CICC: Geopolitical Risks Rising, Global Market Volatility Increasing, A-Share Resilience Highlighted

CICC released a research report stating that looking ahead, the probability of rising geopolitical risks and diminishing peace dividends is high. In the accelerated global re-industrialization process, the upward cycles of precious metals, natural resources, and capital goods are expected to continue. At the same time, favorable factors will contribute to the advancement of related technological sectors that enhance industrial strength, with A-shares demonstrating superior resilience. Under the new macro paradigm and the Trump administration's reset, the global pursuit of hard assets (resource self-sufficiency + productivity improvement) positions A-shares as a concentration of high-quality hard assets. Since the beginning of the year, A-shares have shown strong resilience, with year-to-date returns outperforming those of US stocks. Driven by new technologies and geopolitical narratives, global funds are trending towards rebalancing between the US and non-US markets, particularly favoring the Chinese stock market, which is significantly underweighted by global active funds and benefits from a strong technological and manufacturing foundation. In February, global market volatility intensified, with emerging markets outperforming developed markets, non-US markets outperforming US markets, and value and small-cap styles leading the rally. Risk appetite has slightly waned, with US Treasuries, the US dollar, and gold rising. Specifically, emerging markets and non-US stock markets performed well in February, with the MSCI Emerging Markets Index rising by 5.4%, and the South Korean Kospi Index rising by 19.5%. Overall European stock markets showed impressive performance, with the UK's FTSE 100 Index rising by 6.7% and Germany's Dax Index increasing by 3%. Concerns about liquidity tightness and negative impact of AI on the macroeconomic situation weighed on US stocks, especially affecting the Nasdaq Index, which fell by 3.4%, while the S&P 500 declined by 0.9% and the cyclical Dow Jones Index saw a marginal increase of 0.2%. The Nasdaq Index's year-to-date performance turned negative. Market sentiment shifted, with the previously leading large-cap growth style underperforming in the past few years, while small-cap and value styles dominated, with the Russell 2000 rising by 0.7%, the S&P Value Index increasing by 2.1%, and the Growth Index falling by 3.5%. Safe-haven sentiment increased, with US Treasuries, the US dollar, and gold all rising, while the 10-year US Treasury yield fell by 29bps to 3.97%, dropping below 4% and the US dollar index rose by 0.6% to 97.6. After experiencing volatility in January, gold regained momentum, rising by 7.9% to $5278.9 per ounce. The US market weakness was mainly constrained by two major factors: liquidity remains relatively tight and negative macroeconomic impact triggered by AI dampened market sentiment. CICC believes that in the future, the dual monetary and fiscal easing in the US is still a high-probability event, and both US and global liquidity will trend towards abundance. Furthermore, the negative macroeconomic impact on the US labor market from AI is not significant, and academic research has found that AI has both positive and negative effects on the labor market. With improving liquidity and restoring market sentiment, the global bull market foundation remains solid, but volatility is intensifying, with country and sector rebalancing accelerating. The weakened performance of US technology stocks is attributed to the ongoing liquidity constraints in the US. Since June 2022, the Federal Reserve has continued to unwind its balance sheet by approximately $2.3 trillion. At the same time, with the raising of the US debt ceiling and increased issuance of US bonds, funds flowed into the TGA account, and narrow liquidity (reserve requirements) fell below the "ample liquidity" threshold. Following the Fed's cessation of balance sheet contraction and the reopening of expansion since December 2025, and the end of the government shutdown facilitating funds outflow from the TGA account, liquidity marginally improved, but remains relatively tight since the onset of the pandemic. In this tight liquidity environment, the financial system and market sentiment are more fragile, increasing the potential to magnify market volatility. In fact, most financial risks since 2019 have occurred during periods of liquidity constraints. However, CICC believes that under US fiscal dominance, monetary policy is likely to cooperate with fiscal expansion, and the trend of liquidity easing brought about by the Fed's ongoing balance sheet expansion is a high-probability event. The global asset bull market is expected to continue, and CICC remains optimistic about non-US stock markets and precious metals benefiting from the trend of improving USD liquidity. Moreover, concerns about the sustainability of high AI investments and fears about AI-induced job displacement have led to selling pressure and underperformance of large-cap growth stocks in the market. The performance of large-cap growth stocks, represented by the seven tech giants, has been poor with all except for Apple experiencing declines. The software sector, particularly vulnerable to AI disruptions, saw declines exceeding 10%. However, the weakness in US stocks and the software sector did not start in February this year but rather in the last quarter of last year. Starting from the fourth quarter of 2025, the momentum of US stocks weakened, leading to choppy markets. Most of the seven tech giants began to underperform during this time, and the US software sector had already been on a downward trend, with cumulative declines of 18% since before February. This period coincided with the beginning of the decline in narrow liquidity below the "ample liquidity" threshold mentioned earlier. Therefore, the current underperformance of US stocks and the anxiety surrounding AI trades cannot be separated from the context of tight liquidity in the US, reflecting a responsive reaction to negative narratives in a market environment of fragile sentiment and capital. Data shows that AI's overall negative impact on the US labor market has not yet been significant. CICC combined AI exposure across various industries and employment trends since 2023 and found a