CITIC Securities Yu Jingwei: Hedging Stagflation Dual Disturbances, High Volatility Welcomes Style Switch

CITIC Securities Yu Jingwei: Double Disruption of Safe-Haven and Stagflation, High Volatility Signals Style Shift

● By Reporter Tan Dinghao

In March, conflicts in the Middle East and the blockage of shipping through the Strait of Hormuz became the key catalysts in global markets. The dual shocks of risk aversion and stagflation expectations dominated asset pricing worldwide.

Recently, CITIC Securities Chief Asset Analyst Yu Jingwei told China Securities Journal that the surge in crude oil prices, global stock market volatility, and the unusual weakness of traditional safe-haven assets highlight the central role of stagflation trading. Domestic A-shares showed resilience but increased volatility. Under high valuations, market styles are expected to shift, and external stagflation disturbances are more persistent than short-term safe-haven shocks. Asset classes are diverging significantly: the bond market focuses on domestic interest rate cut prospects; gold pricing logic is being restructured; commodities are influenced by geopolitical tensions and Fed policy paths. Policy and supply-demand dynamics are key drivers of asset performance.

Global Markets: Dual Impact of Safe-Haven and Stagflation

At the start of March, Middle East conflicts became the main catalyst, quickly establishing a core trading theme of “safe-haven + inflation.” The conflict caused sharp asset price fluctuations: global stocks generally declined, energy prices soared, the dollar strengthened, and overseas bond markets weakened. Brent crude oil prices surged over 28% in a week, rising from $78.07 per barrel on March 2 to $101.75 on March 12, directly reflecting the immediate geopolitical risk impact.

From market performance, an unusual phenomenon is noteworthy. Yu Jingwei pointed out that traditional safe-haven assets like gold declined simultaneously, and safe-haven currencies like the yen and Swiss franc also depreciated, failing to show safe-haven attributes. Meanwhile, the dollar, which has faced credit doubts since 2025, continued to strengthen. The logic behind this is twofold: first, after rapid gold gains, market optimism diverged; second, the surge in oil prices heightened inflation expectations globally, reducing market hopes for loose dollar liquidity. This abnormal “safe-haven failure” underscores stagflation expectations’ dominance.

Further, the core catalyst for volatility is the disruption of shipping through the Strait of Hormuz. As a critical passage for nearly 17% of global oil supply, the blockade has halted 180 million barrels of oil, with ships passing through dropping from 91 on February 28 to just 4 on March 8. Continued geopolitical risks amplified market swings. However, South Korea’s stock market, which initially plummeted then rebounded sharply, indicates that while risk appetite has declined, it has not entered a fully risk-averse state. The intertwined stagflation expectations and risk aversion form the market’s core contradiction.

Fundamentally, the risk appetite swings in March stem from two underlying factors. One, Iran’s uncertain situation continues to spread, directly fueling risk aversion and pushing up oil prices, which intensifies U.S. stagflation risks, leading to turbulent global equity markets. Two, years of monetary easing have driven long-term stock market gains; currently, major markets’ valuations are at high levels not seen since 2016, implying high volatility. The outbreak of Middle East conflicts acts as an amplifier, further fragilizing markets.

Style Shift and External Disruptions

Turning to China, amid a complex external environment, A-shares show resilience with increased volatility. As of March 13, the Shanghai Composite Index has fallen less than 2% since March, significantly outperforming major Western indices. This reflects investors’ continued optimism about the 2026 A-share outlook and a gradual cooling of market sentiment from high levels, avoiding blind euphoria.

Yu Jingwei believes this calmness is due to high valuation levels making profits harder, which also suggests increased volatility. Historical experience shows that stock volatility correlates strongly with valuation levels. While valuations don’t directly link to short-term returns, once they shift from “high” to “extremely high,” upward momentum weakens and volatility rises. Regardless of the overall 2026 market trend, the low-volatility environment of 2025 is unlikely to recur, and profit opportunities may diminish.

Another key aspect of high volatility is potential style rotation. Since Q2 2025, under conditions of PPI deflation, economic bottoming, and ample liquidity, tech and small-cap growth stocks have outperformed. As PPI rises and M1 peaks, the market environment is changing. Yu Jingwei expects a style shift from “small-cap growth” to “large-cap value” around Q2-Q3, continuing throughout the high-volatility cycle.

Regarding external risks, Yu Jingwei emphasizes distinguishing “safe-haven trading” from “stagflation trading”: historical examples like Russia-Ukraine and Afghanistan conflicts show that safe-haven flows are short-lived and limited in impact on A-shares, as confirmed by March’s first-week performance. However, the long-term impact of stagflation is more persistent. The Iran situation remains unresolved, and the Strait of Hormuz reopening could take weeks or months, making oil prices unlikely to fall quickly. Stagflation trading may continue to cause wide market swings, with high volatility becoming a key feature of March A-shares.

Asset Classes: Policy and Supply-Demand Driven Divergence

Looking across asset classes, their valuation logic shows clear divergence, with policy guidance and supply-demand fundamentals as core drivers. Asset pricing paths have become distinctly differentiated.

Specifically, the bond market’s logic is particularly clear. Historically, bond bear markets are triggered by economic recoveries, risk appetite rebounds, or central bank tightening. Despite macro conditions since 2025 being unfavorable for bonds, the market has already priced in negative factors. As long as the central bank does not significantly tighten liquidity, a bear market is unlikely. Policy signals are clear: early 2023 saw signs of policy easing, with peak measures in the first half. March-April may be the first interest rate cut window of the year. If rate cuts don’t materialize in Q1-Q2, the next window could be around Q3-Q4 to counteract economic slowdown.

Monetary policy is the “decisive factor” for bonds. The likelihood of rate cuts limits the risk of a bond bear market. The pace of quantitative easing influences bond volatility and holding experience. Currently, the 10-year government bond yield stabilizes around 1.79%, slightly below the previous range of 1.8%-1.9%, reflecting market expectations of rate cuts that are not fully priced in. The initial issuance of 30 billion yuan in savings bonds on March 10 sold out quickly, highlighting strong demand for low-risk, steady-return assets and confirming bond market appeal. Whether broad monetary easing will be implemented remains a key variable for bond market trends in March and the first half of the year.

“Gold’s valuation logic has fundamentally changed,” Yu Jingwei states. The era of rapid global liquidity expansion has ended. From 2022 to 2024, major central banks maintained easing policies, but since late 2024, policy divergence has become clearer: the Bank of Japan resumed rate cuts, the European Central Bank paused and may hike, and the Fed remains in a rate-cut cycle but with rising uncertainty and limited room. Under this backdrop, gold’s pricing based on liquidity easing has peaked; further gains are limited, especially with stagflation risks and dollar appreciation. Gold’s safe-haven premium is fully priced in.

As for commodities, “re-inflation” remains an unavoidable theme this year. Price paths are uncertain but supported by clear fundamentals. The key uncertainties are: first, the development of Middle East conflicts, especially the duration of the Strait of Hormuz blockade; second, the Fed’s rate cut trajectory.

In the medium term, copper’s supply-demand gap is expected to support prices. Global oil inventories are at five-year lows, and even if geopolitical risks ease, energy exports will recover slowly, sustaining re-inflation trading conditions.