GF Strategy: Setting Aside US-Iran Tensions and High Oil Prices, Which Industries Can Maintain Independent Strong Performance in the Future?

1. 1999-2000: The Impact of the Kosovo War on the Tech Sector

In last week’s weekly report, “From the Kosovo War to the Dot-com Bubble Burst: Will AI Repeat the Past?”, we focused on how the 1999 Kosovo War, rising oil prices, U.S. inflation, and Federal Reserve rate hikes affected the U.S. stock market and the tech sector.

The key conclusion is: The war-induced oil price increase boosted inflation, causing the Dow Jones Industrial Average to experience a phased slowdown in Q3 1999 and peak and decline in January 2000; meanwhile, the Nasdaq and tech sector performed more strongly, unaffected by tightening, with the bubble peak lagging the Fed’s first rate hike by nine months.

2. 1999-2000: History Shows that Independent Industries Can Temporarily Overcome High Oil Prices and Rate Hikes

(1) The denominator side: Kosovo War Triggered Liquidity Tightening

In early 1999, OPEC production cuts and the Kosovo War (March–June 1999) pushed oil prices from $10 to over $30 per barrel; the Fed resumed rate hikes in June 1999, raising rates six times by May 2000, shifting liquidity toward tightening.

(2) The numerator side: The Millennium Bug Replacement Wave Supported High Prosperity Expectations

The Y2K narrative fermented from 1996 to 1998, with mainstream media, Congress records, and presidential speeches emphasizing hardware and system bug fixes in finance, healthcare, military, and government sectors, leading to order booms in the tech supply chain in 1998–1999.

Correspondingly, leading tech companies’ performance in 1999: Dell’s net profit grew 55%, Microsoft 73%, IBM 22%, Intel 21%, maintaining high growth or significantly accelerating from 1998.

Market expectations held that the replacement wave driven by system upgrades would continue into 2000.

(3) 1999 Market Performance: Strong Fundamentals Overcame Liquidity Tightening and Tech Bubble Valuations

The Nasdaq 100’s EPS growth in 1999 was 60%, with a P/E (TTM) of 95x and a forward P/E of 65x.

1999 saw intensified bubble formation, as the anticipated Y2K-driven upgrade cycle was expected to sustain growth, overcoming rate hikes, pushing the index to new highs.

(4) 2000 Market Performance: Deteriorating Fundamentals and the Last Straw

Y2K did not materialize into a crisis; media called it a “Century Scam” fabricated by tech companies. The March 2000 peak, seemingly burst by Microsoft’s antitrust issues, was actually driven by a negative fundamental spiral.

Pre-investment in upgrades and system updates exhausted future industry demand; many tech giants’ Q1–Q2 2000 earnings reports missed expectations, and some dot-coms went bankrupt.

By year’s end, U.S. electronics inventory hit record highs, further suppressing future earnings. By 2001, the Nasdaq 100’s profit growth plummeted from 60% in 1999 to -50%, marking the end of the tech myth.

3. Returning to the Present: Which Industries Might Maintain Independent High Prosperity Beyond Geopolitics and High Oil Prices?

Currently, overseas optical communications and AI supply chains have a 27-year visibility horizon, remaining key sectors, though their performance is linked to Middle East conflicts (oil prices → U.S. interest rates → U.S. AI → domestic supply chains), with short-term volatility hard to control.

Drawing from the tech bubble experience, sectors that can sustain high growth independently of geopolitical and oil price fluctuations—if their trend is relatively decoupled—would have an advantage regardless of future U.S.-Iran developments.

From a risk management perspective, aside from overseas computing power, we suggest maintaining positions in two sectors with upward fundamentals and less oil price sensitivity: energy storage (inverters/lithium batteries) and domestic AIDC (especially ByteDance-related chains).

• Energy Storage: Overseas, recovery in residential storage in Europe and Australia; domestically, lithium battery supply chain revival.

• Domestic AIDC: Driven by demand surges in inference chips, with potential acceleration in 2026 as supply bottlenecks ease, possibly mirroring North American AI growth in 2025, especially focusing on ByteDance’s ecosystem.

Risk Warning: Geopolitical risks, overseas inflation, and low domestic growth expectations.

Report Main Content

1. This Week’s Viewpoint

In last week’s report, “From the Kosovo War to the Dot-com Bubble Burst: Will AI Repeat the Past?”, we analyzed how the 1999 Kosovo War transmitted to U.S. asset prices: Kosovo War → Oil Price Rise → Fed Rate Hikes, affecting the U.S. stock market and tech stocks.

Core conclusion: In early 1999, the Kosovo conflict escalated, pushing Brent crude from $10 to over $30, prompting the Fed to start a new rate hike cycle in June 1999, raising rates six times.

During this process, the industrial-related Dow Jones oscillated in Q3 1999, phased by oil and rate hikes, peaking and retreating in Q4 after the tech bubble surge, with a peak in January 2000.

Meanwhile, the Nasdaq was unaffected by liquidity tightening, rising 91% from the first rate hike to its peak in March 2000, with the index’s high lagging the Fed’s hikes by nine months.

This raises a current question: When liquidity (negative) and industry cycle (positive) diverge, which does the market prioritize?

Considering the 2000 tech bubble, what sectors today are relatively insensitive to high oil prices and inflation, capable of independent high growth?

