The Middle East situation is fluctuating again! Next week, the A-shares will wait quietly for a clear direction.

Ask AI · How do repeated Middle East tensions affect global inflation expectations?

This week, global capital markets were generally pressured by both a geopolitical conflict that repeatedly intensified and a rise in inflation expectations. All three major U.S. stock indexes closed lower across the board; the Nasdaq Composite fell 3.23% on the week, the S&P 500 dropped 2.12% on the week, and the Dow Jones Industrial Average declined 0.90% on the week; all three indexes recorded five consecutive weekly declines. European markets showed a split performance: the French CAC 40 rose 0.47% on the week, the UK FTSE 100 increased 0.49% on the week, and the German DAX fell 0.36% on the week.

In Asia, the Nikkei 225 was basically flat, the Hang Seng Index fell 1.29% on the week, and the Hang Seng Tech Index dropped 1.94% on the week. In A-shares, the Shanghai Composite fell 1.10% on the week, the Shenzhen Component fell 0.76% on the week, the ChiNext Index dropped 1.68% on the week, and the CSI 300 Index fell 1.41% on the week.

This week, repeated developments in the Middle East became the core variable driving global market sentiment. At the beginning of the week, the geopolitical confrontation bounced back and forth between tough statements and tentative contacts, with market risk appetite swinging accordingly. In the second half of the week, the situation suddenly escalated. On March 27 local time, Israel and the United States attacked Iran’s Houndabob nuclear facility. On March 28, Israel struck and killed Iran’s Islamic Revolutionary Guard Corps naval commander Tangsiri in an airstrike, after which the U.S. subsequently dispatched a second aircraft carrier battle group to the Middle East. At the same time, shipping through the Strait of Hormuz has continued to be disrupted; the Secretary-General of the United Nations announced the formation of a dedicated working group, and the total amount of crude oil supply losses to date is close to 500 million barrels.

As a result, international oil prices surged sharply. By the close of trading on March 27, WTI crude oil futures settled at $101.18 per barrel, and Brent crude oil futures settled at $112.38 per barrel. The spike in energy prices lifted inflation expectations: in March, the U.S. consumer confidence index fell to a three-month low, and expectations for fuel prices over the coming year jumped about five times compared with February. Market expectations for major central banks to cut rates within the year cooled further, and tightness-trade sentiment continued to spread.

In the A-share market this week, performance was weak at first and then improved. After the Shanghai Composite found support in the 3,850-point area, it rebounded on Friday and closed at 3,913.72 points. Small-cap style stocks were active; the STAR Market 200 and CSI 2000 indexes rose against the trend by 0.88% and 0.35%, respectively—the market’s factor tilt shifted toward stocks with smaller market caps. Trading volume was below 2 trillion yuan for two consecutive trading days, and overall wait-and-see sentiment was strong.

This week’s market pullback was mainly driven by an external geopolitical risk shock. The conflict between Iran and the U.S. took on a “fight while talking” dynamic; extreme brinkmanship triggered sharp swings in commodities. A notable example: on March 23, the Shanghai Composite fell 3.63% in a single day as precautionary sentiment was released in concentrated fashion. Meanwhile, domestic core broad-based ETF holdings continued to see net redemptions, and with the earnings disclosure period approaching, cautious attitudes toward earnings uncertainty further suppressed risk appetite.

However, structural opportunities remain prominent. Non-ferrous metals led the gain with a 2.78% increase. Geopolitical risk creates demand for hedging, and the continuation of Zimbabwe’s lithium mine export ban, along with reduced aluminum supply in the Middle East, jointly strengthens concerns on the supply side. The utilities sector rose 2.50%: total electricity consumption across society increased 6.1% year over year in January to February; improvement on coal power generation cost sides and clear policies supporting power-to-grid coordination improved the outlook for green power absorption. Basic chemicals rose 2.31%: higher international oil prices combined with demand for spring plowing and fertilizer reserves lifted sentiment along the agrochemical industrial chain. Pharmaceuticals and biotech rose 1.56%: the “Government Work Report” first listed biopharmaceuticals as an emerging pillar industry, and overseas expansion for innovative drugs accelerated; valuation repairs were catalyzed for some leading companies as their first full-year profitability improved.

On the Hong Kong stock market side, Southbound funds recorded a net sale of HKD 2.883 billion on March 26, but cross-border ETFs continued to “bring in” capital, showing long-term investors’ recognition of the Hong Kong-listed tech sector.

Commodities overall strengthened: COMEX gold futures rose 2.59% and silver futures increased 2.70%. Russia paused ammonium nitrate exports, further intensifying global expectations of tightness in agricultural product supply.

In the short term, the evolution path of the geopolitical conflict is the key variable for next week. After a sudden escalation in the second half of the week, the direction of the situation remains unclear, and any further military action could trigger sharp market volatility. Next week enters April, and U.S. nonfarm payrolls and inflation data will be released in sequence. If inflation surprises to the upside, it could reinforce the rate-tightening trading logic. In the short term, the A-share market is expected to maintain a choppy, range-bound pattern; market pricing for “stagnation-like inflation” risk and valuation compression has not yet completed sufficiently. It may be better to make decisions once the situation becomes clearer. In the near term, defensive strategies have a temporary edge. Attention to defensive sectors such as banks, utilities, and consumer staples will increase. Directions related to new energy and power that are tied to energy autonomy and controllability will also be favored. Leveraged funds have recently gathered into defensive, dividend-like sectors such as utilities, indicating that investors’ risk-avoidance preference is warming.

Looking at the medium to long term, market pricing for “stagnation-like inflation” risk is expected to become clearer gradually in April to May. As first-quarter earnings disclosures roll out, U.S. data are released, and key war-related moments approach, this year’s market main line is likely to emerge during this period. The Middle East conflict mainly affects short-term sentiment and the pace of developments, and it will not change the medium-to-long-term positive outlook for the A-share market. Under drivers such as the continuation of the “dual easing” in fiscal and monetary policy, residents’ savings continuing to enter the market, and ongoing breakthroughs in AI technology, the foundation for this round of A-share market performance remains solid. Regulators have sent a signal to “stabilize the capital market,” and future measures to support market stability are worth looking forward to; the loose liquidity environment is likely to persist.

In terms of industry rotation, the market in 2026 is expected to show a “technology growth + pro–sector cyclical” dual-main-line pattern, with a balanced factor allocation as the baseline strategy color for this year. Upstream resources and advanced manufacturing form the “greatest common denominator” that the market is focusing on. Non-ferrous metals and basic chemicals benefit from global supply-side disruptions and a domestic demand rebound; the power chain (power generation, energy storage, grid equipment) combines defensive attributes with an energy-substitution logic, making the value of positioning particularly prominent during an oil-price-increasing cycle. In addition, technology directions such as AI computing hardware and memory chips are gradually absorbing valuation pressure after adjustments, and still offer value for buying on dips. Overseas expansion and the export value chain, supported by overseas demand, have relatively strong earnings certainty and can serve as a supplementary direction for medium- to long-term balanced allocation.

Author’s statement: My personal views are for reference only.