Industrial Securities' Wang Han discusses Middle East situation; the trends of the US dollar and gold are the "barometers"

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Source: Caixin Global

The ongoing escalation of geopolitical tensions in the Middle East continues, volatility in global commodities markets has intensified, and investors are highly focused on energy supply security, the evolution of inflation expectations, and the direction of major-asset allocation.

Against this backdrop, Caixin Global exclusively interviews Wang Han, Chief Economist at Industrial Securities, who provides a comprehensive interpretation—from the impact of geopolitical conflicts on energy prices, to the transmission logic between global and domestic inflation and monetary policy, and to A-share allocation strategies in the second quarter—so as to help the market clarify the investment mainline and deployment approach under geopolitical disruptions.

Key viewpoints are as follows:

First, both Iran and the U.S.-backed side have incentives to push for a Strait blockade, and in the short term the tight energy-supply situation is unlikely to be relieved quickly; oil prices also likely won’t fall meaningfully in the short term.

Second, the impact of oil prices on each country depends on the pattern of a Hormuz Strait blockade. If it is an “structural” blockade led by Iran, it may cause divergence among WTI, Brent oil, and Shanghai crude oil prices, with Shanghai oil prices rising relatively modestly; if it is a comprehensive blockade promoted by the U.S. and its ally, global oil prices could rise in tandem.

Third, in the short term, a rise in international oil prices or the level at which they lift domestic inflation will place some constraints on the room for monetary policy easing. Currently, China’s monetary policy tone of appropriately easing is already clearly defined, and there is still plenty of policy space for “stabilizing growth” domestically.

Fourth, regarding second-quarter allocation strategy, A-shares should not be overly pessimistic and have clear support. At the tactical level, for the shock from the U.S.’s phased tactical victories, an inverse (counter-trend) approach should be taken to avoid blindly chasing highs. Focus should be placed on the movement of the U.S. dollar and gold. If the market begins to judge that the probability of the United States winning is very low, a reversal may occur with gold strengthening and the dollar weakening, and the market will enter a turning point.

Oil prices running at high levels lift global inflation; the Fed faces a higher threshold for tightening

The core disruption from the Middle East geopolitical conflict is concentrated on the energy supply side. Concerns about an interruption in oil supply continue to intensify, which is also the key focus for global capital markets at present.

Wang Han points out that both Iran and the U.S.-backed side have incentives to push for a Hormuz Strait blockade, and the tight energy-supply situation is unlikely to be relieved quickly in the short term. Iran wants to weaken the U.S.’s influence in the Middle East by taking the lead in the rules for the Strait’s passage; meanwhile, if the U.S. and its ally are unable to completely eliminate Iran’s interference with passage through the Strait, they may conduct “false-flag” operations to attack ships from other countries in order to undermine relations between Iran and other countries.

At present, most countries have not clearly chosen sides. While China urges the U.S. and its ally to stop fighting and supports Iran in maintaining stability, it also emphasizes the need to prevent fighting from spilling over beyond the region. Europe’s stance depends on its assessment of the probability that the U.S. will win; the primary demand of Arab countries is to ensure that they do not become the frontline in the U.S.’s confrontation with others—if the U.S. and its ally keep winning, they may tilt toward the West, but if the U.S. shows signs of fatigue, they would more prefer to use Iran to eliminate the U.S.’s military presence within its own country. In the short term, the tight energy-supply situation is unlikely to be relieved quickly, and oil prices are also likely to not fall meaningfully in the short term.

The impact of oil prices on each country depends on the pattern of a Hormuz Strait blockade. If it is an “structural” blockade led by Iran, it may cause divergence among WTI, Brent oil, and Shanghai crude oil prices, with Shanghai oil prices rising relatively modestly; if it is a comprehensive blockade promoted by the U.S. and its ally, global oil prices could rise in tandem.

According to the Fed’s model forecasts, if oil prices rise by 10%, the overall U.S. inflation rate would increase by about 0.15 percentage points. If WTI stays at 80, 90, or 100 U.S. dollars per barrel through year-end, this year’s U.S. CPI year-over-year central tendency would rise to 3.08%, 3.30%, and 3.51%, respectively. If the blockade continues and spills over to more Gulf countries’ oil infrastructure and ports, the U.S. CPI year-over-year growth rate may at least break through 4% in a phased manner. Europe is more dependent on external energy and faces greater exchange-rate pressure. The ECB’s forecast indicates that if energy supply disruption continues into the third quarter and possibly extends into the fourth quarter with serious damage to energy infrastructure, the Eurozone’s 2026 HICP year-over-year would rise to 3.5% and 4.4%, respectively.

