ETF Daily Report: Most sectors declined, with only communication, consumer electronics, and other sectors ending in the green. The largest declines were seen in building materials, coal, and biopharmaceuticals.

Today’s A-share market opened higher and then weakened, trading in a downward drift with volatility. By the close, the Shanghai Composite Index printed a middle-bodied bearish candle, closing at 3880.10 points, down 1.00%. The Shenzhen Component Index fell 0.99%, and the ChiNext Index fell 0.73%. At the individual stock level, more stocks declined than rose: more than 4700 stocks fell, while only just over 700 declined. In terms of trading activity, the combined成交额 of the Shanghai and Shenzhen markets was about 1.67 trillion yuan, shrinking by nearly 200 billion yuan from the previous day. The market’s risk-avoidance sentiment was strong, and bearish expectations have not been fully released.

At the sector level, most sectors fell; only sectors such as communications and consumer electronics posted gains. Sectors including building materials, coal, andbiomedical (biopharmaceuticals) saw the largest declines.

This week, the CSI 300? overall moved with repeated back-and-forth driven by overseas conflict expectations, with multiple instances of gap-up openings or gap-down openings, significantly increasing the difficulty of short-term trading. On Monday, affected by expectations of an escalation in the situation, A-shares opened lower and dipped briefly before gradually stabilizing, regaining the 3900-point level. On Tuesday and Wednesday, after the Trump administration released signals of easing, the Shanghai index rebounded and filled last week’s gap on the back of optimistic sentiment. But Trump’s statement on Thursday did not provide a clear ceasefire timeline; instead, it threatened to further increase the intensity of military strikes. The Shanghai index traded with choppy swings and closed lower all day, and the upward trend line since the rebound was declared broken. On Friday, although overnight U.S. stocks turned red in a last-minute reversal, A-shares’ pre-holiday risk-avoidance sentiment remained heavy, and the market traded down with fluctuations throughout the day.

Recently, against a backdrop where overseas conflict news has been plentiful and even contradictory at times, A-shares have shown characteristics of multiple overnight gaps and large intraday swings. Many investors directly lament that they’ve been repeatedly slapped in the face by a “monkey market”—so how should one invest?

Our view is: be cautious and don’t go all-in, let value outperform the short term, and have patience in investing in China.

In terms of allocation, in a market environment where trading is volatile and rebound attempts are repeated and uncertainty rises significantly, keeping a certain proportion of cash can provide an essential safety buffer and trading flexibility for the overall investment portfolio.

On the one hand, cash works like the portfolio’s “stabilizer,” effectively hedging the volatility risk of held assets and reducing overall drawdowns when the market makes sudden adjustments and risks release quickly, helping you avoid falling into passivity due to pressure from a full-position hold; on the other hand, having sufficient cash also means having the initiative to seize opportunities. When high-quality targets are错杀 and present reasonable buy points due to sentiment shifts, or when geopolitics and policies reach a phased turning point, you can lay out plans calmly and add positions at lower levels, truly achieving a contrarian strategy.

In terms of execution, short-term trading is difficult; we do not recommend that investors chase rallies and sell off in response to market and sentiment fluctuations. Instead, you should firmly stick to a value-investing philosophy, deeply explore investment opportunities that the market has mispriced due to selling, and focus on the long-term allocation value of assets.

Before the current environment, going after stocks for their recent strength and “defensive” sectors that have held up well against declines, or betting on short-term earnings performance, is not very advisable. Because current asset prices are repeatedly volatile due to developments in the situation, and predicting how conflicts unfold and their path is beyond the ability of most investors. Therefore, we suggest adhering to an allocation mindset, de-emphasizing short-term trading. Market Mr. will give generous rewards to investors who can stay rational amid volatility and stand guard for value amid risks.

Looking at the direction, Chinese assets have a certain valuation advantage and a margin of safety, making them highly attractive amid growing uncertainty. On valuation, the CSI A500’s TTM price-to-earnings ratio is only 17x, far below the S&P 500’s 27x, highlighting a clear valuation advantage. This valuation advantage, on the one hand, can effectively resist the risk of valuation compression during a stagflation-like period; on the other hand, it can attract global capital to keep allocating, forming a positive cycle of “valuation repair + capital inflows,” further strengthening A-shares’ resilience and investment value.

Combined with China’s relatively large fiscal and monetary policy space, a more complete industrial chain supply chain system, and a stable economic development environment, Chinese assets are expected to become the “anchor” and “safe haven” for global capital. On the one hand, China’s macro policies still maintain a relatively large fiscal and monetary policy space; measures to stabilize growth continue to land, providing solid policy support for the market. On the other hand, China has a complete and highly resilient industrial chain and supply chain system; overall economic operations remain steady, and the development environment is stable and controllable, providing good soil for companies’ earnings recovery. Combined with the relatively low correlation between RMB-denominated assets and overseas market risks, it can effectively diversify the tail risks of global portfolios.

