Huatai Securities: Pay Attention to the Intersection of Low Valuation and Low Crowding, and Industries That Potentially Benefit from High Oil Prices

Huatai Securities Research Report points out that the overall trend may see a short-term oversold rebound. It is recommended to control positions and respond flexibly; in terms of style, large-cap and value stocks may be favored; at the industry level, focus on the intersection of undervaluation and low crowdedness, as well as stocks that could benefit from high oil prices: 1) Direct beneficiaries: oil and natural gas, but due to large short-term oil price fluctuations and domestic refined oil price regulation, chasing highs is not advised; 2) Substitution effects: coal, power chain (lithium battery materials, power equipment, power operators, etc.); 3) Strong pricing power: chemical raw materials, oilfield services, cement, daily necessities; 4) Essential consumption for defensive needs: undervalued and low-chips staples such as food and beverages, aquaculture, general retail, etc. In the medium term, patiently wait for the right-side signals, and after sufficient adjustment, continue to focus on the power chain and prosperity indicators for deployment.

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Huatai | Strategy: Response Ideas After Market Adjustment

Core Viewpoints

Short-term sentiment may bottom out and recover, while mid-term awaits further right-side signals

Recently, the A/H market has experienced increased volatility. We believe the primary reasons are: last week’s escalation of Middle East geopolitical tensions, the hawkish signals from the Federal Reserve FOMC meeting, and the spread of “panic” sentiment leading to liquidity feedback; deeper reasons include the global financial conditions easing since Q4 2024, causing major assets to rise, but the market has not fully priced in the risk chain of “high oil prices → global stagflation → tightening liquidity” after the US-Iran conflict outbreak, resulting in asymmetric upside and downside risks. As of Monday, the tracked A-share sentiment index again touched panic levels, and the Hong Kong market sentiment index remains pessimistic. After short-term sentiment release, there may be an oversold rebound. In the mid-term, as geopolitical tensions gradually clarify and the volatility and correlation of major assets return to normal, it is advised to continue controlling positions and maintaining defensive allocations, waiting for right-side signals.

Market experienced significant adjustments amid geopolitical escalation risks

Today, domestic equity markets saw a large decline: all three major indices fell, trading volume surged, the Wind All A Index dropped over 4%, and over 5,000 stocks declined; Hong Kong stocks followed a similar pattern, with the Hang Seng Index and Hang Seng Tech down over 3%, and A/H premium rebounded. In terms of rhythm, after an early morning gap down, indices attempted recovery driven by new energy vehicles, coal chemical industries, but lacked collective strength; in the afternoon, further geopolitical escalation risks (according to Xinhua, citing the Jerusalem Post on the 23rd, US officials recently indicated “possible no choice but to conduct ground military operations against Iran’s Halek Island”) fueled panic sentiment, with the Shanghai Composite barely holding above 3,800 points. Structurally, large-cap and value stocks were relatively resilient, energy (coal, petrochemicals) and power chain (power equipment, power operators) outperformed, while previously strong AI computing power and some consumer sectors declined sharply. Additionally, traditional safe-haven assets like gold were also sold off, possibly reflecting rising liquidity feedback pressure.

Macroeconomic impact of geopolitical and oil prices is insufficiently priced, likely driving adjustments

In our March 10, 2026 report “Winners and Losers in High Oil Price Environment,” we noted that the market had not fully priced in the possibility of sustained high oil prices, viewing current geopolitical conflicts as short-term shocks: firstly, liquidity-sensitive and high-valuation assets generally had limited correction, with strong bottom-fishing willingness; Hang Seng Tech rebounded at times, and Korean stocks triggered upward circuit breakers; secondly, based on the US VIX index and our tracked sentiment indices for A-shares and Hong Kong stocks, the market had not yet reached panic levels.

Under this pricing, upside and downside risks are asymmetric, and the medium- to long-term impacts of geopolitics and oil prices remain to be assessed: 1) Rising inflation hampers monetary easing, and increased demand for settlement and hedging pushes the dollar higher, constraining financial conditions in emerging markets. Last week’s US February PPI exceeded expectations, and the FOMC signaled hawkish stance, with the CME FEDWatch currently expecting a 20 basis point rate hike this year; 2) Rising prices in oil, gas, coal, and electricity sectors not only impact the traditional economy but also increase costs for AI training and data centers, potentially disrupting hardware production like chips, raising concerns about global stagflation or recession risks.

Follow-up strategies: short-term oversold rebound possible, but the inflection point still requires waiting

In the past two weeks, we have repeatedly advised investors to reduce positions and leave room for adjustments (“Position Control and Stock Picking to Respond to Uncertainty,” March 15, 2026). Looking ahead, after the short-term panic sentiment is fully released, an oversold rebound may occur: 1) Sentiment: our tracked A-share sentiment index touched panic levels on March 9, and again today. Using this index, a simple “buy in panic zone (≤10%) and stay out in greed zone (≥90%), with 50% positions otherwise” strategy has yielded an absolute return of 97% since 2020, with over 40% excess return; 2) Valuation: based on our A-share risk premium model, the Shanghai Composite PETTM index may have already priced in the pressure from USD index breaching 100, possibly overshooting due to panic; 3) News: after-hours, Trump posted on social media that US and Iran had “productive” talks over the past two days, and announced a “five-day pause” on military strikes against Iran’s power plants and energy infrastructure. Oil, US stock index futures, and A50 futures all reacted sharply, with A50 futures surging.

However, in the medium term, before geopolitical tensions clarify and volatility and correlation of major assets normalize, heavy participation in rebounds is not recommended. Maintain a defensive stance: 1) The Middle East situation remains uncertain; over-reliance on “TACO trading” thinking underestimates tail risks; 2) Funds and sentiment: retail net outflows last week, reduced margin trading activity, but margin balances and average collateral ratios declined modestly; sector ETFs experienced net outflows, but broad and Smart Beta ETFs saw inflows, indicating prior ETF market activity was mainly structural adjustment rather than position shifts; Hong Kong sentiment index has not yet reached panic levels; 3) Recent forecasts for major broad-based indices’ 2026 net profits have been revised upward over the past two weeks. If geopolitical conflicts and oil prices continue to rise beyond expectations, downward pressure may increase. Watch for right-side signals: 1) decline in volatility and correlation of major assets, convergence of implied volatility in index options; 2) significant net inflows into broad-based ETFs; 3) our tracked sentiment indices for A-shares and Hong Kong stocks rebound from panic to pessimistic or neutral levels.

Of course, we also emphasize that China’s energy diversification is high, and related industries are export advantages. Under supply shocks, the global share of some tradable commodities may increase, and long-term Chinese assets may demonstrate resilience.

Allocation suggestions: Focus on the intersection of undervaluation, low crowdedness, and industries that could benefit from high oil prices

Overall, a short-term oversold rebound is possible. It is recommended to control positions and respond flexibly. In terms of style, large-cap and value stocks may be favored. Industry-wise, focus on stocks with low valuation and low crowdedness, as well as those that could benefit from high oil prices: 1) Direct beneficiaries: oil and natural gas, but avoid chasing highs due to large short-term fluctuations and domestic price regulation; 2) Substitution effects: coal, power chain (lithium battery materials, power equipment, power operators); 3) Strong pricing power: chemical raw materials, oilfield services, cement, daily necessities; 4) Defensive staples: undervalued and low-chips essential consumption such as food and beverages, aquaculture, general retail. Wait patiently for the right-side signals before further deployment.

Risk warnings: Overseas geopolitical risks; liquidity below expectations; domestic policies and fundamentals below expectations.

(Source: Jiemian News)