Guotai Haitong: Geopolitical tensions strengthen inflation expectations again. It is recommended to overweight AH shares, gold, crude oil, and industrial commodities.

Guotai Haitong released a research report saying that against the backdrop of geopolitical tensions in the Middle East, global concerns about reflation are rapidly increasing. It recommends overweighting A shares, gold, oil, and industrial commodities in March. Multiple factors support the performance of Chinese equities: (1) Overweight A shares. 2026 is the beginning of the 15th Five-Year Plan, and economic policies are expected to become more proactive. The renminbi is stable and appreciating, and China's monetary policy is stable with a slight easing bias. Policies to support real estate and stimulate domestic consumption continue to be introduced, and capital market reforms boost risk appetite in the Chinese market. (2) Overweight H shares. Expectations for China's total policy stability and capital market system reforms boost market risk appetite. The downward trend in risk-free rates in mainland China and the loosening adjustment of overseas Federal Reserve monetary policy are favorable for supporting stable liquidity in Hong Kong. Global investors' expectations for the AI industry are still in intense competition, which may lead to periodic increases in market volatility. Guotai Haitong's main points are as follows: Structural monetary policy may strengthen the allocation of national debt. The imbalance between financing demand and credit supply remains an objective reality, but the trend in risk appetite is gradually increasing, with residents and companies potentially rebalancing asset allocations. The bond market has been relatively weak due to a lack of effective allocation forces, but with the implementation of structural monetary policy, the willingness of asset allocation funds to purchase bonds may be strengthened. The U.S. economy is converging marginally but not slowing down, with the labor market cooling slightly and slow wage growth conducive to a decrease in endogenous inflation stickiness. Nominee for Federal Reserve Chairman Jerome Powell advocates balance sheet reduction and a mild reduction in monetary policy rates, which may lead to a mild decline in U.S. bond yields. The Trump administration practices hegemony, disrupts the international geopolitical order, weakens U.S. sovereign credit significantly, and global central banks and large asset management institutions are systematically reducing their holdings of U.S. bonds. In the face of geopolitical risks, defensive assets may be favored, but reflation trades may be constrained. Global order is undergoing accelerated restructuring, and it is recommended to overweight gold. The global order has gradually deteriorated since World War II: the Trump administration continues to practice hegemony, imposing tariffs on trade unreasonably, threatening to annex foreign territories in diplomacy, and openly invading other countries militarily, which has significantly weakened America's international reputation. Safety has become the most scarce resource in the rapid reconstruction of the global order and the trend towards worsening geopolitical situations, and gold is a tangible means of combating this uncertainty. Large asset management institutions and central banks continuing to acquire gold supports the long-term price center, but speculative funds and the heating up of reflation trades may exacerbate short-term fluctuations. The geopolitical situation in the Middle East is rapidly deteriorating, and it is recommended to overweight oil. Global oil demand is relatively weak, and OPEC+ output policies are volatile. The recent rapid deterioration of the geopolitical situation in the Middle East, with a further trend towards escalation, may lead to a temporary boost in oil prices. Demand for industrial commodities is increasing against a background of industry expansion, and it is recommended to overweight industrial commodities. Industrial metals represented by copper are temporarily in a situation of supply and demand imbalance. Construction, power grids, and electric vehicles are the main drivers of demand, and the expansion of AI computing power and modernization of power grids bring about additional structural demand. The development cost and complexity of copper have significantly increased, leading to a decrease in investment willingness and a temporary increase in copper prices. Industrial commodities have a higher risk-return ratio compared to other major asset classes. Risk disclaimer: The analysis has limitations, the model design is subjective, historical and expected data may have deviations, market expectations may be adjusted uniformly, and there are limitations to quantitative models.