Shenwan Hongyuan Strategy: Transitioning from "First Phase Uptrend" to "Range Fluctuation"

1. The conflict between the US and Iran and the “HALO trade” resonance are the core factors shaping short-term market developments. Currently, mainstream projections for these two factors seem unable to extend to the medium term. The market worries about the continuation of short-term disruptions but may underestimate the inevitability of medium-term hedging factors. It is not yet time to adjust medium-term outlooks.

During the stalemate in the US-Iran conflict, oil transportation through the Strait of Hormuz has stalled, causing oil prices to spike and inflation expectations to pulse upward. In the short term, uncertainty objectively exists, resonating with the “HALO trade,” leading to a general decline in global risk appetite. Whether it’s the US-Iran conflict or the HALO trade, there are many variables in medium- and long-term projections. However, the clues reflected in asset prices in the short term are relatively singular.

The transmission path of the US-Iran conflict to asset prices is anchored on whether the Strait of Hormuz remains open, leading to projections of oil prices → inflation expectations → Federal Reserve easing expectations → stock market risk appetite. A reasonable medium-term projection is that the game ahead in the US-Iran conflict involves many options, with flexible perceptions of goals and outcomes. Postponing the deadlock and allowing issues to propagate backward could squeeze monetary policy, making the probability of significant changes in the medium term relatively low. Currently, we are in the highest intensity phase of geopolitical conflict, and Trump’s habitual “maximum pressure” may intensify short-term market volatility. However, once the intensity decreases, there remain many uncertainties in the medium term, and China’s geopolitical maneuvering space is also a source of hedging strength.

There are two main rationalities for the HALO trade: market projections of industry organization changes in the AI era are justified, and long-term expectations for three types of industries are being re-anchored: 1. Industries potentially replaceable by AI; 2. Industries with weakened barriers and compressed excess profits in the AI era; 3. Tech giants that may no longer succeed in the AI era. The re-anchoring of long-term expectations exerts downward pressure on valuation centers. On the other hand, strategic resources are inherently era assets; their security and controllability, combined with AI-era irreplaceability and potential inflationary effects, make revaluation of strategic resource commodities reasonable, with “HALO trade” fermenting this process. However, the short-term projection of the HALO trade also harbors forces of misjudgment and oversell. Since November 2025, global stock markets have generally exhibited a trend of value outperforming growth. The HALO trade tends to reinforce the value advantage trend. The market’s pricing of the irreplaceability of strategic resources is becoming more adequate but underestimates that technology platform companies also possess irreplaceable resources (such as their online-offline connectivity capabilities). The space for subsequent adjustments and repositioning of tech platforms is also underestimated. Meanwhile, when considering the AI ultimate endpoint, it’s easy to project technological industry trends to their conclusion (AI’s final capabilities) but difficult to fully account for the inevitable gradual reforms of other key factors (including productivity, production relations, political systems) during AI’s progress. Therefore, the market’s valuation-driven “HALO trade” for a one-sided value style cannot be linearly extended to the medium term.

In the short term, risk appetite disturbances continue, but there is no rush to adjust the medium-term outlook. We maintain our view of a “two-phase upward trend” in 2026.

2. Maintaining the “two-phase upward trend” outlook in the medium term, the market is already in a transition from the “first phase of ascent” to a “range of oscillation,” with short-term event shocks possibly acting as triggers. The oscillation within the “two-phase” rise mainly depends on waiting for performance and time to digest valuations, cyclical improvements, and industry trends to “cross-stage progress,” as well as the accelerated shift of residents’ allocations toward equities. The market is more focused on reality: the current visible prosperity highlights still offer excess returns, while sectors without new highlights may see continued weakness.

The market is already in a transition from the “first phase of rising” to a “range of oscillation,” with US-Iran conflict and HALO trade affecting profit-taking and risk appetite, serving as triggers for stage shifts.

Since September 2025, the leading sectors in A-shares have shifted, with main themes playing out valuation increases. However, as static valuations reach historical highs, narrative-driven momentum faces increasing resistance, transitioning into a high-level oscillation phase. Currently, the static valuations of communications, electronics, power equipment, defense and military industries, computers, and basic chemicals are at record highs, and the overall valuation of all A-shares is also at a historical peak. Under these conditions, the market generally seeks to transition into a range-bound oscillation for 1-2 quarters, mainly waiting for performance and time to digest valuations, cyclical improvements, industry trend “cross-stage progress,” and the accelerated migration of residents’ allocations into equities. In the second half of 2026, there may be a “second upward trend.” Historically, the core logic of the leading sectors in the two-phase rise has been consistent. The medium-term cycle alpha and the allocation direction of prosperous technology remain unchanged.

The early move to anticipate the inflection point of fundamentals and industry trends, pushing valuations to historical high levels, is a prerequisite for the start of the oscillation phase. The market’s shift toward more focus on reality is also a typical feature. The current technological highlights and inflation directions still offer excess returns, but sectors without new highlights may continue to face downward pressure.

3. Focus on “realistic” recommendations: for the cycle, prioritize basic chemicals that may see concentrated price increases in March-April; for technology, continue to monitor “inflation links,” with short-term momentum in internal combustion engines, especially with Nvidia’s GTC conference approaching, as the computing power chain’s “inflation link” enters a concentrated exploration window, paying attention to CPO opportunities.

In the short term, US-Iran conflict disturbances persist, with oil and gas industry chains and shipping still experiencing upward pulses. However, the logic depth of cyclical commodities is limited; the combined effects of cycle alpha, domestic production restrictions and price increases, and US-Iran conflict influence are already playing out. If tensions ease, short-term cyclical stocks may see significant adjustments. In the medium term, post-US-Iran conflict, the scope for re-evaluating strategic resources could expand further, potentially raising the medium- and long-term valuation centers of oil, gas, and shipping stocks above previous levels.

Centered on “realism,” the recommendation structure suggests that the price increases in basic chemicals may concentrate in March-April. Once the cost-side impact of oil prices becomes controllable again, the relative returns of basic chemicals could become more elastic. For technology, continue to focus on “inflation links,” with AI energy (internal combustion engines) as a short-term momentum direction. Additionally, Nvidia’s GTC conference is imminent, providing a window to explore new “inflation links” based on advances in computing power, especially focusing on CPO opportunities.

The medium-term structure remains unchanged: prosperous technology + cycle alpha. Focus areas include: overseas computing chains, AI applications (genuine opportunities in Hong Kong internet stocks), semiconductors, robotics, commercial aerospace, energy storage, etc. For cycle alpha, focus on non-ferrous metals and basic chemicals. The extension of medium-term cycle alpha investments may include export/outbound chains. Additionally, the revaluation opportunities in non-bank financials are promising in the medium term.

Risk warning: Unexpected overseas economic recession, and domestic economic recovery falling short of expectations.