Guojin's Mou Yiling: Technology 'One Flower Does Not Make a Spring'; Market May Enter a HALO-style Rotation

Summary

1 Tail Risks Ease, Market Shifts to Rebounding Risk Appetite + Certainty Premium

This week, signals of a phased easing of Middle East conflicts continued to emerge, alleviating tail risks: On one hand, the number of vessels passing through the Strait of Hormuz has risen this week, controlling the possibility of further surges in crude oil prices; on the other hand, non-US currency swap basis spreads have repaired over the past two weeks, the US dollar weakened, and the likelihood of a liquidity crisis in global financial markets has dropped significantly. After tail risks eased, the overall market reaction was similar to the performance after Trump's TACO during the tariff conflict a year ago, with major global stock indices and implied volatility recovering to pre-conflict levels. From an industry perspective, both A-shares and US stocks saw technology-related assets leading the gains. This reflects investors' preference for certainty premiums as market risk appetite repairs. Although Middle East conflicts have eased, the transmission of pressure on prices and supply chains may continue. In March, China's PPI showed characteristics where energy producer price growth > intermediate processed goods growth > terminal demand growth. Industrial output growth and capacity utilization both declined. Whether the trend of global economic recovery has been interrupted remains a question. At this time, the technology sector appears relatively more certain: among listed companies that have released their Q1 2026 reports, some technology industries such as communications showed high revenue and profit growth rates; furthermore, driven by overseas AI demand, domestic memory prices continued to rise, and the production and export growth rates of integrated circuits were fast.

2 Under Different Scenarios of Geopolitical Risks, Energy Could Be a Common Beneficiary

The direction of current Middle East geopolitical conflicts still holds high uncertainty, with frequent contradictions in statements from the US and Iran on key issues. Future scenarios could follow two entirely different paths: First, as US-Iran negotiations progress, geopolitical risks gradually dissipate; Second, Middle East conflicts escalate again, or inventory depletion fails to resolve supply chain issues, causing tail risks to intensify once more. Under the first path, after supply chain shocks gradually subside, the prosperity of the AI-driven technology sector will be maintained. Considering that overseas AI capital expenditure intensity in Q1 2026 is likely to continue rising, data center usage will significantly increase electricity demand, yet investment in overseas energy and infrastructure over the past three years has not matched the growth of AI investment, the growth in the technology sector will also drive the growth in demand for energy-related physical assets. A new round of HALO trading may emerge, and the market will re-enter the rotation from technology to manufacturing and resource products seen from last year to early this year. Under the second path, given that average crude oil reserves in major countries worldwide cover 45 days of consumption, some inventory may have already been consumed during the conflict period in the past month, and concerns about global supply chains may return. At this point, traditional energy chain assets will be the market's only safe haven. It is worth noting that recent bond yield performance in various countries has begun to form a negative correlation with energy independence, implying that growth constraints on the energy side are emerging in various countries following changes in inflation expectations.

3 Settlement Improvements Continue; Spillover of Prosperity from External to Internal Remains Key Observation for the Future

The decline in domestic export growth year-on-year in March was mainly due to the late timing of the Spring Festival. Structurally, exports of integrated circuits and automatic data processing equipment, which have higher correlation with overseas AI demand, grew faster in March. Domestic settlement conditions continue to improve; since 2026, the settlement rate has continued to rise, breaking through 70% in March. Meanwhile, the net difference between the net export value and the net settlement amount of the trade sector under the current account narrowed further. Historical experience shows that a narrowing of this gap often corresponds to periods where core CPI stabilizes and rebounds. Currently, the repair process of domestic consumption momentum continues, with non-subsidized commodity sales performing well, indicating ongoing endogenous repair momentum. Strong exports and capital inflows may bring new drivers to domestic demand in the future, making the spillover of prosperity from external to internal sources worth expecting. Of course, the motivation for domestic demand recovery needs to be built on the foundation of global demand recovery and China's manufacturing advantages, which we will continue to monitor.

4 Markets Will Not Stay in Certainty Premiums

After tail risks in the market eased, market risk appetite rebounded moderately, and investors temporarily shifted towards technology assets with certainty premiums. However, "one flower does not make a spring." Optimistically, the future scenario involves a renewed diffusion, with the market entering a rotation similar to previous HALO trades; alternatively, energy constraints may return. We recommend: First, old and new energy sectors (oil, oil shipping, coal, lithium batteries, wind/solar, energy storage) and the chemical industry, which could benefit under both paths; Second, after the "dollar illusion" gradually fades, copper, aluminum, and gold, whose financial attributes revert combined with demand recovery; Third, Chinese manufacturing is becoming the world's ballast stone; focus on revaluation opportunities in manufacturing represented by machinery. The continuity of export prosperity and improved capital inflows will also bring new drivers to the long-dormant domestic demand, seeking structural opportunities under the reversal of suppression factors—tourism and scenic spots, condiments and fermented products, beer and other alcoholic beverages, pharmaceutical commerce, medical aesthetics, etc.

