China Galaxy Securities: US-Iran Conflict Continues to Escalate, Recommends Focusing on Three Directions: Coal Chemical, Finance, and Technology Innovation

China Galaxy Securities released a research report stating that, at present, there remains significant uncertainty regarding the duration and evolution of geopolitical conflicts. Short-term disruptions to global risk assets are unlikely to subside, and it is expected that global equity markets will continue to exhibit high volatility. However, supported by our core logic, the downside potential for A-shares is relatively limited, and the market is likely to digest external pressures through oscillation, differentiation, and structural rotation. In terms of structure, market trading focuses on inflation logic, and changes in crude oil prices under geopolitical conflicts will remain a key variable influencing recent market structure.

China Galaxy Securities’ main views are as follows:

This Week’s A-Share Market

(1) From March 16 to March 20, 2026, the A-share market experienced oscillation and adjustment, with most broad-based indices declining. The All A Index fell 4.13%. Among major broad-based indices, only the ChiNext Index rose 1.26%, while the CSI 50 and CSI 1000 declined over 5%, and other indices fell more than 2%. (2) In terms of style, large-cap style outperformed this week; all five major style indices retreated, with cyclical styles dropping over 7%, and stable, growth, and consumer styles falling over 2%. (3) Sector-wise, most primary industries declined. Only communications and banking rose, while non-ferrous metals, basic chemicals, and steel saw larger declines.

Fund Flows This Week

(1) Trading activity in the A-share market slightly cooled. The average daily turnover was 22,111 billion yuan, down 2,875.9 billion yuan from last week. (2) Margin financing balance was 2,650.111 billion yuan, down 15.89 billion yuan from last week. (3) Thirty new equity funds were established, with a total issuance of 21.388 billion units, up 1.564 billion units from last week. (4) From March 12 to 18, global funds experienced net outflows of $1.278 billion (previous: -$3.615 billion). Overseas funds net outflow was $532 million (previous: -$1.035 billion).

Valuation Changes This Week

The PE (TTM) of the All A Index decreased by 3.16% to 22.59 times, placing it in the 91.20th percentile since 2010; PB (LF) valuation fell 3.39% to 1.86 times, in the 51.45th percentile since 2010. The yield spread of A-shares is 2.5959%, near the 3-year rolling average (3.316%) minus 1.39 standard deviations, at the 45.88th percentile since 2010.

“Two Changes” and “Two Unchanges”

“Two Changes”: First, the geopolitical shifts under the tense situation in the Strait of Hormuz. The US-Iran conflict continues to escalate with no signs of substantial easing; as confrontation intensifies, military strikes are expanding to regional energy infrastructure, with geopolitical risks spilling over. Second, global liquidity is shifting towards a phase of tightening. Under rising oil prices and inflation expectations, easing expectations are compressed, and global liquidity environment is marginally tightening, putting pressure on risk assets. “Two Unchanges”: First, policy expectations remain unchanged. When implementing measures based on the spirit of the National Two Sessions, the central bank emphasizes maintaining stable operation of stock, bond, and foreign exchange markets, with the overall direction of policy support for a stable and healthy capital market unchanged. Second, the long-term liquidity pattern remains stable and improving. The combination of household wealth relocation and long-term capital entering the market ensures a definite improvement in the supply of medium- and long-term funds for A-shares.

A-Share Market Investment Outlook

Focus 1: The escalation of US-Iran conflict drives energy and alternative demand, paying attention to coal chemical industry, coal, shipping ports, oil and gas. Non-ferrous metals have recently corrected significantly; focus on valuation space and cost-effectiveness after correction. Focus 2: The market shifts toward defensive assets, such as financials, utilities, and transportation. Focus 3: Technology innovation sectors, including power equipment, new energy, energy storage, semiconductors, computing power, and communication equipment. Additionally, the valuation of consumer sectors is at historically low levels, with some sub-sectors having potential for recovery, such as agriculture, forestry, animal husbandry, fishery, food and beverages, and household appliances.

Risk Alerts

External uncertainties; policy risks falling short of expectations; market sentiment instability and ongoing liquidity adjustments.