Against this backdrop, central banks in developed economies may first pause easing. However, the U.S. faces multiple constraints, including rising defense spending, the AI narrative entering a validation period, and increasing fragility in financial markets. Before markets form expectations that the U.S. strategy has failed and the dollar’s status declines, the threshold for the Fed to switch to tightening is higher.

China’s long-term export advantage remains unchanged, and there is still ample room for monetary policy

China and the Middle East have close economic and trade ties. Unrest in the geopolitical situation is unavoidable and will have a phased impact on bilateral trade; the export end is the first to face tests.

In this regard, Wang Han says that China and the Middle East have strong industrial-structure complementarity and have remained the Middle East’s largest trade partner for many consecutive years. In the short term, due to regional unrest in the Middle East and surrounding areas, the shipping transport cycle will be lengthened, route freight and insurance fees will rise, and exports may therefore face some impact. Among these, industries with relatively high shares of exports to the Middle East—such as steel, automobiles, and household appliances—may be hit relatively more. But in the long run, the core of our export competitiveness lies in a complete industrial system, the advantages of scaled production, and the resilience of industrial chains; these will not change due to phased geopolitical shocks, and the export advantage will continue.

On inflation, Wang Han believes that in the short term, an uptrend in international oil prices or the extent to which they lift domestic inflation will create some constraints on the room for monetary policy easing. From the perspective of international oil prices themselves, the tight energy-supply situation is unlikely to be rapidly relieved in the short term; oil prices will likely remain elevated. This will push up the domestic PPI’s central tendency, and inflation rising will objectively constrain the room for monetary policy easing.

However, under the influence of domestic pricing mechanisms, the likelihood and impact scope of extreme price fluctuations are generally controllable. Although China’s overall inflation level is influenced to a certain extent by the transmission of overseas energy and other commodity prices, it is also affected by domestic pricing mechanisms under demand-side fundamentals. On the one hand, under the joint effect of macro policy management and energy substitution, the transmission coefficient from international oil prices to domestic energy prices may be reduced. On the other hand, on the policy side, by adhering to bottom-line thinking and on the economic side shifting to the new supply framework of “slowing down growth + improving efficiency,” the likelihood and impact scope of extreme price fluctuations are generally controllable.

At present, the tone of appropriately easing monetary policy has been clearly defined, and there is still ample domestic policy space for “stabilizing growth.” On March 22, Pan Gongsheng, Governor of the People’s Bank of China, clearly stated that it will continue to implement an appropriately easing monetary policy, comprehensively apply a range of tools to keep liquidity ample, and provide clear guidance for future policy directions. Overall, China’s monetary policy, while sticking to the orientation of stabilizing growth, still has sufficient policy space and precise policy-control capabilities, enabling it to support the steady operation of the real economy effectively on the basis of ensuring price stability.

Second-quarter allocation strategy: A-shares have strategic support; gold is worth watching

Under geopolitical disruptions, second-quarter asset allocation has become a central issue for the market. Wang Han believes that at the strategic level, A-shares should not be overly pessimistic and have clear support. The certainty of long-term economic development in China provides solid backing to the market. At the same time, domestic capital-market regulation and macro decision-making attach great importance to market stability, giving A-shares the role of a “stabilizer.” Although restricting China’s development in the West remains a core external constraint, the U.S. is in a passive situation in the Middle East, which objectively also creates a more favorable strategic environment for China.

At the tactical level, we need to confront the intensification of market volatility head-on and maintain an inverse (counter-trend) operating approach. Capital markets naturally dislike risk, and A-shares are especially sensitive to this. If the U.S. increases military actions against Iran, sends additional ground forces, or if oil transport through the Hormuz Strait is obstructed, investors with shorter liability maturities will be the first to develop risk-avoidance demands; meanwhile, if the local geopolitical situation falls into a stalemate lasting for months, institutional investors will also turn more cautious. In the short term, Iran does not yet have a tactical advantage, and the U.S. likely can achieve some tactical gains. Therefore, the shock from the U.S.’s phased tactical victories should be met with an inverse approach to avoid blindly chasing after gains.

In addition, Wang Han particularly emphasizes that attention should be focused on the movement of the U.S. dollar and gold. Recently, gold has weakened and the dollar has strengthened, reflecting that the market has not yet recognized the U.S.’s strategic failure in the Middle East. If the market begins to believe that the probability of the U.S. winning is very low, a reversal will occur with gold strengthening and the dollar weakening, and the market will enter a turning point. At that time, investors can focus on gold allocation opportunities and use gold as a tool to hedge geopolitical risks and potential inflation.

For overseas asset allocation, given the geopolitical stalemate and the rise in potential risks across multiple regions such as South Asia, Eastern Europe, East Asia, and China-U.S. relations, it is necessary to diversify risk and avoid excessive concentration of assets to deal with a market environment where volatility intensifies.

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