Ray Dalio Issues Warning! Major Changes Coming?

Recently, Bridgewater founder Ray Dalio posted a lengthy article on social media stating that the current struggle between the U.S. and Iran over the Strait of Hormuz will be an “ultimate showdown,” with the final outcome depending on who controls the Strait of Hormuz.

At this point, many institutions have also shared their views on the future market. From the flow of funds into oil and gas-themed ETFs, there has been a net inflow of over 7 billion yuan since last week.

Dalio’s Warning

Dalio stated that the contest between the U.S. and Iran over the Strait of Hormuz will be an “ultimate showdown.” “If this conflict around Iran and the Strait of Hormuz escalates into a costly war, it could further weaken the U.S.-led global order. If the U.S. can ensure safe navigation through the Strait, it will strengthen global confidence in the U.S. financial system and dollar assets.”

In Dalio’s view, the impact of this conflict extends far beyond the Middle East, affecting global trade and energy flows, and could also change the allocation of capital worldwide.

Dalio said he is not a politician, but through studying the rise and fall of empires and their reserve currencies over the past 500 years, he identified five major interconnected forces driving changes in monetary, political, and geopolitical orders. These five factors are long-term debt cycles, political order and chaos cycles, international geopolitical order and chaos cycles, technological progress—both improving and destroying lives—and natural forces. “Everything happening in the Middle East now is just a small part of this larger cycle at this moment.”

Institutional Perspectives

Regarding recent developments in the Middle East, WanJia Fund manager Ye Yong believes that Iran can now gain an asymmetric advantage in the conflict: using low-cost methods like drones and missiles to blockade the strait and influence oil prices. Once Iran has tasted success, it will be difficult to stop in the short term. The market may be underestimating the long-term impact of high oil prices on risk assets.

“The Strait of Hormuz is a pivot point in the dollar cycle. Any problem there can disrupt the dollar cycle, which in itself creates huge opportunities for emerging markets. Even if the situation is eventually resolved, once Pandora’s box is opened, oil prices will be hard to return to previous supply-demand levels,” said Zhang Wenlong, fund manager at Huashang Fund.

The tense situation in the Middle East has pushed oil prices close to their 2022 peak levels. Allianz Investment states that it is monitoring four key areas where pressure is most evident. First, the Strait of Hormuz has always been called the world’s most important oil transportation artery, accounting for about one-fifth of global oil supply, or roughly 20 million barrels per day. Although the U.S. plans to escort oil tankers and establish emergency insurance mechanisms, the passage has effectively become paralyzed.

Second, unlike previous shocks where energy infrastructure was mostly spared, the current conflict has directly impacted several core assets. The situation has moved from “disruption risk” to “ongoing operational losses,” with many critical facilities in Iraq, Qatar, and the Gulf region experiencing temporary shutdowns. The key risk now is that escalation could involve these vital facilities, leading to more sustained damage.

Third, if oil cannot be exported through the Strait of Hormuz, storage facilities will quickly fill up, forcing oil-producing countries to gradually cut production. If the blockade lasts three weeks, many countries will have to cease production entirely.

Fourth, as a countermeasure, the international community is considering releasing emergency oil reserves. If Middle Eastern supply disruptions persist, strategic reserves can only mitigate short-term volatility; although important, these reserves are limited. Additionally, any released reserves will eventually need replenishment, which could increase future oil demand.

Flow of Funds Out of Oil & Gas ETFs

Amid oil price fluctuations, oil and gas-themed ETFs have experienced volatile movements.

From the flow of funds perspective, after a large influx earlier, funds are now withdrawing from oil and gas ETFs. Specifically, according to Choice data, from March 1 to 6, net inflows into oil and gas ETFs totaled 20.669 billion yuan, but from March 9 to 16, there was a net outflow of over 7 billion yuan.

How should one view the opportunity for asset allocation? Allianz Investment believes that if supply shortages persist, overall inflation may stay high, prompting central banks to delay easing policies. In the current environment, commodities like gold and copper remain attractive. Moreover, given the risk premiums brought by the conflict, there is still a positive outlook on global equities.

According to Morgan Asset Management, A-shares have shown some resilience compared to other emerging markets, with the Shanghai Composite Index demonstrating strong support at key levels and no signs of systemic risk. In the short term, geopolitical factors remain unresolved, and the market may continue to experience high volatility and low-volume consolidation. Investors should focus on genuine opportunities supported by economic fundamentals.

Morgan Asset Management suggests tracking geopolitically sensitive sectors, such as renewable energy (energy storage, wind power) and supply-side industries like aluminum and fertilizers, which are directly affected by European energy prices. Conversely, attention should also be given to sectors with weaker geopolitical ties or those undervalued due to mispricing, such as AI-powered electricity and computing, supported by domestic policies and overseas demand; industries driven by domestic capital expenditure, such as domestic autonomous technology and commercial aerospace, which could benefit from GTC conference catalysts and policy support.

(Source: Shanghai Securities Journal)