Zhongtai Strategy: With Geopolitical Conflicts Prolonged, Which Sectors in A-Shares Could Continue to Benefit?

Report Summary

1. How to Understand the Sharp Decline in Precious Metals This Week?

Recently, the inverse correlation between gold and crude oil prices has increased significantly, with crude oil rising substantially this week and precious metals falling sharply. Generally, rising oil prices tend to be bullish for gold through two channels: first, increased risk aversion demand due to intensified geopolitical conflicts; second, rising energy prices boosting inflation expectations, thereby enhancing gold’s inflation-hedging appeal. Therefore, oil prices and gold often show a certain degree of positive correlation, especially after inflation expectations rise, increasing demand for gold allocation.

However, market performance this round indicates that the pricing logic of gold is undergoing a phased shift. Over the past year, as gold prices have steadily increased, its asset attributes have evolved from “safe-haven asset” to “traded risk asset.” On one hand, expectations of global liquidity easing, central bank gold purchases, and resonance of geopolitical risks have driven substantial gains in gold prices; on the other hand, continuous capital inflows have made the trading structure of gold more crowded, significantly increasing its sensitivity to marginal liquidity. Under this background, gold is no longer driven solely by fundamentals but more by liquidity and trading structure factors.

2. Rising Concerns Over Long-Term Conflict and Declining Cost-Effectiveness of Oil Risk Play

Energy prices, especially crude oil forward prices, have risen sharply this week, reflecting market consensus on the long-term nature of the conflict. In short-term trading, capital has rapidly concentrated into oil-sensitive assets, leading to overcrowding and reduced risk-reward ratio. The core disturbance this week still stems from the ongoing escalation of US-Iran tensions, which has re-priced geopolitical risks. Since the conflict intensified, sectors like shipping, ports, and coal chemicals have experienced rapid, stage-wise gains, with their rise highly synchronized with oil price fluctuations and geopolitical developments. These main themes are essentially short-term event plays with high volatility. Currently, market expectations of long-term conflict have largely been priced in, and the marginal risk-reward of further escalation is decreasing. If geopolitical risks ease marginally or trading enthusiasm wanes, profits may quickly reverse, especially given the crowded trading in some sectors, leading to amplified sector volatility.

3. Long-Term Geopolitical Conflict: Which A-Share Sectors Will Continue to Benefit?

The structural changes driven by the upward shift of the oil price center have not been fully priced in by the market: first, the external demand logic of the new energy industry chain may continue to strengthen. After the Russia-Ukraine conflict, energy security became a core constraint in European policy. The EU proposed the REPowerEU plan to accelerate energy transition by reducing dependence on Russian fossil fuels through energy savings, diversification, renewable development, and reforms. Under this background, China’s exports of new energy products to Europe have surged, with rapid growth in components, inverters, and energy storage systems, supporting industry prosperity over the past two years.

If the US-Iran conflict persists, the global energy system’s dependence on fossil fuels may further decline, prompting countries to rebalance energy security and transition strategies. Investment in new energy is expected to be a long-term, certain direction. From a marginal perspective, energy storage sectors have shown noticeable movements this Friday, indicating some capital is already preemptively positioning.

Additionally, electricity may become a major bottleneck for AI development, opening new demand space for the new energy chain. To quickly meet the power demand gaps brought by AI and emerging industries, renewables are almost the only choice. Demand in photovoltaic, energy storage, power electronics, and third-generation semiconductors will far exceed expectations in the AI era.

From a longer cycle perspective, geopolitical turmoil may have evolved from a temporary shock into a structural trend. Over the past few years, major economies have increased military spending as a share of GDP, with Europe, Japan, and others significantly boosting defense budgets, and the US maintaining high levels of military expenditure.

On one hand, the demand center for upstream resources such as non-ferrous metals is rising, supported by expansion in military, energy, and manufacturing sectors; on the other hand, midstream equipment manufacturing demand is also increasing, benefiting sectors like engineering machinery and electrical equipment amid global infrastructure and manufacturing capacity reconfiguration. For China, with a complete industrial system and cost advantages, it remains highly competitive in exports during this global manufacturing re-layout, and the external demand center for related industries is expected to rise.

4. Investment Recommendations

In the short term, it is advisable to reduce participation in “conflict-driven trading” sectors such as shipping, ports, and coal chemicals. These sectors are already overcrowded, and the market has largely priced in the long-term conflict expectations, reducing the risk-reward of further escalation plays.

In the medium to long term, focus on two main themes: first, under the backdrop of energy security and expanding electricity demand (driven by AI computing power), external demand for new energy industries like photovoltaics, energy storage, and power equipment is expected to continue rising; second, geopolitical instability is driving a “security-first” reconfiguration of global manufacturing, with demand centers for non-ferrous metals, engineering machinery, and high-end equipment likely to shift upward systematically, offering more long-term allocation value.

Risk Warning: Excessively tight global liquidity, market complexity surpassing expectations, and policy change pace exceeding forecasts.

