Recent geopolitical tensions in the Middle East have led to significant volatility in global capital markets. Zhang Yidong, a member of the executive committee and chief economist at Haitong International, shared his analysis on the situation and its market implications in a recent interview.
Regarding when the situation may substantially de-escalate, Zhang highlighted two key factors: domestic constraints in the United States and Iran's resilience and willingness to resist.
From the U.S. perspective, three dimensions are worth noting: First, public opinion: Nearly 40% of Americans still support military action, indicating that anti-war sentiment has not yet become dominant. Second, military resources: Even if the proposed additional $200 billion military funding is not approved by Congress, existing reserves are sufficient to sustain operations for some time, meaning the U.S. is far from exhausting its resources. Third, capital market reactions: Over the past two weeks, U.S. stock declines have approached levels seen during the tariff war of April 2025. Notably, this time both stocks and bonds have been hit, unlike last year when the dollar also weakened. However, the current adjustment has not yet reached a level that would force policymakers to take urgent action.
A key area to watch is the political battle over the additional $200 billion in military funding. If anti-war sentiment gains the upper hand, it could accelerate the end of high-intensity conflict.
As for Iran, conditions for a quick compromise are not yet in place: First, strategic posture: Iran is not yet at the stage of accepting what it perceives as a U.S. "surrender" proposal. Second, military capability: Over the past three weeks, Iran has demonstrated increasingly sophisticated tactics, including precision strikes on strategic targets such as U.S. and allied ports. It has also revealed unexpected stockpiles of long and medium-range missiles, suggesting greater reserves than previously assumed. Third, domestic cohesion: Prior to the conflict, Iran faced frequent anti-government protests and social fragmentation. However, external pressure from the U.S. and Israel has fostered a sense of national unity, marginalizing opposition forces and making it difficult for the U.S. to easily destabilize the country.
Zhang concluded that the peak impact on global capital markets has passed, particularly in terms of investor psychology, valuation compression, and risk premium adjustments. He expects trading in BERTO ACQUISITION CORP (TACO) to potentially resume as early as the first half of April.
At the same time, Zhang cautioned against overlooking low-probability risks. If the U.S. deploys large-scale ground forces, Iran may respond with extreme measures, potentially escalating the crisis in the Strait of Hormuz from a monthly concern to a semi-annual or even annual-level disruption.