Middle East Turmoil: How Should A-shares and Hong Kong Stocks Be Positioned?

“Throughout the weekend, the financial industry was completely overwhelmed.” An industry insider lamented to reporters. Sell-side analysts focused on additional conference calls and in-depth reviews; buy-side fund managers were busy participating in conference calls, digesting information, and adjusting their holdings; fund sales teams promoted posters and scripts for thematic ETFs such as oil and gas, military industry, and gold. The sudden “Middle East upheaval” caused by the US attack on Iran led the entire industry to a busy weekend.

The turmoil in the Middle East has become a “black swan” event for global financial markets. Faced with the sudden escalation of geopolitical tensions, global capital markets are on high alert. Multiple institutions predict that Brent crude oil prices could surge to $80-100 per barrel, and safe-haven assets like gold may challenge record highs.

For A-shares and Hong Kong stocks, institutions generally believe that this “Middle East upheaval” may be reshaping the global asset pricing logic, and phased adjustments could present investment opportunities.

Three Scenarios and Investment Strategies

Changjiang Securities divides the impact of this conflict into three scenarios:

Scenario 1: Rapid resolution of the conflict. Oil prices open high but quickly fall back, with minimal market impact. A-shares and Hong Kong stocks will quickly return to their original main themes.

Scenario 2: Prolonged conflict. Oil prices rise by $10-15 per barrel, impacting US inflation by about 0.1%-0.5%, with limited influence on Federal Reserve policies. Hong Kong stocks, sensitive to external liquidity, will be more affected; A-shares will see only minor adjustments.

Scenario 3: “Long-term war” (low probability). Oil and gas prices could rise to $80 per barrel, with global supply chains facing restructuring pressures.

Many institutions generally expect that A-shares will face downward pressure at the Monday open, with market volatility significantly increasing. However, historical data shows that A-shares are relatively “desensitized” to overseas geopolitical conflicts.

Jin Dai Lai from Golden Eagle Fund’s Equity Research Department pointed out: “In recent years, A-shares have become relatively desensitized to overseas shocks. After conflict peaks, safe-haven assets like precious metals and crude oil-related products tend to retreat, refocusing on industrial supply and demand logic.”

Historical data also shows that during seven major conflicts in the Middle East over the past 20 years, the average volatility of A-shares and Hong Kong stocks was only 0.8%, far below the 3%-5% swings seen in European and American markets.

In the medium term, institutions generally believe that A-shares will revert to domestic main themes, with structural opportunities emerging.

On March 1, Guotai Fund noted that “A-shares’ risk appetite may marginally weaken due to overseas sentiment, but external disturbances do not change the market’s own trend. Phase adjustments could create better opportunities for high-quality sectors and cyclically aligned industries; the adjustment itself is a good entry point.”

China Europe Fund believes that short-term geopolitical risks in the Middle East remain highly uncertain, compounded by the Northeast Asian geopolitical landscape after Japan’s general election. The geopolitical environment still poses challenges to risk assets and may create buying opportunities during rebound phases triggered by event shocks.

“Looking ahead, driven by the first quarter’s credit growth, improved liquidity, and the start of the ‘14th Five-Year Plan,’ the domestic market still has opportunities to initiate monthly trend-driven rallies,” said China Europe Fund.

Everbright Securities believes that the overall A-share market in March will continue to oscillate mildly stronger, with the spring rally unaffected at its core. Among the two key variables, the implementation of policies from the National Two Sessions will be the main catalyst, while geopolitical conflicts are only short-term emotional disturbances.

Industry insiders’ views rank the impact strength on A-shares as: Oil & Gas > Gold > Oil Transportation > Military Industry > Fertilizers > Coal. Among these, gold, crude oil, and military industry are the most noteworthy.

Compared to A-shares, Hong Kong stocks face more immediate short-term pressure, due to their high sensitivity to external liquidity and global risk appetite.

However, Xiao Youhua, Director of Investment Services at Xincheng Securities, believes: “If Hong Kong stocks fall due to US military actions, it could be a good opportunity to accumulate.” He expects 2024, the start year of the ‘14th Five-Year Plan,’ will see the central government accelerate measures to stabilize the economy, and the overall stock market will remain in a rebound pattern.

Beneficiary Sectors

Industry consensus holds that oil & gas, gold, military industry, and coal are the four major sectors benefiting from this Middle East conflict.