Main Text

1. How to Understand the Sharp Drop in Precious Metals This Week?

The US-Iran conflict persists, and crude oil prices are trending upward. On March 19, Iran’s armed forces’ Hatham Anbia Central Command spokesperson stated that attacking Iran’s energy infrastructure would be a serious mistake, and Iran’s counterattack is ongoing and not over. If similar incidents occur again, Iran will launch further attacks on US, Israeli, and allied energy infrastructure until completely destroying them, with a much stronger counterattack than before. On Thursday, Brent crude oil surged, briefly surpassing $110 per barrel.

Meanwhile, the inverse correlation between gold and crude oil prices has sharply increased, with precious metals falling significantly this week. On Wednesday and Thursday, oil prices rose rapidly while precious metals prices declined sharply. The two major global asset classes show a clear negative correlation, which contradicts the normal gold pricing logic: typically, rising oil prices are bullish for gold via two channels: first, increased risk aversion demand due to geopolitical tensions; second, rising energy prices boosting inflation expectations, thereby increasing gold’s inflation-hedging appeal. As a result, oil and gold often show some degree of positive correlation, especially after inflation expectations rise, increasing demand for gold allocation.

However, this round of market performance indicates that gold’s pricing logic is undergoing a phased change. Over the past year, as gold prices have steadily risen, its asset attribute has shifted from “safe-haven asset” to “traded risk asset.” On one hand, expectations of global liquidity easing, central bank gold purchases, and geopolitical risk resonance have driven large gains in gold prices; on the other hand, continuous capital inflows have made the trading structure of gold more crowded, significantly increasing its sensitivity to marginal liquidity. Under this background, gold is no longer driven solely by fundamentals but more by liquidity and trading structure factors.

From the current transmission mechanism of oil price increases, its impact on gold is no longer mainly reflected as “inflation or safe-haven premium,” but more as a shock to global liquidity. Sustained high oil prices will marginally boost inflation expectations and constrain easing policies, thereby tightening the global liquidity environment. In this framework, assets at high levels and with crowded trading are more vulnerable to shocks. Therefore, the recent decline in gold prices essentially reflects liquidity suppression of its trading structure, rather than a fundamental logic reversal.

2. How to Understand the Rising Long-Term Conflict Concerns and the Declining Cost-Effectiveness of Oil Risk Play?

The core disturbance this week still stems from the ongoing escalation of US-Iran tensions, which has re-priced geopolitical risks. Recently, we emphasized that the duration of this US-Iran conflict may exceed market expectations, and this week, markets have begun to price in the impact of long-term conflict. The forward prices of chemical products have risen significantly, gradually aligning with recent contract price increases, reflecting a growing market consensus on the long-term nature of the conflict.

In the A-share market, sectors like energy, metals, and basic chemicals have been heavily affected this week. Oil prices surged sharply on Wednesday evening, transmitting liquidity shocks to precious metals, causing gold and silver to fall sharply, and gradually impacting non-ferrous metals. The steel, non-ferrous metals, and basic chemicals sectors all experienced large declines.

Looking ahead, the US-Iran conflict may trend toward “long-termization.” Short-term, shipping, petrochemical, and oil & gas sectors, which are highly sensitive to oil price risks, are already overcrowded, making short-term risk-reward less attractive. The long-term impact of geopolitical conflicts may still be underpriced.

In the short-term trading, capital has rapidly concentrated into oil-sensitive assets, leading to overcrowding and poor risk-reward. Since the conflict intensified, sectors like shipping, ports, and coal chemicals have experienced rapid, stage-wise gains, with their rise highly synchronized with oil price fluctuations and geopolitical developments. These themes are essentially short-term event plays with high volatility. Currently, market expectations of long-term conflict have largely been priced in, and the marginal benefit of further escalation is decreasing. If geopolitical risks ease marginally or trading enthusiasm diminishes, profits may quickly reverse, especially given the crowded trading in some sectors, leading to amplified sector volatility.

3. Long-Term Geopolitical Conflict: Which A-Share Sectors Will Continue to Benefit?

On one hand, the short-term oil price risk mapping in A-shares has shown signs of “dampening”; on the other hand, the structural changes driven by the upward shift of the oil price center have not been fully priced in. Among these, the external demand logic of the new energy industry chain may continue to strengthen. Post Russia-Ukraine conflict, energy security became a core constraint in European policy. The EU proposed the REPowerEU plan to accelerate energy transition by reducing dependence on Russian fossil fuels through energy savings, diversification, renewable development, and reforms. Under this background, China’s exports of new energy products to Europe have surged, with rapid growth in components, inverters, and energy storage systems, supporting industry prosperity over the past two years.

If the US-Iran conflict persists, the global energy system’s dependence on fossil fuels may further decline, prompting countries to rebalance energy security and transition strategies. Investment in new energy is expected to be a long-term, certain direction. From a marginal perspective, energy storage sectors have shown noticeable movements this Friday, indicating some capital is already preemptively positioning.