weak inverted U-shaped correlation, which is not particularly strong. On one hand, industries highly exposed to AI, like computer and peripheral equipment manufacturing, have seen significant employment declines, but at the same time, recruitment in software development has been stronger compared to the overall labor market. On the other hand, industries with higher AI exposure show positive employment growth. Overall, the employment impact of AI progress is heterogeneous, varying across different industries, and currently, the overall impact is not significant. Academic research suggests that the impact of AI on the labor market needs to consider both substitution and enhancement effects, as well as the flexibility of the labor market itself. AI has both substitution and enhancement effects on the labor market, with lower-skilled jobs facing potential substitution while higher-skilled jobs benefit from enhancement effects. Additionally, the adaptability of workers is crucial when assessing the impact of AI on the labor market. Industries with high AI exposure tend to have workers with stronger skills transferability to cope with job displacement. A small proportion of the employee base lacks such adaptability in the face of high AI exposure. As geopolitical risks intensify in the Middle East, intertwined with global liquidity and AI fears, the former being structural and the latter two expected to gradually abate, securing national security through self-sufficiency in resources and productivity remains the core investment theme. On February 28th, Israel and the US launched a military strike against Iran, escalating tensions in the Middle East, prompting global assets to shift into risk-averse mode, with gold, crude oil, and the US dollar index all rising. Recent US military actions in Venezuela and Iran have had similar and differing impacts on assets. Similarities include: 1) significant increases in crude oil prices due to the importance of Venezuela and Iran in energy markets, 2) increased risk aversion in markets leading to a rise in gold prices, and 3) positive stock market performance in the US following swift military actions. The difference lies in the stronger risk aversion in the market after the US-Iran conflict, as opposed to the US-Venezuela scenario, evident in the global stocks downturn except for China and the US, with the US dollar index rising. Considering the brief duration of the US-Iran conflict, the ripple effects have been limited; however, the potential for further escalation and persistence of the conflict will be key factors affecting major asset classes. If the conflict continues to drive oil prices up, it will increase the likelihood of stagflation and elevate the risks associated with US assets. Core Trading Themes: Chart 1: Performance of Major Asset Classes in February Data Source: Bloomberg, CICC Research Department Chart 2: US ON RRP Depletion, Low Reserve Levels Data Source: Haver, CICC Research Department Chart 3: US Reserve Levels Below Adequate Threshold Data Source: Haver, CICC Research Department Chart 4: Weak Performance of US Tech Giants Note: Data as of February 28, 2026 Data Source: Datastream, CICC Research Department Chart 5: Volatility and Decline in the US Stock Market since Q4 2025 Data Source: Datastream, CICC Research Department Chart 6: Lack of Strong Correlation between AI Exposure and Employment by Industry Data Source: BLS, Felten, Raj and Seamans (2021), CICC Research Department Chart 7: Weak Inverted U-shaped Relationship Data Source: BLS, Felten, Raj and Seamans (2021), CICC Research Department Chart 8: Strong Demand for Software Development Positions in the US Data Source: Haver, CICC Research Department Chart 9: Positive Relationship between AI Exposure and Worker Adaptability Data Source: Manning and Aguirre(2026), CICC Research Department Chart 10: Impact of AI on High vs. Low-Skilled Jobs and Wages Data Source: Hosseini and Lichtinger(2025), CICC Research Department Chart 11: Differentiation in Wage Impact Data Source: Davis(2026), CICC Research Department Chart 12: Geopolitical Conflict Benefits Gold, Oil, and US-China Stocks Data Source: Bloomberg, CICC Research Department Chart 13: Strong Resilience of A-Shares under Global Fund Rebalancing Note: Data sample from February 28, 2026, to March 9, 2026 Data Source: Bloomberg, CICC Research Department Core Quantitative Models: Macro Trading Factors Chart 14: Market Trade Themes Shift to Growth Factors in February Data Source: Wind, CICC Research Department Chart 15: Expectations for Future Growth Factors Continue to Rise in February Data Source: Haver, CICC Research Department Chart 16: Anticipated Increases in Future Inflation Factors in February Data Source: Wind, CICC Research Department Chart 17: Expected Uptrend in Future Liquidity Factors in February Data Source: Haver, CICC Research Department Valuation and Funding Chart 18: PE Ratio of Shanghai-Shenzhen 300 Index Data Source: Hithink RoyalFlush Information Network, CICC Research Department Chart 19: Chinese Equity Risk Premium Data Source: Hithink RoyalFlush Information Network, CICC Research Department Chart 20: PE Ratio of the S&P 500 Data Source: Bloomberg, CICC Research Department Chart 21: US Equity Risk Premium Data Source: Bloomberg, CICC Research Department Chart 22: A-Share AIAE Indicates Future Earnings Growth Data Source: Hithink RoyalFlush Information Network, CICC Research Department Chart 23: US AIAE Suggests Future Earnings Decline Data Source: Bloomberg, CICC Research Department Chart 24: Global Foreign Investment Allocation to A-Shares Data Source: Hithink RoyalFlush Information Network, CICC Research Department Chart 25: Global Foreign Investment Allocation to US Stocks Data Source: Bloomberg, CICC Research Department Chart 26: Low Allocation of Global Active Funds to A-Shares with a Recovery Trend Data Source: Hithink RoyalFlush Information Network, CICC Research Department Chart 27: US Stocks Global Active Fund Allocation Shows a Slight Decrease Data Source: Bloomberg, CICC Research Department Chart 28: Historical Percentiles of Global Stock Valuations and Fund Allocations Note: Figures represent percentile levels from the past 10 years, with higher percentiles indicating higher valuations or fund allocations. Data as of February 28, 2026 Data Source: Hithink RoyalFlush Information Network, Haver, CICC Research Department.