1. The oil & gas sector is the most direct beneficiary. Oil exploration and oilfield services are the immediate beneficiaries of this conflict. Iran produces about 3.3 million barrels of crude oil daily, accounting for 3% of global output, and is the fourth-largest OPEC producer. Currently, shipping through the Strait of Hormuz has stalled, with many oil companies suspending vessel passage. The trade volume of oil and other liquids through the Strait is about 20.3 million barrels per day, roughly 20% of global consumption and about 27% of global maritime trade. The conflict has directly raised concerns over supply disruptions.

Guotai Fund believes that short-term trading opportunities and long-term allocation value in the oil & gas sector are both prominent. Geopolitical tensions are expected to drive oil prices higher in the short term, and over the long cycle, oil & gas remains cost-effective for allocation. Leading companies with resource advantages, cost advantages, and global deployment can continue to generate stable returns, making them suitable for long-term asset allocation.

2. Gold has “hedging + inflation resistance” dual attributes. Gold is the most certain beneficiary in geopolitical conflicts. Spot gold has broken through $5,200 per ounce, with reports indicating that dark trading once soared above $5,500.

Hua An Fund pointed out that the surge in geopolitical risks has driven safe-haven funds into gold, and the ruling that US “reciprocal tariffs” are illegal has reduced government revenue, increasing concerns over US debt. Both factors are positive for gold.

However, experts also warn that whether gold can enter a medium-term upward trend depends on the duration of the conflict.

3. Defense and military industry sectors have long-term logic. This conflict has prompted the market to reassess the long-term value of the military industry.

Chen Xingwen, Chief Strategist at Heizi Capital, noted that in the defense security chain, expectations for military electronics and drone exports are fully opening up. Middle Eastern military spending often exceeds 5% of GDP, and China’s equipment, with its high cost-performance ratio, is expected to generate a trillion-yuan incremental market.

4. Coal benefits from “energy substitution effects under high oil prices.” Cheng Tong Securities recommends paying attention to coal chemical sectors that gain cost advantages as oil prices rise.

Regarding how to respond to this uncertainty, Dai Kang, Chief Asset Research Officer at GF Securities’ Development Research Center, proposed a “barbell strategy” + “all-weather strategy.”

He believes that tactically, one should respond flexibly to short-term fluctuations, considering two scenarios:

• If the “lightning war” ends: after short-term shocks, assets like gold, silver, oil transportation, and military industry will rebound, but caution is needed against excessive retracement; risk assets like stocks may return to their original trend.

• If it drags into a “long war”: risk appetite remains low, with stronger volatility in gold, silver, oil transportation, and military assets; stocks may oscillate weakly, while bonds are supported by safe-haven demand.

Strategically, one should adhere to long-term trends. Specific strategies include: adopting a “new barbell strategy” (commodities + bonds, avoiding sovereign credit risks) or an “all-weather strategy” with diversified allocations; increasing positions in emerging market resources and value stocks, reducing holdings in US tech stocks, maintaining balanced styles in A-shares; and focusing on resource stocks (like copper and other strategic resources, precious metals, chemicals), technology stocks (domestic substitutes, AI+), and defensive high-dividend sectors (such as power).

Yinye Investment suggests closely monitoring geopolitical developments and the Monday market’s opening gap. There’s no need to be overly pessimistic about A-shares; risk can be mitigated through hedging or adjusting positions.

Based on multiple institutions’ views, current allocations can focus on three main themes:

Energy Security Chain: Oilfield services, oil & gas storage and transportation sectors directly benefit from rising oil prices, with the deeper logic being China’s accelerated push for energy independence.

Defense Security Chain: Military electronics, drones, and commercial aerospace companies with strong technological capabilities are expected to attract long-term capital.

Financial Security Chain: Gold combines safe-haven and currency hedge attributes; the Cross-Border Interbank Payment System (CIPS) for RMB internationalization is expected to replace SWIFT, warranting attention to related targets.

However, this geopolitical conflict carries significant uncertainties.

Qianhai Open Source Fund’s Yang Delong pointed out three major risks: rising oil prices will directly increase production costs for chemical industries using oil as raw material; the international aviation industry will be significantly affected; and global stock markets may suffer shocks.

Barclays Bank warns investors not to be overly optimistic that the US-Iran conflict will be controllable or short-lived, and advises against buying on dips: “A conflict lasting more than several days should trigger more pronounced negative reactions. If US stocks correct to a certain extent, it might be a good entry point, but now is not the time.”

A public fund professional warned against aggressively chasing high gold and oil prices on Monday. He suggests avoiding products that surge due to short-term volatility, and instead taking profits during rapid rises.