CICC: U.S. Treasuries, gold, Hengke, etc., have a "cost-performance" advantage for bullish positions under easing tensions.

On March 30, CICC pointed out in its latest research report that as long as it is not the kind of pessimistic scenario where the conflict continues into the second half of the year and causes the oil price center to stay above $100, then assets that are already factoring in too much pessimistic expectations—such as U.S. Treasuries, gold, and even Hang Seng Tech—may have a “cost-effectiveness” for going long if the situation eases. Although copper is also factoring in very pessimistic expectations, it is still affected by demand, so it ranks relatively further down.

The situation in Iran is still unclear, but we believe the following premises may have some confidence: First, in the short term, especially in April, the situation is likely to keep fluctuating, and market expectations will swing back and forth—so volatility will not end quickly, and phased escalations cannot be ruled out. Second, but in the medium term, a complete loss of control of the situation is still not the base case. Third, even without considering the Iran situation, the second quarter is already a relatively weak stage in China’s credit cycle.

Against this backdrop, a more effective allocation approach is to start from win rate and odds, and find assets with better cost-effectiveness. There are three specific ways to address it:

** If the position is relatively low, you can take a left-side layout in assets that have already fully reflected pessimistic expectations, are highly correlated with interest rates and risk appetite, and have valuations at low levels after a deep adjustment—for example, Hang Seng Tech, gold, innovative drugs, and so on. These assets may not be the strongest in the short term, but since market expectations are already low enough, the room for further downside is relatively limited. Once the situation eases or extreme market expectations do not materialize, they are more likely to repair earlier. From an allocation perspective, this kind of asset is suitable for a gradual left-side positioning.**

** If the position is relatively high, in response to short-term disruptions you can appropriately reduce your holdings, or allocate defensive low-volatility dividend assets as a hedge against volatility.** The credit cycle in the second quarter is already weak; combined with external geopolitical shocks and uncertainty in external demand, the overall market also has not factored in too much pessimism. Therefore, moderately reducing holdings can avoid potential volatility and also won’t miss too much. Banks, utilities, and some dividend assets with stable cash flows and strong dividend certainty can serve as core holdings to perform a defensive function. While these assets may not provide high elasticity, when the market cannot form a one-sided consensus, they can reduce volatility and control drawdowns.

** Hold sectors that benefit from supply shocks and the energy security logic, such as energy storage and coal; this allocation approach is already a market consensus, with crowded trading, so it is not advisable to chase after them excessively.** If energy prices run at high levels and the market strengthens expectations for resource security and supply assurance, these sectors naturally tend to attract capital attention and gain upward momentum. The problem is that expectations for these sectors are already high, and capital is clearly tightly grouped; the trading crowding level is at the 100% historical percentile over the past year, so the subsequent odds and the strength of the underlying logic may not necessarily be aligned. In addition, if oil prices remain high and lead to higher fertilizer and grain prices, agricultural products can also be gradually watched.

From a purely short-term rotation perspective based on quantitative data, our quantitative industry rotation scoring model shows that short-term technology hardware, internet, chemicals, building materials, and steel profitability valuation and capital trading dimensions are performing well, and can be used as preferred choices; sectors such as banks, biotech, and non-ferrous metals have strong fundamentals and lower capital trading scores, so they can be continuously monitored for timing and are more suitable as medium-term core holdings or left-side allocations; in contrast, coal, oil & gas, and utilities are somewhat crowded in the short term. It should be noted that this model only reflects the sector condition based on short-term data, so it is more suitable as an auxiliary reference outside of long-term fundamental logic. For example, if the prosperity direction is excessively crowded in the short term, it is also not advisable to chase higher too much.