From the standpoint of levels, fundamental data is a constraint on the current market and also a target. For example, with the CSI A500 and the CSI 300, the indexes have not yet recovered the 2021 highs. The market still has the demand and momentum to keep probing higher target levels. Since fundamental data tends to lag, it may suppress the pace of upward movement in the short term and become a headwind for market volatility and adjustment. But it also points the direction for subsequent market breakthroughs, becoming a goal for the market to work through obstacles step by step. Investors can pay attention to the CSI A500 ETF (159338) and the CSI 300 Enhanced ETF (561300) for their medium- to long-term investment value.

It has already been more than a month since the outbreak of the conflict. Oil prices have remained at high levels. Investors’ outlook for the future must take a more cautious stance.

If the intensity of the conflict continues to spiral upward, the damage of “high oil prices and low risk appetite” to the economy is far more than just inflation. Business operations face pressure, residents’ consumption shrinks, and risk-avoidance sentiment in the market rises—all of which can gradually drag the economy into the morass of stagflation.

• Business operations under pressure: Transportation and raw material costs for businesses may face a new round of explosive increases. For energy-intensive industries such as manufacturing, transportation, chemicals, logistics, and others, the energy cost share will rise sharply, directly squeezing the limited profit margins that companies already have. Many firms will be forced to reduce capacity, delay investment and expansion plans, and even resort to layoffs or shutdowns, which will then weigh on stability in the employment market and weaken the core drivers of economic growth.
• Household consumption contraction: Rising oil prices directly raise the prices of refined petroleum products, which then transmit to various links such as logistics and retail. This pushes up prices of necessities such as food and daily consumer goods, creating a “oil price up → prices up” chain reaction, further compressing residents’ disposable income. Residents will be forced to cut back on non-essential consumption; consumption willingness will remain sluggish, and the momentum for domestic demand recovery will be thoroughly curbed.
• Risk-avoidance sentiment warming up: Escalation of geopolitical conflicts will intensify the market’s concerns about the future economy. Businesses will not dare to invest, and residents will not dare to consume. Capital will flow in large volumes into safe-haven assets such as gold and the U.S. dollar, tightening liquidity in capital markets. Volatility in risk assets such as stocks and bonds will increase, and investment vitality will continue to decline.

Stepping back, even if, as Trump claims, the conflict can end abruptly in a few weeks, this absurdly started and carelessly concluded farce has completely destroyed the balance of geopolitics and pulls back the final veil over the twilight of an empire. In the traditional valuation framework, the baseline assumptions about U.S. hegemony and energy security have undergone an irreversible fundamental change.

• As for U.S. hegemony: In the past, the U.S., backed by its absolute advantages in military, economic, technology, and other areas, played the role of “leader of the global order.” Many people regarded it as an “unshakable hegemony.” Its military deterrence, the dollar hegemony position, and its control over global logistics channels together formed the core support of that hegemony, and also led the international community to develop a固有认知 that “order stability under U.S. leadership” exists.
• As for energy security: Predictability has been completely broken. Energy supply disruptions caused by the conflict have made the market realize that the risk of energy shortages is not remote. Uncertainty in global energy supply has risen significantly, and volatility in energy prices is no longer just a short-term pulse; it could become a long-term norm.

Additionally, we are not optimistic about the outlook for negotiations and their impact on capital markets.

On the one hand, the demands of all conflict parties differ greatly, and there remains substantial uncertainty about the prospects for negotiations. Capital still needs to price in the probability and consequences of a negotiation breakdown. The possibility that Iran’s neighboring countries may enter the fray could further worsen the situation—this is another incremental risk that needs to be highlighted. As the saying goes, “If you can’t get it at the battlefield, it’s even more impossible at the negotiating table.” Iran’s demonstrated capability to blockade straits during the conflict, and the U.S. military’s failure to fight and retreat or further intensify the sense of insecurity among nearby countries, have laid the groundwork for a potential escalation of the situation in the Middle East. Against this backdrop, it is difficult for the market to form a sustained and stable risk appetite. Any sudden event could again trigger capital to flee to safety, suppressing both the height and the continuity of an overall rebound.

On the other hand, for the market, seeds of confusion, turmoil, and suspicion have already been planted. The expectation of a “reunion after the broken mirror”—that is, a restoration of risk appetite— is unrealistic. The baseline assumptions in the traditional valuation framework about U.S. hegemony and energy security have undergone an irreversible fundamental change. The globalized era’s low-volatility, low-risk-premium market environment is gone for good. Even more worth watching is that the underlying foundations on which global capital markets’ traditional valuation framework has relied for the past several decades—namely the U.S.-led unipolar order, a stable global energy supply system, and smoothly operating globalized trade chains—are continuing to be shaken.

