[Shenwan Hongyuan Strategy | Weekly Review and Outlook] Under the US-Iran conflict, the macro scenario is about to converge

1. Currently, A-shares are priced with room for both upside and downside risks, representing a neutral valuation but not yet a steady-state valuation. The market is still adjusting its medium-term scenario assumptions and probability distributions significantly based on the catalyst of the US-Iran conflict. Short-term market volatility remains high, and it is not the time to make heavy bets. The macroeconomic scenario in the medium term is gradually converging, but the final critical convergence ( has yet to occur. Even if the US initiates ground operations, they will withdraw relatively quickly ). Once the key convergence is realized, the most impactful moment of the US-Iran conflict on the capital markets will have passed, and risk appetite may bottom out and rebound.

2. The pricing of US-Iran conflict risks in A-shares is not yet at a steady state in the short term, but it has reserved space for both upside and downside risks, which can be viewed as an “unstable neutral state”: if the Federal Reserve raises interest rates to respond to rising inflation, leading the economy into stagflation, global stock markets may “fall sharply, rebound, then fall slowly.” The capital market has not yet cleared pessimistic expectations about stagflation. Meanwhile, the market’s positive valuation of China’s energy security and supply chain security is also insufficient. The demand alpha from China’s export chain and the ability to pass on costs overseas, possibly resonating with Middle Eastern capital pricing + foreign capital inflows, will lead to a reassessment of country-specific strengths and drive A-shares to quickly regain strength. Both upside and downside risks are not fully priced in, and the medium-term scenario has not yet converged. Therefore, in the short term, A-shares are not yet in a stable equilibrium, but they are in a neutral state.

3. In the short term, the market is still catalyzed by the US-Iran conflict, leading to significant adjustments in medium-term scenario assumptions and probability distributions. This manifests as the market’s sensitivity to event catalysts, sustained high volatility, and suppressed risk appetite. This indicates that it is not yet the time to make heavy bets based on medium-term outlooks.

4. The medium-term macro scenario has not fully converged, but some consensus is forming. We focus on three points: 1. The US-Iran game will be a medium- to long-term issue, which is already a consensus. The market has responded to some changes in the mid-term asset pricing center. 2. The outlook for medium-term monetary policy is becoming more objective: while the Fed responds to rising inflation, it also needs to address a weak labor market and promote manufacturing relocation. Our projection suggests that, facing cost shocks, the US economy is “prone to stagnation, not inflation.” During stagflation-like phases, cautious observation is appropriate; during recession-like phases, rate cuts are likely. This implies that the medium-term stagflation outlook is not the baseline assumption; confirmation of stagflation expectations will likely wait until the Fed’s policy stance is confirmed around May (. 3. The US government’s understanding of potential landing operations ) aims to avoid long-term conventional wars, achieve tactical goals, and withdraw promptly. The Middle East order remains uncertain (, which is not fundamentally different from the capital market. Once the US initiates landing operations and quickly withdraws after achieving tactical objectives, this will be a key convergence point for the medium-term macro scenario. Correspondingly, the most impactful moment of the US-Iran conflict on capital markets will have passed, risk appetite may bottom out and rebound, and the mid-term bottom of A-shares could be confirmed.

5. The realization of a secondary bottom + key convergence of macro scenarios + policies aimed at steady progress and long-term stability suggest that an important medium-term low may be near. Since November 2025, overseas value stocks have outperformed growth, and from mid-January 2026, A-shares have followed from sector rotation, style switching, to HALO trading, and then to the US-Iran conflict, the relative valuation of growth has significantly improved. The new economy and strategic resources remain inflation assets of the era. The most impactful moment of the US-Iran conflict has passed, and bottom-up stock picking will gradually regain effectiveness. This time, the market bottom is also the bottom for small-cap growth styles.

6. In the short term, uncertainty surrounding the US-Iran conflict continues to suppress risk appetite, and the secondary bottom is being realized. If the key macro scenario convergence occurs later, combined with policies for steady progress and long-term stability to protect market stability and accelerate the clearing of pessimistic positions, we believe an important medium-term low may be near.

7. This low could be both the market bottom and ) the bottom for small-cap growth ( styles. Overseas, value styles have outperformed growth since November 2025. Domestically, after the run of computing power inflation, commercial aerospace, and AI applications, a correction phase for small-cap growth also began in January 2026. Both domestically and internationally, the process of market evolution is similar: starting from sector rotation and style switching, through HALO trading and the US-Iran conflict, small-cap growth styles are now relatively high in valuation. Once the most impactful moment of geopolitical conflict on capital markets passes, macro cycles and geopolitical conflicts will no longer be the main contradictions, and the previous medium-term pattern will gradually return. The new economy and strategic resources remain inflation assets of the era. Bottom-up stock picking will gradually regain effectiveness, with a stabilizing profit effect and a slow restart of the upward phase. Therefore, this time, the market bottom is also the bottom for small-cap growth styles.

8. After the medium-term low appears, the market will revert to a “two-phase rally” path, with a “consolidation and correction” period between the two phases. This will continue for some time, awaiting positive fundamental signals, earnings, and time to digest valuations. With technological breakthroughs in industry, market structure consensus will re-coalesce, and profit effects will drive incremental capital cycles. The second phase of the rally could start in Q4 2026, driven by fundamental and liquidity resonance, opening up full upside potential.

9. During the consolidation and correction phase of the two-phase rally, high-elasticity investment opportunities will mainly come from extending the technology theme and expanding macro narratives. While some sub-sectors still have independent opportunities, sector linkages are weak, and profit effects are hard to broadly spread. In the strong technology “reality-focused” direction before the US-Iran conflict, short-term opportunities remain, especially in optical communications, gas turbines, and energy storage. In the next phase, new energy, new energy vehicles, and export chains are directions that can verify economic recovery. Short-term, buying for hedging may be less effective, but future opportunities in sectors with improving prosperity remain important.

10. During the consolidation and correction period, high-elasticity investment opportunities still stem from extending the technology theme and expanding macro narratives. While some sectors have independent opportunities, sector linkages are weak, and profit effects are hard to broadly spread. It is necessary to switch among a few sectors with strong growth prospects.

11. During the high-elasticity phase impacted by the US-Iran conflict, high-elasticity investment opportunities are generally suppressed. Once the most impactful moment of the conflict passes, high-elasticity sector rotation remains effective. Specifically, in the short term, the strong technology “reality-based” direction before the conflict still offers opportunities, especially in optical communications, gas turbines, and energy storage. Future rotation directions will focus on new energy, new energy vehicles, and export chains. In a low-risk appetite phase, new energy is viewed as a hedging asset, but its effect is currently limited. As order inflows increase, supply-demand improves, and overseas pass-through becomes effective, the market will enter an economic recovery phase, with new energy, new energy vehicles, and export chains remaining key investment opportunities. Additionally, new energy may become a structural basis for foreign capital inflows and country-specific strength re-evaluation, forming a direction with upward elasticity and profit-sharing potential.

Risk warning: Overseas economic recession exceeds expectations; domestic economic recovery falls short of expectations.