Shenwan Hongyuan: Amid Continued Middle East Disruptions, Will Chinese Assets Embrace a New Narrative Opportunity?

Source: Shenwan Hongyuan Securities

Middle East Turmoil Continues, Could New Narrative for Chinese Assets Present an Opportunity?

March 16-20, 2026

Fund Advisory Perspective

This week, geopolitical conflicts persisted, putting continued pressure on global risk assets. The Shanghai Composite Index declined for consecutive days, falling below 4,000 points, and international gold prices dropped sharply. Specifically, the market highlights are as follows:

01

In equities, A-shares experienced volatility and weakness this week. The Shanghai Composite Index fell below 4,000 points for consecutive days. The Shenzhen Component Index also declined but to a lesser extent, while the ChiNext Index rose 1.26% against the trend. The market showed extreme sector divergence, which is precisely what we should focus on. Only banks and telecommunications sectors rose this week, with telecoms up 2.10%, directly contributing to the ChiNext Index’s gains. Style-wise, the CSI Value and CSI Growth indices declined overall, but the latter outperformed the former. Overall, funds favored safe-haven allocations.

02

In the bond market, performance was mixed this week. Rate bonds declined, while credit bonds and government bond futures performed slightly better. Liquidity was generally balanced, with some short-term tightness outside the quarter-end. From a fundamental perspective, economic data showed signs of recovery but remained manageable for bonds. The Federal Reserve kept interest rates unchanged, with hawkish signals affecting liquidity. Geopolitical tensions in the Middle East are unlikely to resolve quickly, leading to increased oil price volatility and market disruptions in bonds.

03

In commodities, COMEX gold experienced intense volatility, with a single-day drop of -4.99% on March 19. The main reasons include hawkish Fed statements and concerns over rising energy prices fueling inflation. Technically, trading volume surged that day, likely triggered by gold prices breaking below the $5,000 psychological level, activating algorithmic stop-loss orders and creating a “sell more to buy more” effect.

04

Overseas, global stock markets oscillated downward amid Middle East tensions. From last Friday to Thursday, the S&P 500 declined about 1%, with a reduced weekly loss compared to the previous week. Energy stocks continued to rise, utilities performed well, while materials declined significantly due to corrections in gold and non-ferrous metals. The Philadelphia Semiconductor Index remained volatile. On the macro front, ongoing Middle East conflicts continued to push oil prices higher, maintaining inflation concerns and safe-haven sentiment. Expectations for rate cuts further declined. The Fed’s decision to hold rates steady aligned with market expectations, with emphasis on the uncertain impact of Middle East tensions. Powell noted that economic forecasts are difficult to predict. The US dollar index experienced slight fluctuations downward, while short-term US Treasury yields rose.

Specific Asset Views for This Week:

Stocks

This week, A-shares fell significantly, with the Wind All A Index down 4.13%. How to interpret this? From a global asset performance perspective, markets are pricing in a “stagflation” expectation. However, in the A-share market, sectors benefiting from inflation did not rise much, indicating greater concern about “stagnation”—worries that inflation could spike rapidly, suppressing demand, and causing the economy to skip stagflation directly into recession. This is likely the main reason for the recent sharp decline in A-shares. Does this mean A-shares are no longer worth allocation? The answer is definitely no. While war risks are uncontrollable, the impact of this geopolitical event exposes global supply vulnerabilities. China, as the most stable supply-side economy, has increased allocation value. Compared to global assets, China has advantages. In the short term, risk prevention is key. After market risk appetite recovers, focusing on China’s strengths and structural opportunities is recommended.

Bonds

In the short term, the market is expected to remain volatile, with a strategy focused on medium- and short-term bond yields. Key points include: first, monitoring the evolution of Middle East conflicts; if the Strait of Hormuz becomes further blocked, oil prices and inflation expectations could rise, negatively impacting long-term rates. Second, domestic inflation data, with February CPI up 2.8% year-over-year, suggests continued inflation pressure if future data exceeds expectations. Third, quarter-end liquidity fluctuations are expected, with strong profit-taking demands from institutions. Looking longer-term, the macro environment of low interest rates may persist, but bond market volatility and shrinking yield spreads are likely trends.

Commodities

From a medium- to long-term perspective, gold remains a key asset for allocation. The global geopolitical landscape is becoming more complex, with US debt surpassing $39 trillion, supporting gold’s safe-haven appeal. In the short term, due to crowded positions, gold prices mainly reflect their financial attributes, with the US dollar index strengthening exerting downward pressure, leading to high volatility. It is advisable to observe price stabilization levels and adopt a wait-and-see approach.

Overseas Assets

On the macro front, the key is the direction of inflation expectations. The Fed’s dot plot indicates a forecast of one rate cut this year and another next year, with upward revisions to US GDP and inflation expectations for the coming years. Markets may be trading in a “stagflation” environment with increased volatility. Close attention should be paid to oil prices, inflation data releases, and inflation expectations swings. In investment, maintaining regional and sectoral balance is crucial. Overseas assets remain an important part of diversified portfolios. Given the low daily subscription limits for QDII funds, investors can consider diversified allocations across regions and styles to manage risks.

The following is a summary of this week’s market quantitative data for reference.

Stock Market Overview

Major Indices

This week, the A-share market declined across the board. Among broad-based indices, the CSI 500 and CSI 2000 experienced the largest weekly declines.

Note: PE (TTM) = Total Market Cap of constituent stocks / Total Net Profit of constituent stocks (TTM)

Historical PE percentile = (i-1)/(n-1)*100, where i is the rank of the current PE (TTM) in ascending order, and n is the total number of days since 2005. This indicates the current PE valuation’s position within its historical distribution.