The market needs a longer cycle of volatility to complete the re-anchoring of the valuation framework: “let volatility digest sentiment, and use time to buy space” will remain the core operating logic of the market going forward.

This week, gold mainly showed a pattern of strong-to-slightly-strong volatility. London spot gold prices have repeatedly traded in a range of 4400-4800 points. Over the past five trading days, the Gold ETF (518800) recorded net inflows totaling nearly 1 billion yuan.

Overall, the medium- to long-term logic supporting gold remains solid, and a pullback may well be a good opportunity to add to positions.

On the real economy side, the outlook for the U.S. economy is hardly optimistic. The sustainability of AI’s high capital expenditure is being questioned, and market worries about “stagflation” have been gradually building. The U.S. Q4 GDP year-over-year? (quarter-on-quarter annualized?) growth rate was revised down by 0.7pp to 0.7%, private investment + consumption growth was revised down by 0.5pp to 1.9%, residents’ consumption growth was revised down by 0.4pp to 2.0%, while equipment and software investment still maintain high growth, and the decline in manufacturing plant investment is widening. The U.S. economy faces “stagflation” risks where inflation and economic stagnation coexist. Once stagflation occurs, it will further constrain the Federal Reserve’s monetary policy space. In this situation, investors have a strong demand to keep their assets from losing value; as a “store-of-value” asset, gold is favored by investors.

On the geopolitical front, the situation in hotspots is difficult to ease, and elevated risk-avoidance sentiment provides some support for gold prices. In the China? East direction, the conflict between Iran and Iraq? quickly escalated into a regional military confrontation, showing a trend toward getting worse and worse. In the Russia-Ukraine theater, although the U.S. and Russia previously restarted diplomatic engagement and the Russia-Ukraine conflict may enter a new stage of negotiations, there has been some recent back-and-forth. In addition, Trump has claimed that Cuba is already on the action list, further intensifying market concerns about his unpredictability. With geopolitical tensions high, market risk-avoidance sentiment makes gold prices more likely to rise than fall.

The market’s main concerns about gold are that after inflation reappears, the Federal Reserve may be pushed into a rate-hiking cycle, which would be a negative factor for gold performance. But we believe that under liquidity constraints, the space for the Federal Reserve to tighten policy may be lower than market expectations. The fiscal sustainability red line for U.S. federal debt of more than 35 trillion U.S. dollars, the financial fragility of regional banks and commercial real estate, and the weak fundamentals of soft endogenous economic momentum have fundamentally locked down the room for further rate hikes. Moreover, this round of inflation rebound is mainly driven by geopolitical supply-side shocks; the effect of rate hikes to adjust policy is limited. Combined with political constraints in the election cycle, it is difficult for the Federal Reserve to add more pressure against the trend.

Looking ahead, from a medium- to long-term perspective, factors such as continuously accumulating risks of U.S. re-inflation and even “stagflation,” a weakening U.S. economy, and heightened systemic risks including excessive sovereign debt issuance across global countries and global geopolitical tensions all provide long-term tailwinds for precious metals prices. The Gold ETF (518800) tracks the Shanghai Gold Exchange’s AU9999 price, and we recommend that investors pay attention. In addition, the Gold stock ETF (517400) may also benefit from rising gold prices, and investors can keep watching.

Risk disclosure: Investors should fully understand the differences between fund regular investment plans (RIPs) and savings methods such as “zero-increment lump-sum savings.” A regular investment plan is a simple and feasible way to guide investors to invest long term and average their investment cost. However, a regular investment plan cannot avoid the inherent risks of investing in funds, cannot guarantee that investors will earn returns, and is not an equivalent wealth-management product that replaces savings. Whether it is a stock ETF/LOF/split-share fund, it is a security investment fund category with relatively higher expected risk and expected return. The level of expected returns and expected risks is higher than that of hybrid funds, bond funds, and money market funds. When fund assets invest in Science and Technology Innovation Board (STAR Market) and ChiNext stocks, they will face specific risks arising from differences in the investment targets, market systems, and trading rules, among other factors—please note this. Short-term rise/fall limits for sectors/funds are listed only as supplementary materials for the article’s analytical viewpoints and are for reference only; they do not constitute a guarantee of fund performance. The short-term performance of individual stocks mentioned in the article is for reference only and does not constitute a stock recommendation, nor does it constitute a prediction or guarantee of fund performance. The above viewpoints are for reference only and do not constitute investment advice or a commitment. If you need to purchase relevant fund products, please refer to the relevant regulations on investor suitability management, complete risk assessments in advance, and purchase fund products whose risk level matches your own risk tolerance. Funds involve risk; investment requires caution

Special contributor: Guotai Fund

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