Against the complex backdrop of Middle East tensions, capital markets have experienced significant volatility, leaving many investors uncertain. On March 25th, Zhang Yidong, a member of the Executive Committee and Chief Economist at Haitong International, clearly articulated his latest views on market direction and current strategies during a live broadcast on Sina Finance.
Zhang pointed out that while the U.S. has recently been signaling attempts to de-escalate the situation and reassure capital markets through rhetoric, the effect is subject to diminishing marginal returns. A genuine ceasefire, or TACO, has not yet materialized. A true cessation of hostilities depends on observing the domestic situations within the U.S., Israel, and Iran.
From the U.S. perspective, nearly 40% of the domestic population still supports the war effort. Military funding has not yet been exhausted, and the extent of the capital market adjustment has not caused significant distress to the Trump administration. In Iran, weapon inventories have exceeded expectations, and the country is far from being forced into a disadvantageous settlement. In Israel, Netanyahu's influence on Trump is unprecedented, introducing a new element of uncertainty.
Zhang believes a genuine TACO could occur as early as April or as late as June. Key indicators would be the withdrawal of U.S. aircraft carriers or the signing of a ceasefire agreement, at which point investor risk appetite could increase. However, he also warns of a low-probability scenario involving a large-scale deployment of U.S. ground troops, which could extend the crisis for six months or even a year.
Regarding asset allocation, Zhang emphasized the rise of hard assets, with security being the core logic. The strategic importance of energy has been systematically elevated. Gold is entering a strategic opportunity period. At current levels, the choice between oil-related assets and gold-related assets is clear: gold is the unequivocal preference. Gold priced above $4,000 per ounce presents both tactical and strategic opportunities. Additionally, strategic minerals like copper, aluminum, and rare earths are seeing increased reserve accumulation trends globally amid major power competition.
Zhang indicated that the volatility seen in both A-shares and Hong Kong stocks since the start of the year is a case of being caught in the crossfire, but it does not alter the medium to long-term upward trend. Both markets have the potential to reach new yearly highs in the second half of the year. In terms of allocation priority, gold, energy, and resources are the top choices before a ceasefire. After a ceasefire, within safe assets, he recommends retaining only gold, with greater consideration given to high-tech, hard tech, and advanced manufacturing sectors.
The U.S. has been making frequent statements attempting to cool the situation, partly as verbal market support. Trump's tweets have been inconsistent, sometimes suggesting positive talks with Iran, other times pushing for congressional approval of $200 billion in new military funding, and even hinting at potential ground troop deployment to Iran's Kharg Island. This behavior might be an attempt to "pressure for peace." However, the real TACO has not arrived. The focus should be on actions, not just words, and even on what is left unsaid, which might be more significant. Currently, Trump's statements aim to placate capital markets, creating expectations similar to attempts in 2025 to influence markets through rhetoric. But this approach faces diminishing returns, as the market becomes accustomed to and skeptical of such verbal assurances. Real, actionable compromises are what truly benefit capital market investments.
Genuine signals for a ceasefire require observation of the U.S., Israel, and Iran. Key factors include domestic pressure within the U.S., where about 40% still support the war, and military funding remains sufficient for continued engagement for some time. The U.S. capital market, despite significant recent declines comparable to the 2025 tariff war drops, with simultaneous stock and bond market adjustments, has not yet caused enough pain to force a substantial policy retreat from Trump. Future developments depend on domestic U.S. political dynamics, particularly the congressional battle over the $200 billion military funding request. A rejection by the House could indicate dominant anti-war sentiment, potentially ending high-intensity conflict.
Regarding Iran's capacity to continue, the situation is far from Iran capitulating or accepting U.S. ceasefire terms. Iran's tactics have become more structured in recent weeks, demonstrating capability for precise strikes on strategic targets of the U.S. and its allies. Importantly, Iran has revealed unexpected weapon inventories, including medium-to-long-range missiles previously thought unavailable, suggesting it is not yet at the point of a quick, forced settlement. Domestically, external pressure has fostered internal unity in Iran, making it difficult for the U.S. to easily subdue the Iranian populace. Even with potential contacts via Pakistan, a rapid peace agreement is unlikely.
A third factor is Israeli Prime Minister Netanyahu's influence and constraint on the U.S. and Trump, an unprecedented dynamic in U.S. history where a U.S. leader appears to be coordinating actions with an ally, adding uncertainty to the U.S.-Iran conflict.
