Industrial Securities: Geopolitical tensions have limited impact on A-shares; focus on two main themes during the Two Sessions: technology and resource commodities.

Caijing APP has learned that Industrial Securities released a research report stating that since February, the geopolitical situation between the U.S. and Iran has become a key variable affecting the performance of major global asset classes. After the third round of Iran nuclear talks broke down on February 26, and on February 28, the U.S. and Israel launched large-scale joint airstrikes, with Iran retaliating, signaling that the U.S.-Israel-Iran situation has shifted from diplomatic confrontation to direct military conflict. This has further raised investors’ concerns about the future trend of equity assets.

Industrial Securities believes that, under baseline scenarios, this geopolitical event mainly impacts risk appetite and structural factors, with limited substantive effects on the fundamentals of A-shares. In the short term, the escalation of the U.S.-Iran situation will influence global risk appetite for equity assets and will structurally reinforce the safe-haven and strategic value of resources such as oil, gas, and precious metals.

As subsequent geopolitical shocks ease and combined with the domestic policy-intensive period during the Two Sessions, risk appetite is expected to recover after short-term shocks, and the market overall will return to a “domestic-driven” state. Structurally, from a calendar perspective, during the Two Sessions, as the overall annual policy deployment and industry policies become clearer, small-cap stocks will outperform under boosted risk appetite, with technology and resource commodities remaining market focal points. The tone set during this round of Two Sessions regarding growth targets and total policy measures for this year and the “14th Five-Year Plan,” along with deployment at the investment and industrial levels, will provide more clues for trading in the two main themes of technology and resources.

Main viewpoints of Industrial Securities are as follows:

1. The impact of U.S.-Iran geopolitics and the upcoming calendar effects worth noting

Since February, the U.S.-Iran geopolitical situation has become a key variable influencing global asset performance. After the third round of Iran nuclear talks broke down on February 26, and on February 28, the U.S. and Israel launched large-scale joint airstrikes, with Iran retaliating, marking a shift from diplomatic standoff to direct military confrontation, further fueling investor concerns about the future of equity assets.

We believe that, under baseline assumptions, this geopolitical event mainly affects risk appetite and structural factors, with limited fundamental impact on A-shares. In the short term, the escalation of the U.S.-Iran situation will influence global risk appetite for equities and will structurally strengthen the safe-haven and strategic value of resources like oil, gas, and precious metals.

As geopolitical tensions ease and combined with the domestic policy deployment during the Two Sessions, risk appetite is expected to rebound after short-term shocks, returning the market to a “domestically driven” state. Structurally, from a calendar perspective, during the Two Sessions, as the overall annual macro and industry policies become clearer, small-cap stocks will benefit from increased risk appetite, with technology and resource commodities remaining focal points. The tone set during this period regarding growth targets and total policies for this year and the “14th Five-Year Plan,” along with deployment at the investment and industrial levels, will offer more clues for trading in the two main themes of technology and resources.

Looking ahead to March and April, as fundamentals and policy signals further develop, prosperity will become the core of trading. The market will enter a phase of rotation and diffusion seeking prosperity clues, with styles becoming more balanced.

Trading environment in March-April: prosperity is key, rotation opportunities will emerge, and styles will become more balanced. Starting in March, as fundamentals deepen and earnings reports are released, the correlation between stock prices and performance will gradually increase, peaking in the second half of April, making prosperity the core of market trading. As the phase of risk appetite driven by February’s market consensus passes, March and April will see a gradual shift toward rotation and diffusion in search of prosperity signals, with seasonal increases in sector rotation strength, moving from a period dominated by small-cap, high-valuation, loss-making stocks in February to a more balanced style landscape with roughly equal success rates across various styles.

2. How to understand recent market style diffusion?

In fact, we have already observed style diffusion in the market recently. Although the main themes post-holiday still revolve around AI and resources, resource stocks have outperformed AI more clearly, triggering a style diffusion from technology growth to cyclicals, which has attracted investor attention.

How to interpret this recent style diffusion? As global inflation expectations rise, geopolitical tensions tighten, and “HALO trading” in industries becomes prevalent, macro and industry narratives are increasingly favorable to cyclicals represented by resource and physical assets:

On the macro level, the recent rise in global inflation expectations and tightening geopolitical environment favor resource stocks by boosting their “hedging and strategic value” narrative. Conversely, for technology growth, this environment is less favorable, characterized by “liquidity tightening and risk appetite contraction.” On one hand, the U.S. January PPI far exceeded expectations, reigniting inflation fears and delaying Fed rate cuts, creating a macro environment of “rising inflation + tightening liquidity,” which benefits resources but not tech growth. On the other hand, ongoing geopolitical tensions further elevate the safe-haven and strategic value of resources and reinforce supply constraints, putting pressure on tech growth, which is more sensitive to risk appetite.

