Author: CICC Insights

The US-Israeli military strike against Iran has drawn significant global attention.

According to Xinhua News Agency, on February 28, the United States and Israel launched a preemptive military strike against Iran, and Iran retaliated against Israel and multiple targets in the Middle East[1], further escalating the geopolitical situation in the Middle East. That evening, the Iranian Islamic Revolutionary Guard Corps announced that it would prohibit any ships from passing through the Strait of Hormuz. The Strait of Hormuz is the only way for oil-producing countries in the Middle East to export crude oil, and the oil transported through this strait accounts for about one-fifth of the total global oil transport volume[2]. The rapid escalation of this conflict has impacted global risk appetite. Based on a review of the performance of major asset classes after 14 major geopolitical conflicts since 2000, this article briefly analyzes the potential impact on Chinese assets, especially the A-share market, in light of the current global energy and trade background.

How have geopolitical conflicts historically affected equity market prices?

In the short term, the initial impact of geopolitical shocks on the stock market typically manifests as a sentiment shock and a jump in risk premiums, resulting in increased volatility and capital reallocation. In an environment of significantly increased uncertainty, funds tend to shift from equity assets to safe-haven assets such as gold and US Treasury bonds. Recent geopolitical conflicts have mostly involved oil-producing countries, leading to supply shocks and a simultaneous rise in energy prices, including crude oil; the stock market faces downward pressure in the short term. Historical experience shows that in the first week after the outbreak or escalation of a conflict, the median gains for WTI crude oil and COMEX gold are approximately 1.9% and 0.4%, respectively, with a probability of approximately 61.5% for both. During the same period, the median gains for the A-share CSI 300 and Shanghai Composite Index are approximately -1%, with probabilities of only 25% and 23%, respectively.

Chart: Historical performance of major asset classes following geopolitical and military operations

Source: Wind, CICC Research Department

In the medium term, as uncertainties gradually dissipate, risk appetite typically recovers, and market focus returns to fundamentals and policy drivers. After the emotional shock subsides, the subsequent impact on asset performance will be the substantial changes in global supply chains and the macroeconomic environment caused by geopolitical conflicts. Taking recent conflicts in the Middle East as an example, events affecting oil-producing countries' supply, key infrastructure, or strategic shipping lanes (such as the Strait of Hormuz) often cause crude oil prices and shipping costs to surge rapidly. If supply disruptions are quickly resolved, the impact is usually limited to the short term; if the disruptions persist, they may trigger a chain reaction. Specifically, 1) Cost shocks and profit divergence. China is a typical net energy importer, and rising energy prices bring direct or indirect cost increases to most domestic industries. The industries directly affected mainly include air transport and shipping logistics, where fuel costs and freight rate fluctuations erode profits; the profit margins of downstream enterprises in the petrochemical industry chain, such as basic chemicals, plastics, and chemical fibers, are also squeezed. If the impact continues to spread to global trade, it may also affect my country's export demand. 2) The linkage effect between macro inflation and interest rates. High oil prices are pushing up inflation expectations, potentially forcing major economies to adopt tighter policy options regarding interest rate paths and fiscal space. For example, if rising energy prices lead to a resurgence in US inflation data, the Federal Reserve's original expectations for interest rate cuts may be disrupted, and the premature end of the global liquidity easing cycle could suppress equity market performance.

From an industry perspective, in the initial stages of geopolitical conflicts, most sectors may experience short-term corrections due to sentiment, with sectors such as oil and petrochemicals, defense, and non-ferrous metals showing relative resilience; the medium- to long-term impact is very limited. In the short term, benefiting from rising risk premiums and supply expectation disruptions, sectors such as oil and petrochemicals, defense, and non-ferrous metals often show relative performance or even achieve absolute returns; however, historically, such excess performance is mostly characterized by its cyclical nature. As the emotional impact subsides and supply expectations are revised, industry performance typically returns to the fundamentals, and the impact of geopolitical conflicts on the long-term trends of my country's industries is limited.

Chart: Industry performance following the last four Middle East geopolitical conflicts

Note: Data represents the median price increase of various sectors after the last four Middle East geopolitical military conflicts (the 2019 attack on Saudi Aramco, the 2020 attack on Soleimani, the 2023 Israeli-Palestinian conflict, and the 2025 Iranian-Israeli conflict). Source: Wind, CICC Research Department

How will this escalation of the conflict affect Chinese assets?

Chinese assets, including A-shares, may experience short-term risk appetite disruptions but are expected to show relative resilience, without altering the medium-term positive trend. The A-share market achieved a strong start after the Spring Festival, with trading volume significantly rebounding compared to the week before the holiday. Structurally, driven by geopolitical concerns and expectations of increased policy support during the "Two Sessions," cyclical sectors supported by price increases, such as steel, non-ferrous metals, and chemicals, led the gains; sectors that had previously received significant attention, such as AI applications, experienced a pullback. From a short-term perspective, relatively ample liquidity, diminishing marginal impact of US tariffs, rising expectations of improved Sino-US relations, and strengthened profit recovery and technology industry trends all contributed to a moderate market uptrend. The current escalation of the Middle East conflict, combined with past Middle East geopolitical events, warrants attention: while it may push up risk premiums in the very short term, A-shares may show relative resilience. Going forward, continued attention should be paid to the scope and duration of geopolitical conflicts, the progress of the Strait of Hormuz blockade, oil price changes, and their impact on inflation. In the medium to long term, as we pointed out in our report " A-Share Market Outlook 2026: Riding the Momentum ," the resonance between the restructuring of the international order and China's industrial innovation trends is the core driver of this round of A-share market gains and the revaluation of Chinese assets. We believe that the short-term shocks caused by the Middle East conflict have not shaken the aforementioned medium-term logic. If changes in the geopolitical landscape further accelerate the restructuring of the international monetary order, it may actually strengthen the logic of Chinese asset revaluation. Furthermore, against the backdrop of a shift in macroeconomic paradigms and the continued advancement of capital market system reforms, the underlying environment of A-shares is undergoing structural improvement. The evolution of market operating mechanisms and investor structure makes it more conducive to forming a "stable and progressive" pattern than before, and A-shares are expected to continue their steady upward trend in the medium to long term.

In terms of asset allocation, in the short term, due to geopolitical conflicts, attention should be paid to energy, non-ferrous metals, military industry, and oil shipping and container shipping. High-dividend stocks may also perform relatively well given rising risk aversion. Aviation and some chemical sectors may be affected by rising cost expectations. In the medium term, the following sectors are recommended: First, growth sectors: AI is expected to gradually enter the industrial application realization stage. Investment can be made around infrastructure such as computing power, semiconductors, and cloud computing, as well as application areas such as robotics and intelligent driving. Commercial aerospace and energy storage batteries are also entering a boom cycle. Second, external demand breakthroughs: Overseas expansion expectations may have a short-term impact but remain a certain growth opportunity. Sectors with relatively successful overseas expansion include construction machinery, commercial buses, power grid equipment, and gaming. Third, opportunities for price increases and earnings improvement in non-ferrous metals and oil and gas resources affected by the geopolitical environment. Fourth, high-dividend stocks: Although excess returns are unlikely in a growth-driven environment, they still possess good underlying value in a low-interest-rate environment. In the financial sector, the insurance sector is favored; in the non-financial sector, companies with high free cash flow and strong dividend consistency are favored.