The core variable for de-escalation likely lies in U.S. domestic political and economic conditions. If significant public opposition emerges and Congress denies funding, the war effort becomes unsustainable. With midterm elections approaching, the war is not Trump's primary focus for the year. Analysis of his recent tweets and statements suggests a desire to disengage and de-escalate, albeit while trying to secure a major gain first. Based on his 15-point preconditions, which Iran is unlikely to fully accept, significant negotiation remains. The earliest potential for a genuine TACO is early April, marked by U.S. carrier withdrawal or a ceasefire agreement. This would be the time for investors to increase risk appetite, while remaining mindful of the low-probability risk stemming from the Israeli variable. The most impactful phase for global capital markets is likely over, with the worst valuation compression behind us. A genuine TACO could form as early as April. However, prediction should be avoided in favor of scenario analysis, maintaining respect for the low-probability event of a large-scale U.S. ground troop deployment, which would trigger a crisis mode. The high likelihood of a TACO is partly driven by the critical importance of mid-term elections for Trump, making compromise increasingly probable as November approaches. Time is an adversary for the Trump administration.
Analyzing the Iran situation's implications for global asset pricing suggests hard assets will rise. The strategic attribute of resources and energy is being systematically revalued. Energy prices, low for the past four years, led to reduced investment and capital expenditure in oil and oil services. The war has underscored the critical importance of strategic petroleum reserves, likely leading to increased, potentially higher-level, replenishment. With the Strait of Hormuz effectively closed to navigation, the global energy price benchmark is expected to rise significantly this year and possibly next.
China's energy self-sufficiency rate is 85% due to coal, compared to Japan's 16%, South Korea's under 20%, and Europe's high external dependency. Post-conflict, it is certain that Europe, Japan, and South Korea will increase investment in alternative energy like nuclear, hydrogen, wind, and other clean sources. The construction of new power systems and the overseas expansion of Chinese new energy companies represent trend opportunities. Products like solar panels, previously sold at low prices, are now sought after overseas not just for cost but for survival and manufacturing system integrity. This signifies a systemic uplift for energy, extending beyond oil to include new energy, energy technology, controlled nuclear fusion, and the energy storage chain, all facing systemic revaluation.
Within safe assets, gold is crucial. At current prices, the clear choice is gold over oil-related assets. While caution was advised earlier in the year at $5,600/oz due to excessive exuberance and crowded positioning, the current level above $4,000/oz represents a tactical and strategic opportunity. The logic for this gold bull market is not tied to the U.S. dollar or real interest rates, but rather to the certainty premium associated with the restructuring of the international financial order. This restructuring is accelerating, particularly for the petrodollar system, whose foundations have been severely shaken or even collapsed by recent events. This is evident in cooling demand for U.S. Treasury auctions and elevated yields. The U.S. has been unable to protect Saudi Arabia, the UAE, and other OPEC nations, undermining the petrodollar's basis. Conversely, China's bilateral currency swap agreements with Middle Eastern countries are gaining traction. For instance, the proportion of Saudi oil sales to China settled in RMB has rapidly increased from under 20% to 40% in just three months, indicating a crisis-driven opportunity that weakens the petrodollar system.
The third aspect involves strategic resources like copper, aluminum, rare earths, tungsten, molybdenum, and tin. In an era of deglobalization and decoupling risks, nations like China and the U.S. are strengthening the development and reserves of strategic minerals. China's focus is on approximately 24 types in its planning, while the U.S. list includes 60, many related to technology (e.g., rare earths, permanent magnets, copper, magnesium, nickel, aluminum) due to rigid demand from sectors like power and AI. In this era of major power rivalry, strategic mineral reserves are receiving heightened attention globally.
Post-conflict, a significant wave of foreign capital allocation is anticipated. While recent claims of massive Middle Eastern inflows into Hong Kong are not strongly evident on the ground currently—investment naturally hesitates during active conflict—positive signs exist. Listed companies from Saudi Arabia and the UAE are increasingly engaging with teams like Haitong International's Middle East energy desk and are willing to visit mainland China, indicating growing attractiveness of Chinese assets and capital markets. The recent volatility in A-shares and Hong Kong stocks is a temporary setback caused by external factors, not an obstruction to China's long-term trend. This period of consolidation can be seen as building momentum for a stronger rebound. Frankly, both A-shares and Hong Kong stocks have the potential to reach new yearly highs in the second half of the year.
Before a TACO, safety remains paramount. Increasing allocations to gold, energy, and resources is the preferred strategy. If a TACO occurs, potentially between April and June—as it is unlikely Trump would pursue mutual destruction with Iran, suggesting the war won't last until year-end—and once a ceasefire or troop withdrawal is confirmed, risk appetite will surge significantly. In that scenario, within the safety asset category, only gold should be retained. Greater focus should then shift to high-tech, hard tech, and advanced manufacturing, potentially constituting 60-70% of allocations, with manufacturing出海 and gold making up the remaining 20-30%.