On the industry level, as global understanding of AI enters a new phase, recent narratives suggest AI is caught in a “two-front attack,” making it difficult for the sector to form a cohesive trading force. “Capital expenditure” and “commercialization capability” are increasingly seen as negatives for AI, and investors are engaged in fierce debates over contrasting narratives: increasing capital expenditure raises fears of an “AI bubble,” while reducing it worries about “demand saturation for computing power.” Weak commercialization raises doubts about “poor ROI on capital spending,” while strong commercialization fuels concerns about “AI consuming everything.” These conflicting narratives hinder cohesive trading in hardware and software, negatively impacting the overall tech sector. The current chaotic AI trading logic calls for a breakthrough in industry-level progress to help the market find direction.

Meanwhile, current industry narratives—whether from the perspective of physical consumption or scarcity—are logically favorable to resource stocks. On one hand, increasing physical consumption driven by AI computing power demands boosts resource demand elasticity; on the other hand, under the logic that AI can rapidly disrupt light-asset, easily substitutable sectors, the scarcity of high-entry-barrier, non-eliminable physical assets becomes more apparent, shifting market valuation from “light asset expansion” to “heavy asset scarcity revaluation,” with “HALO trading” prevalent globally.

Therefore, recent style diffusion in the market is essentially driven by the combined macro and industry narratives of rising global inflation expectations, geopolitical fragmentation, and the AI wave, leading to a reassessment of the value of traditional physical assets.

3. For trading in March-April, it is recommended to de-emphasize style and focus on the more observable core logic of “price increases.”

In March-April, as fundamentals and policy signals further develop, and with the market moving toward rotation and style diffusion, we suggest focusing less on style and more on the more observable and verifiable core logic: price increases.

First, during this period characterized by prosperity, structural rotation, and style diffusion, price increases—being the most direct indicator of corporate earnings improvement and style diffusion—are likely to become the key clues for market exploration of prosperity directions. As the most straightforward and prominent signal of performance improvement and economic upturn, trading on price increases essentially means trading on prosperity itself. Moreover, as a key cyclical signal of economic recovery, rising prices also significantly influence market styles.

Second, from a seasonal perspective, March and April are important windows for verifying price increases and trading on them domestically:

• Post-Chinese New Year, the peak season for industrial activity, will serve as an important window for price verification. The traditional peak seasons “Golden March and Silver April” and “Golden September and Silver October” are periods of active industrial production, infrastructure projects, and real estate sales, where supply and demand are both strong, making price signals easier to spread. Historical data shows that during these peak seasons, the number of sub-sectors experiencing price increases tends to rise. Past inflation cycles also saw PPI accelerate mainly in the first quarter.

• Additionally, March and April are typically the best periods for market sentiment and optimistic expectations for pro-cyclical sectors, providing favorable timing for price increase trades. After the Two Sessions, macro policies tend to accelerate implementation, fostering optimism about future economic prospects. Spring’s peak season also offers high-frequency data validation of these positive expectations, making it an ideal window for trading on price increases.

The seasonal patterns of prices and economic expectations further manifest in the seasonal characteristics of the “price increase chain” stocks (represented by bulk commodity companies), which historically show strong excess returns during the “Golden March and Silver April” and “Golden September and Silver October” peak seasons.

In summary, in March-April, as macro conditions enter a window for verifying and trading on price increases, the market enters a phase of prosperity and style diffusion. “Price increases,” as the most explicit and trackable logic for corporate profit elasticity and style expansion, is expected to serve as a core clue for rotation and trading.

4. In the short term, focus on resource stocks and technology themes around two main lines: price increases and policies

From an allocation perspective, in the short term, amid external geopolitical disturbances and the domestic Two Sessions window, resource stocks and technology will remain the two main themes driving core catalysts, centered around price increases and policy signals.

Regarding price increases, the short-term core driver remains resource stocks, but some varieties require attention to trading rhythm based on geopolitical developments. Based on high-frequency price data of 554 sub-sectors, sectors with notable price increases since the start of the year include midstream manufacturing (electronics, electrical equipment), upstream resources (non-ferrous metals, oil & gas), some midstream materials (chemical), some downstream consumption (agriculture & animal husbandry), and shipping. Among these, sectors driven by geopolitical factors include: oil & gas, shipping, and chemicals (affected by blockade and supply constraints), as well as non-ferrous metals benefiting from safe-haven demand. Some varieties sensitive to geopolitical evolution should be traded with caution.

On the policy front, under the backdrop of high-quality development and strengthening China’s technological power, the tech industry remains a structural highlight and market focus. Recent local Two Sessions’ deployment indicates that industrial development will continue to be a priority, with clearer and more detailed guidance for the “14th Five-Year Plan” and beyond. Post recent global narrative shocks, domestic policy deployment offers opportunities for “pan-AI assets,” including computing infrastructure (computing power, new energy), commercialization applications (multimodal, robotics, autonomous driving). Additionally, strategic emerging industries such as commercial aerospace, new materials, and future industries like quantum technology, brain-computer interfaces, embodied intelligence will also attract increased attention.