Risk Warnings: Domestic economic recovery falls short of expectations; Overseas economy declines sharply.

Report Body

1 Tail Risks Ease, Market Shifts to Rebounding Risk Appetite + Certainty Premium

Although no agreement was reached in the talks between the US and Iran in Islamabad, Pakistan, as the two sides initiated a phased ceasefire, Israel and Lebanon reached a temporary ceasefire agreement in the US, and Iran claimed the Strait of Hormuz is open to merchant ships, investor concerns about a sudden deterioration of the Middle East conflict have gradually subsided, and tail risks have eased.

The phased easing of geopolitical risks has, on one hand, reduced the possibility of further surges in crude oil prices: The number of vessels passing through the Strait of Hormuz increased this week, and after Iran claimed on Friday that it would allow merchant ships to pass through the strait, international crude oil prices fell significantly, and basis spreads for different maturities converged. On the other hand, it alleviated panic-driven pursuit of US dollar liquidity, significantly reducing the likelihood of a liquidity crisis in global financial markets: Over the past two weeks, currency swap basis spreads for the euro, pound sterling, and yen against the US dollar have all repaired, and market expectations for the Federal Reserve's monetary policy actions this year have shifted from rate hikes to rate cuts, with the US dollar index falling in sync.

After this round of tail risk easing, the overall market reaction is quite similar to the reaction after Trump's TACO in mid-April 2025: Broad-based indices in A-shares, US stocks, European stocks, and Japanese stocks quickly rebounded to levels near those before the outbreak of the conflict; at the same time, implied volatility also dropped significantly and has now returned to pre-conflict levels.

From an industry perspective, over the past week, technology-related industries represented by communications and electronics led the A-share market, while the information technology sector also led gains in US stocks. Behind this market characteristic lies the fact that after significant easing of tail risks in the market, investors temporarily favored technology sector assets with stronger certainty.

Although Middle East geopolitical risks have eased somewhat, the impact on the overall situation of the global economy in the future remains unclear. Although the year-on-year growth rate of US PPI in March was relatively moderate and below expectations, it showed characteristics where energy commodity price growth > intermediate processed goods price growth > terminal demand price growth, suggesting that price pressure transmission may be underway. Additionally, US industrial output growth declined year-on-year in March, and industrial capacity utilization also fell noticeably, meaning concerns about geopolitical conflicts exacerbating supply chain fragility have not been fully dispelled.

Relatively speaking, the current technology sector has stronger prosperity certainty: Among A-share listed companies that have released their Q1 2026 reports, some technology industries represented by communications showed high revenue and profit growth rates; meanwhile, benefiting from the boost of overseas AI demand, the current prosperity of the electronics sector is also relatively strong: Memory price indexes continued to rise, and the growth rates of domestic integrated circuit production and exports were fast.

2 Under Different Scenarios of Geopolitical Risks, Energy Could Be a Common Beneficiary

The direction of current Middle East geopolitical conflicts still holds high uncertainty. Within the past week, there were significant differences in statements from the US and Iran regarding several key issues, including control of the Strait of Hormuz, whether Iran's uranium enrichment activities will continue, and whether to start the next round of negotiations. Future scenarios could follow two entirely different paths: First, as US-Iran negotiations progress, geopolitical risks gradually dissipate; Second, if the two sides cannot reach consensus on core interests, Middle East conflicts may escalate again, causing tail risks to intensify once more. Given that disagreements on key issues persist between the US and Iran, and both sides maintain firm stances, both of these scenarios are possible.

Under the first path, the operating mode of the global economy will not change significantly compared to before the Middle East conflict. After supply chain shocks gradually subside, the prosperity of the AI-driven technology sector will be maintained, and the growth in technology sector investment will also drive the growth in demand for energy-related physical assets, potentially triggering a new round of HALO trading. In Q1 2026, overseas AI capital expenditure intensity is likely to continue rising: According to Oracle's Q3 2026 quarterly report (covering December 2025 to February 2026), driven by data center construction, capital expenditures grew by $6 billion in a single quarter, an increase of over 50% compared to the previous quarter; additionally, over the past two months, shipments of computer storage devices and non-defense communication equipment in the US have shown rapid year-on-year growth. Accelerated construction of AI data centers will bring rapid growth in energy demand. The International Energy Agency expects annual power consumption by data centers in China and the US to rise from around 300 TWh currently to approximately 1000 TWh by 2035, significantly boosting demand for both traditional and new energy. Since AI entered its rapid development phase in 2023, investment growth in information processing equipment in the US has accelerated rapidly, but investment in energy extraction, power, and communication infrastructure construction has clearly lagged behind. Physical asset sectors represented by energy may be the direction for future prosperity spillover.

