China Galaxy Securities: US-Iran conflict continues to escalate, suggest focusing on coal chemical industry, finance, and technological innovation

China Galaxy Securities released a research report stating that the duration and evolution path of geopolitical conflicts still have great uncertainty. The disturbance to global risk assets is difficult to dissipate in the short term, and it is expected that global equity markets will continue to exhibit high volatility. However, with the logic centered around China as the main support, the downside space for A-shares is relatively limited. The market is likely to digest external pressures through oscillations, differentiation, and structural rotation. In terms of structure, the market trading focuses on the logic of inflation, and the changes in crude oil prices under geopolitical conflicts will continue to be a key variable affecting the recent market structure. Key points from China Galaxy Securities: Market performance this week (1) This week (March 16 to March 20, 2026), the A-share market experienced a volatile adjustment, with major broad-based indices mostly declining. The entire A-share index fell by 4.13%. Among the major broad-based indices, only the Growth Enterprise Market Index rose by 1.26%, while the BSE 50 and the CSI 1000 both fell by over 5%, with other indices also falling by over 2%. (2) In terms of style, the market style was relatively dominant this week; the five major style indices overall retreated, with the cyclicals style falling by over 7%, while stable, growth, and consumption styles also fell by over 2%. (3) In terms of industries, most primary industries fell. Only the communications and banking sectors rose, while the non-ferrous metals, basic chemicals, and steel sectors had the largest declines. Fund flows this week (1) Trading activity in the A-share market slightly cooled down. The average daily turnover this week was 2.2111 trillion yuan, a decrease of 287.59 billion yuan compared to the previous week. (2) Margin financing balance was 2.6501 trillion yuan, a decrease of 1.589 billion yuan from the previous week. (3) 30 new equity funds were established this week, with a total issuance of 21.388 billion shares, up by 1.564 billion shares from the previous week. (4) From March 12 to 18, global funds had a net outflow of 1.278 billion USD (previously -3.615 billion USD). Overseas funds had a net outflow of 0.532 billion USD (previously -1.035 billion USD). Valuation changes this week The PE (TTM) valuation of the entire A-share index fell by 3.16% to 22.59 times compared to the previous week, ranking at the 91.20th percentile since 2010; the PB (LF) valuation fell by 3.39% to 1.86 times this week, ranking at the 51.45th percentile since 2010. The A-share bond yield spread was 2.5959%, near the 3-year rolling average (3.316%) -1.39 times standard deviation, at the 45.88th percentile level since 2010. "Two changes" and "Two constants" "Two changes" include the geopolitical changes under the tense situation in the Strait of Hormuz. The ongoing US-Iran conflict continues to escalate, with no signs of substantial relaxation in their positions. As the intensity of confrontation continues to rise, military targets gradually expand to regional energy infrastructure, and the spillover effect of geopolitical risks continues to show. The second change is the phase-wise tightening of global liquidity. In the environment of rising oil prices and inflation expectations, expectations of interest rate cuts are compressed, global liquidity conditions are marginally tightening, and risk assets are under pressure. "Two constants" include unchanged policy expectations. When the Central Bank deploys specific measures to implement the spirit of the National Two Sessions, it emphasizes the unchanged overall direction of firmly maintaining the stable and healthy operation of financial markets such as stocks, bonds, and foreign exchange through policy support. The second constant is the unchanged trend of improving medium-to-long-term liquidity. The resonance between the relocation of household wealth and the entry of long-term funds into the market provides certainty for the improvement of the long-term capital supply in A-shares. Investment outlook for the A-share market Focus on: The ongoing escalation of the US-Iran conflict directly drives the strength of energy and alternative demand, focusing on coal chemicals, coal, shipping ports, and oil and gas. The recent decline in non-ferrous metals has been significant, so pay attention to the valuation space and cost-effectiveness after the decline. Focus on: The market is shifting towards defensive assets, focusing on finance, utilities, transportation, etc. Focus on: The technology innovation sector, focusing on electric power equipment and new energy, energy storage, storage, semiconductors, computing power, communications equipment, etc. In addition, the valuation of the consumer sector is at a historically low level, with some sub-sectors having potential for recovery, so it is recommended to focus on agriculture, forestry, animal husbandry, fisheries, food and beverage, and home appliances. Risk warning External uncertainty risks; policy risks lower than expected; market volatility and continuous liquidity adjustments.