Additionally, electricity may become a major bottleneck for AI development, opening new demand space for the new energy chain. To quickly meet the power demand gaps brought by AI and emerging industries, renewables are almost the only choice. Demand in photovoltaic, energy storage, power electronics, and third-generation semiconductors will far exceed expectations in the AI era. The industry chain for new energy is becoming a key “second growth curve” to meet global AI power needs. This week, Tesla announced plans to purchase $2.9 billion worth of solar panels and manufacturing equipment from Chinese suppliers, aiming to achieve Elon Musk’s goal of adding 100 GW of solar capacity in the US. Musk also stated in January that solar energy could meet all US electricity needs, including growing data center power consumption. Tesla’s official recruitment indicates a goal to establish “100 GW of solar manufacturing capacity from raw materials in the US by 2028.” Influenced by this news, energy storage sectors performed well this week.

From a longer cycle perspective, geopolitical turbulence may have evolved from a temporary shock into a structural trend. Over the past few years, major economies have increased military spending as a share of GDP, with Europe, Japan, and others significantly boosting defense budgets, and the US maintaining high levels of military expenditure.

This shift will have two main impacts: first, the demand center for upstream resources such as non-ferrous metals is rising, supported by expansion in military, energy, and manufacturing sectors; second, midstream equipment manufacturing demand is also increasing, benefiting sectors like engineering machinery and electrical equipment amid global infrastructure and manufacturing capacity reconfiguration. For China, with a complete industrial system and cost advantages, it remains highly competitive in exports during this global manufacturing re-layout, and the external demand center for related industries is expected to rise.

Overall, the market has gradually recognized the long-term trend of US-Iran conflict escalation. Short-term capital has fully priced in the trading opportunities brought by oil price shocks, while the demand expansion driven by energy security, industrial restructuring, and geopolitical competition still has room for growth.

4. Investment Advice

In the short term, it is recommended to reduce participation in “conflict-driven trading” sectors such as shipping, ports, and coal chemicals. These sectors are already overcrowded, and the market has largely priced in the long-term conflict expectations, reducing the risk-reward of further escalation plays.

In the medium to long term, focus on two main themes:

• First, under the backdrop of energy security and expanding electricity demand (driven by AI computing power), external demand for photovoltaics, energy storage, and power equipment is expected to continue rising;

• Second, geopolitical instability is driving a “security-first” reconfiguration of global manufacturing, with demand centers for non-ferrous metals, engineering machinery, and high-end equipment likely to shift upward systematically, offering more long-term allocation value.

5. Weekly Market Microstructure Observation (March 16-20, 2026)

5.1 Broad Market Index Performance

This week, the market showed mixed performance. The ChiNext Index rose by 1.26%. The CSI 500 Index declined by 5.82%. Mid-cap sectors experienced notable declines, with value stocks down 7.36% and growth stocks down 6.56%.

5.2 Market Sentiment and Risk Appetite Tracking

Market risk appetite contracted this week. The PE_ttm of the CSI 300 was 14.02x, down 0.18x from the previous week, still in a relatively high range (80th percentile over 10 years). Risk premium reached 5.30%, up 0.08%, in the mid-range (53rd percentile over 10 years).

5.3 Market Financing Changes

Market financing activity increased this week. As of Thursday, financing balance reached 2.63 trillion yuan, about 2.08% of the total market capitalization of all A-shares, up 137 billion yuan week-over-week. Over the past five trading days, the net purchase of financing was about 9.2% of total turnover, down 0.18% from the previous period.

5.4 Sector Turnover and Valuation Changes

Most sectors saw decreased turnover rates this week, with light industry manufacturing, electronics, and banking sectors showing increased crowdedness. Last week, the turnover rates of major sectors declined, with defense military, computing, and coal sectors decreasing significantly by 4.72%, 5.38%, and 5.41%, respectively. Sectors with increased crowdedness include light industry manufacturing, electronics, and banking; those with decreased crowdedness include computing, coal, and defense military.

Sector valuations mostly declined, with steel, computing, and defense military sectors experiencing larger drops. Last week, only four major sectors saw rising P/E ratios, notably real estate, communications, and transportation, up 5.89, 1.32, and 0.10 times, respectively; steel, computing, and defense military declined by 3.98, 4.05, and 5.99 times.

In relative terms, the valuation levels of communication, computing, and real estate are at historically high positions (above 90th percentile over 10 years), while household appliances, non-bank financials, and food & beverages are at lower levels (below 30th percentile).

From the perspective of price-to-book ratio, there is significant sector differentiation. Mechanical equipment, communications, and electronics have PB percentiles above 96%, near the highest in the past decade; household appliances, pharmaceuticals, and food & beverages have lower PB percentiles, with food & beverages at historically low levels.

Risk Warning: Excessively tight global liquidity, market complexity exceeding expectations, and policy change pace surpassing forecasts.

(Article source: Zhongtai Securities)