forces is also moving from “concept” to “realization.” The proportion of new productivity in nominal GDP continues to rise, nearing the scale of narrow real estate, with significantly enhanced influence. For example, in the AI industry, China’s weekly usage of large models has surpassed that of the U.S., taking the initiative in the global token pricing power competition. Supporting this trend are the unexpectedly strong financial reports from relevant companies—leading firms in fields like new energy and AI are generally achieving rapid growth in 2025. These performance validations indicate that technological innovation is shifting from “thematic speculation” to “profit-driven,” which is key to the continuation of the bull market.

There is also a structural change in the flow of funds. As the investment attributes of real estate weaken, household wealth is indirectly entering the market through channels like “fixed income+” and secondary bond funds, providing a continuous and stable influx of funds. At the same time, global funds are still under-allocated to Chinese assets, and the macro narrative of reconstructing the international monetary order is reinforcing the logic of foreign capital allocating to Chinese assets. The evolution of market operating mechanisms and investor structures makes it more conducive to forming a “steady progress” pattern compared to the past.

Valuation still presents a cost-performance advantage. As of March 23, the earnings yield of the CSI 300 index compared to the yield of 10-year government bonds is at the historical median level, with a dividend yield of 2.7%, showing that the equity-bond cost-performance still has an advantage. This means that even after the rise over the past year and a half, the overall market valuation has not experienced a complete bubble, but rather presents a structural characteristic of coexistence of “expensive” and “cheap”—the profit margins of many industries are still at historically low levels, providing room for subsequent profit-driven trends.

So, why is the medium to long-term logic positive while the market is still declining? This is where the short to medium-term and medium to long-term logic conflict. The global stagflation uncertainty brought about by the situation in the Middle East has, in the short term, become the core variable dominating market sentiment. This uncertainty suppresses risk appetite rather than the economic fundamentals themselves. When the market cannot see the future clearly, even if the long-term logic remains unchanged, funds will choose to avoid risk first and observe later. It’s like a heavy rain; although we know crops will grow after the storm, no one rushes to sow seeds when thunder is rumbling.

For investors, the key is how to dialectically view the relationship between this short-term volatility and medium to long-term trends. On one hand, it is important to recognize that the suppressive factors in the short term are objectively present; the evolution of geopolitical conflict, the direction of inflation expectations, and the adjustments in monetary policy all require time to digest and verify. During this process, market fluctuations and reversals are normal, and it is unwise to rush to bottom-fish due to a single-day rebound or to completely deny long-term value because of consecutive declines.

On the other hand, it should also be noted that what truly determines the long-term direction of the stock market is the fundamentals of the domestic economy and the direction of policies. The situation in the Middle East will eventually become clear, and concerns about stagflation will find balance at some point, but the transformation and upgrading of the Chinese economy, the enhancement of industrial competitiveness, and the structural changes in household wealth allocation are all longer-cycle, more certain trends. In this sense, each adjustment triggered by external shocks may, for long-term investors, actually serve as a window for positioning.

In terms of strategy, the most important thing now is to distinguish one’s investment cycle. For short-term traders, it is essential to closely monitor substantive changes in the geopolitical situation—whether the Strait of Hormuz reopens and whether inflation expectations are under control; it is necessary to remain cautious and control positions until these signals emerge. But for investors holding positions for years, the current market volatility actually provides opportunities for gradual positioning. Focus on quality companies that align with national strategic directions, have solid fundamentals, and reasonable valuations, using methods like dollar-cost averaging or phased buying, keeping a longer-term perspective.

The market always oscillates between pessimism and optimism, and what truly transcends cycles are those investors who are not disturbed by short-term noise and persist in long-term value judgments. The current adjustment tests not who runs fast, but who sees far.

Author’s Statement: Personal views, for reference only.