Under the second path, the market may face greater supply chain shock pressures. Regarding crude oil reserves, land-based crude oil reserves in major countries worldwide can on average cover 45 days of consumption. Under the shock of Middle East geopolitical risks, the reason why global price levels did not surge sharply in March and global supply chains remained relatively stable may be that countries gradually released crude oil reserves. As the Strait of Hormuz is not yet fully open, and major countries have already depleted some of their crude oil inventories, if US-Iran conflicts escalate again, it will have a more pronounced impact on global supply chains. In our previous report "Markets Are Not Currently in a Steady State," we pointed out that under this path, even technology assets that currently show certain resilience may not escape unscathed, while traditional energy chain assets are likely to be the core safe haven amidst market volatility.

Furthermore, looking at the bond market performance over the past two weeks, although geopolitical risks have eased, long-term government bond yields in countries with high dependence on energy imports have fallen less: The US has relatively low external energy dependence, with its 10-year Treasury yield falling 18.0 basis points from its peak; whereas for the Eurozone and Japan, which have relatively high external energy dependence, their 10-year yields fell only 7.5 basis points and 5.8 basis points, respectively. For countries with poor energy independence, if inflation expectations begin to rise, long-term interest rates may increase, further suppressing demand.

3 Settlement Improvements Continue; Spillover of Prosperity from External to Internal Remains Key Observation for the Future

Domestic exports grew 2.5% year-on-year in March, a significant drop from the 39.6% reading in February, mainly due to the seasonal impact of the late Spring Festival this year. Referencing 15 years of historical experience: The later the Spring Festival occurs, the larger the typical decline in export growth in the month following the festival compared to the month of the festival itself; additionally, over the past 15 years, the median month-on-month growth rate of export value in the month following the Spring Festival compared to the month of the festival was 4.5%, while this year's March export value grew 7.1% month-on-month compared to February, slightly stronger than seasonal characteristics. From a structural perspective, exports of integrated circuits and automatic data processing equipment, which have higher correlation with overseas AI demand, grew faster in March.

Meanwhile, domestic settlement conditions continue to improve: From the perspective of cross-border receipts and payments by commercial banks, since 2026, the proportion of settlement amounts relative to foreign currency receipts has continued to rise based on 2025 levels, breaking through 70% in March. Simultaneously, the net difference between the net export value and the net settlement amount of the trade sector under the current account narrowed further. Historical experience shows that a narrowing of this gap often corresponds to periods where core CPI stabilizes and rebounds. Currently, the repair process of domestic consumption momentum continues, with non-subsidized commodity sales performing well. Excluding subsidies for appliances, furniture, and automobiles, retail sales of designated enterprises grew 4.2% year-on-year, indicating ongoing endogenous repair momentum. Strong exports and capital inflows may bring new drivers to domestic demand in the future, making the spillover of prosperity from external to internal sources worth expecting.

4 Opportunities May Lie Beyond Certainty Premiums

After tail risks in the market eased, market risk appetite had a rebound need, but due to lingering uncertainty, investors temporarily shifted towards technology assets with certainty premiums. However, the outlook for Middle East conflicts remains unclear, and the environment and supply chain status for future global economic operations may change. If, as most investors expect, risks gradually dissipate in the future, then the continuation of technology sector prosperity is more likely to bring a new round of HALO trading; similarly, under the backdrop of continuous settlement improvements, the spillover of prosperity from external to internal sources is also worth expecting. If Middle East conflicts escalate again, then assets that can alleviate energy contradictions are the true resilient assets. It is highly probable that the share of energy in global GDP will rise, making the energy chain the market's only safe haven. We make the following recommendations:

First, old and new energy sectors (oil, oil shipping, coal, lithium batteries, wind/solar, energy storage) and the chemical industry, which could benefit under both paths of gradual geopolitical conflict easing or renewed escalation of Middle East risks;

Second, after the "dollar illusion" gradually fades, copper, aluminum, and gold, whose financial attributes revert combined with demand recovery;

Third, Chinese manufacturing is becoming the world's ballast stone; focus on revaluation opportunities in manufacturing represented by machinery. The continuity of export prosperity and improved capital inflows will also bring new drivers to the long-dormant domestic demand, seeking structural opportunities under the reversal of suppression factors—tourism and scenic spots, condiments and fermented products, beer and other alcoholic beverages, pharmaceutical commerce, medical aesthetics, etc.

Risk Warnings

Domestic Economic Recovery Falls Short of Expectations: If subsequent domestic economic data weakens beyond expectations, it could affect the improvement of long-term profitability trends.

Overseas Economy Declines Sharply: If the overseas economy declines beyond expectations, the global manufacturing resonance repair may pause, and demand for physical assets will also slow down.

Source: Yi Ling Strategy Research

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