Trading Activity

In terms of turnover, both markets saw a decrease compared to the previous week. Structurally, the average weekly turnover of CSI 300 component stocks increased, while that of CSI 500, CSI 1000, and other stocks decreased. The turnover rate for CSI 300, CSI 500, and CSI 1000 indices declined weekly but remains above the average of the past three years.

Note: Index turnover rate = (Trading volume of constituent stocks / Total circulating shares of constituent stocks) * 100%

Index Volatility

In broad indices, the 20-day rolling volatility of CSI 300, CSI 500, and CSI 1000 decreased compared to last week. The CSI 300’s latest 20-day volatility is below its three-year average, while CSI 500 and CSI 1000 are above their respective averages.

Note: Volatility is calculated as the standard deviation of the 20-day rolling returns.

Sector Performance

This week, among the first-level sectors of Shenwan, communication, banking, and consumer staples performed well, with gains of +2.10%, +0.36%, and -0.48%, respectively.

Market Hot Events

【People’s Bank of China: Firmly Maintain Stable Operation of Stock, Bond, and Forex Markets】 On March 18, the PBOC held an expanded meeting emphasizing the role of macroprudential management and financial stability, and committed to maintaining stable operation of financial markets including stocks, bonds, and foreign exchange.

【Israel to “Pause” Airstrikes on Iranian Energy Facilities】 On March 20, Israeli Prime Minister Netanyahu stated that Israel will “comply” with the U.S. request to “pause” subsequent airstrikes on energy facilities.

【AI Computing Power Demand Continues to Surge: Alibaba Cloud and Baidu Cloud Announce Price Hikes】 On March 18, Alibaba Cloud and Baidu Cloud announced price increases for AI computing products, marking a clear trend of rising costs among domestic cloud providers.

【Hydrogen Energy Policy Boosts Key Industries: Fuel Cell Vehicles, Green Ammonia to Benefit】 On March 18, the Ministry of Industry and Information Technology, Ministry of Finance, and National Development and Reform Commission jointly issued a notice on conducting hydrogen energy comprehensive application pilot projects.

【Statistics Bureau: Industrial Added Value Above Scale Grew 6.3% in Jan-Feb; Fixed Asset Investment Turns from Decline to Growth】 On March 16, the National Bureau of Statistics reported that in Jan-Feb, industrial added value above scale increased by 6.3% year-over-year, accelerating 1.1 percentage points from December. Fixed asset investment (excluding rural households) reached 52.721 trillion yuan, up 1.8% YoY, reversing last year’s 3.8% decline; excluding real estate, fixed asset investment grew 5.2%.

【NVIDIA CEO Jensen Huang GTC Speech: Trillion-Dollar Revenue, LPU, Space Chips】 On March 17, during a two-and-a-half-hour keynote, Jensen Huang delivered a comprehensive overview of AI hardware and software developments.

02

Bond Market Overview

Market Performance

This week, interbank and exchange-traded funds eased, with rate bonds weakening, credit bonds strengthening, and government bond futures rising.

Data Period: March 13-19, 2026

Bond Market Hot Events

【Economic Data for Jan-Feb Released】 On March 16, the National Bureau of Statistics announced that retail sales increased 2.8% YoY, up from 0.9%; fixed asset investment rose 1.8%, reversing a 3.8% decline; real estate development investment fell 11.1%, narrowing from 17.2%; new commercial housing sales declined 13.5%, compared to 8.7%; industrial added value increased 6.3%, up from 5.2%.

【Federal Reserve Maintains Interest Rates】 On March 18, the FOMC announced no change in interest rates.

【Fiscal Data for Jan-Feb Released】 On March 19, the Ministry of Finance reported that general fiscal revenue declined 1.4% YoY, while fiscal expenditure increased 6.1%. General fiscal revenue was 7.7 trillion yuan, down from last year’s 18.5%. Fiscal expenditure was 52.72 trillion yuan, up 1.8%. Excluding real estate, fixed asset investment grew 5.2%.

【LPR Quotation Unchanged】 On March 20, the PBOC announced that the 1-year and 5-year Loan Prime Rates (LPR) remain at 3% and 3.5%, respectively, for the tenth consecutive month.

03

Commodity Market Overview

This week, the Nanhua Commodity Index declined 2.42%. Sector-wise, weekly gains were seen in: Nanhua Petrochemical (+1.64%) and Nanhua Black Metals (+0.08%). Declines occurred in: Nanhua Precious Metals (-11.29%), Nanhua Nonferrous Metals (-4.10%), and Nanhua Agricultural Products (-1.90%).

Gold in Shanghai fell 8.97% weekly, while crude oil rose 7.23%.

Note: Brent crude oil weekly change is calculated based on the closing prices at 15:00 (China time) this week versus 15:00 last week.

Shenwan Hongyuan Securities Wealth Management Division

Zhao Wei, Securities Investment Consultant (Advisor) License No.: S0900624090004

Zhu Yongjia, General Securities Business License No.: S0900123080002

Liu Yalai, General Securities Business License No.: S0900120110067

Yu Zizhen, Securities Investment Consultant (Advisor) License No.: S0900623030004

Meng Di, Securities Investment Consultant (Advisor) License No.: S0900624050022

Disclaimer: Investment involves risks. Enter the market cautiously! All content is compiled from publicly available information. Shenwan Hongyuan Securities Co., Ltd. does not guarantee the accuracy or completeness of this information. The opinions expressed are based on current data and policies and are for reference only. Investors should make decisions based on their own investment goals and risk tolerance and bear all investment risks themselves.

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Editor: Wang Ke