2. 1998–2000: Independent Industry Prosperity Can Overcome High Oil Prices and Rate Hikes

(1) The denominator: Kosovo War and Oil Price Rise Trigger Liquidity Tightening

In 1999, geopolitical conflicts and rising oil prices impacted the “Blonde Girl” narrative. After the Asian financial crisis, the global deflation cycle reversed, commodities rebounded. Additionally, OPEC and non-OPEC production cuts, combined with the Kosovo conflict (March–June 1999), drove oil from $10 to over $30.

Simultaneously, U.S. CPI inflation rose sharply, prompting the Fed to resume rate hikes in June 1999, raising the federal funds rate from 4.75% to 6.5% by May 2000.

(2) The numerator: Y2K Replacement Wave Supported High Prosperity Expectations and Insensitivity to Oil and Rate Hikes

However, stock performance, especially in tech, was not affected by tightening expectations. The process: Kosovo War (Mar–Jun 1999) → Oil Price Rise → Fed Hikes (Jun 1999–May 2000) → Economic slowdown → Tech bubble burst (March 2000). This was a gradual process, not instant.

The core reason for the strong stock market in 1999 was the Y2K-driven replacement wave, providing robust fundamental support for the U.S. tech supply chain.

From hardware demand cycles: 1990–1995 saw rapid PC shipment growth; by 1996–1997, growth slowed, demand softened.

But the Y2K narrative sparked a new wave of hardware and software upgrades in 1998–1999, reversing expectations of demand slowdown and boosting the tech industry and investor confidence.

The table shows the Y2K narrative fermented from 1996–1998, with media coverage, presidential speeches, and government focus, prioritizing hardware/system bug fixes in finance, healthcare, military, and government, leading to order booms.

Performance of listed companies also confirms Y2K’s impact: from 1997–1998, tech giants’ fundamentals declined, but the Y2K order surge created a brief prosperity in 1998–1999, decoupled from oil and rate environment.

ROE: 1990–1996, tech leaders achieved over 40% ROE; 1997–1998, as internet and PC growth slowed, ROE declined; in 1999, capital expenditure boom from Y2K temporarily stabilized ROE, but it fell again after 2000.

EPS growth: Dell’s net profit grew 55%, Microsoft 73%, IBM 22%, Intel 21%, maintaining high or accelerated growth from 1998.

(3) Tech Sector Performance in 1999–2000: High Fundamentals Overcame High Oil and Rate Hikes, Bubble Valuations

1999 market: high growth in tech overshadowed oil and rate hikes, valuations inflated. Nasdaq 100 EPS grew 60%, P/E (TTM) 95x, forward P/E 65x. The bubble intensified as the anticipated Y2K cycle drove small business and personal upgrades, surpassing rate hike impacts, reaching new highs.

By 2000: Unsustainable fundamentals and the last straw could topple the camel.

Y2K did not explode; media called it a “Century Scam.” The March 2000 peak, seemingly burst by Microsoft’s antitrust issues, was actually driven by a negative fundamental spiral.

Pre-investment in upgrades and system updates exhausted future demand; many tech giants’ Q1–Q2 2000 reports missed expectations; some dot-coms went bankrupt.

At year’s end, U.S. electronics inventory hit record highs, further suppressing future earnings. By 2001, Nasdaq 100 profit growth dropped from 60% in 1999 to -50%, ending the tech myth.

(4) Returning to Today: Which Industries Might Maintain Independent High Prosperity Beyond Geopolitical and Oil Price Fluctuations?

Currently, overseas optical communications and AI supply chains have a 27-year outlook, remaining key sectors, though their performance is linked to Middle East conflicts (oil → US interest rates → US AI → domestic supply chains), with short-term volatility hard to control.

Drawing from the tech bubble experience, sectors that can sustain high growth independently of geopolitics and oil prices—if their trend is relatively decoupled—would have an advantage regardless of US-Iran developments.

From a risk control perspective, aside from overseas computing power, we suggest maintaining positions in two sectors with upward fundamentals and less oil sensitivity: energy storage (inverters/lithium batteries) and domestic AIDC (especially ByteDance-related chains).

1. Energy Storage: Overseas, recovery in residential storage in Europe and Australia; domestically, lithium battery supply chain revival.

• Overseas, as of Q3 2025, energy storage inverter companies face profit pressure and inventory digestion.

• By 2026, multiple European and Australian countries introduced storage incentives, potentially reversing export difficulties for Chinese companies. High-frequency export data shows China’s inverter exports surged in early 2026.

Thus, excluding oil prices, energy storage inverters are already in a recovery phase, with European energy concerns accelerating this trend.

Domestic large-scale storage: 2026 is expected to see high installation growth, reversing industry downturns. As of Q3 2025 and annual reports, companies across the supply chain show signs of reversal, with profit growth turning positive. Price increases and orders may continue into Q1 2026.

2. Domestic AIDC: Under demand explosion, AIDC construction is expected to accelerate, boosting upstream and downstream.

Due to limitations of inference chips, domestic AI development lags overseas by 1–2 years. Demand-side: 2025 saw initial signs of token explosion (e.g., ByteDance). In 2026, as chip supply bottlenecks ease and inference demand accelerates, domestic AIDC construction may speed up, potentially mirroring North American AI growth in 2025. We especially recommend ByteDance’s ecosystem.

3. Risks: Geopolitical tensions, overseas inflation, and low domestic growth expectations.

4. Important Data Next Week

Key points: Japan February CPI; UK February CPI; US crude oil inventory on March 20; US initial jobless claims on March 21.

• March 24 (Tue): Japan February CPI

• March 25 (Wed): UK February CPI; US crude oil inventory

• March 26 (Thu): US jobless claims

(Article source: GF Securities)