Shenwan Hongyuan Strategy | One month after the Israel-U.S. conflict, what is the current valuation of major asset classes?

(Source: Shenwan Hongyuan Rongcheng)

One month after the Israel-Hamas conflict, how do the major asset classes currently compare in value and sentiment?

— Weekly Focus on Global Asset Allocation (20260320-20260327)

Investment Tips for This Period:

Review of Global Capital Markets: This week (20260320-20260327), Middle Eastern geopolitical conflicts continued to push oil prices higher. US economic data showed consumer confidence was hit, and inflation expectations rose, increasing stagflation risks and delaying rate cuts. 1) Fixed income: the 10-year US Treasury yield marginally increased by 5 basis points to 4.44%, and the US dollar index rose 0.67%; 2) Equities: South Korean markets declined significantly this week, while the A-share index fell across the board except for the China Securities Convertible Bond Index; 3) Commodities: gold fell 1.72%, while geopolitical tensions drove oil up 2.12%.

One month after the Israel-Hamas conflict, how do the major asset classes’ current sentiment and valuation indicators stand? 1) Short-term technical indicators: US stocks reflect a relatively pessimistic outlook. As of March 27, 2026, the VIX index was at 10.22, compared to about 4 on April 7, 2025, and May 11, 2022. The AAII retail investor sentiment index on 20260326 was 49.79%, down 25.3% from before the Middle Eastern conflict on 20260227; compared to the low point of US stocks during the tariff period in April 2025, it is down 15.5%, roughly flat compared to the May 2022 lows. 2) Implied volatility: Gold, aluminum, and US stocks have implied volatilities at absolute highs; oil and copper implied volatilities are at relatively high levels, while A-share volatility is neutral. Implied volatilities for Shanghai Gold, Shanghai Copper, Shanghai Aluminum, and crude oil are at the 98.6%, 87.7%, 99.3%, and 69.6% percentiles, respectively. For A-shares, the implied volatilities of the CSI 300 and CSI 1000 are at the 49.7% and 83.8% percentiles; for US stocks, the S&P 500 and Nasdaq 100 implied volatilities are at the 96.2% and 90.9% percentiles. Both A-shares and US stocks saw overall increases in implied volatility across options prices this week. Regarding options positions as of 2026/3/27, the open interest for April-expiring call options at 4800–5000 points on the CSI 300 decreased compared to the previous week, indicating a slight reduction in bullish sentiment. 3) Mid-term valuation: risk assets are overall neutral, still some distance from the lows of April 2025 and 2022. From the perspective of P/E percentile rankings, the Shanghai Composite Index’s valuation percentile is below Korea’s KOSPI200 (91.3%) and France’s CAC40 (93.2%), but above the S&P 500 (80.8%), at 89.8% over the past 10 years, though absolute valuation levels remain significantly lower than major developed markets like the US, Japan, and Europe. From an ERP perspective, the ERP percentiles for Brazil’s São Paulo, CSI 300, and Shanghai Composite are still relatively high. From a stock-bond valuation standpoint, China’s stock market still offers good allocation value globally. Regarding risk-adjusted return percentiles, US stocks have experienced a more substantial correction. As of 2026/3/27, the risk-adjusted return percentile for the S&P 500 dropped to 6%, the Nasdaq’s to 5% from 9%, while the CSI 300’s risk-adjusted return percentile increased from 39% to 42%. The GSCI commodity index’s risk-adjusted return percentile remains high at 85%.

Global capital flow tracking: As of 2026/03/25, foreign capital continued to flow into Chinese stocks, while domestic capital overall flowed out; in terms of active and passive overseas funds, active foreign funds withdrew $180 million last week, while passive foreign funds inflowed $1.61 billion; domestically, foreign capital inflowed $1.43 billion last week, while domestic capital outflow was $680 million; last week, global fund outflows from money market funds were significant; fixed income funds: US fixed income funds saw notable inflows, totaling $5.1 billion this week; equity funds: US stock market saw a large outflow of $27.02 billion; in terms of relative flows, Chinese equity funds experienced significant outflows last week; sector-wise, US funds flowed heavily into financials, utilities, and healthcare, while technology and industrial sectors saw large outflows; Chinese stock funds saw inflows into technology and healthcare. Regarding commodities, among overseas-listed commodity ETFs this week, both copper and gold experienced positive net inflows, with copper showing stronger resilience. Oil and agricultural products continued last week’s inflow trend. Global asset risk sentiment indicators: US stocks, on the index level, the S&P 500 remains below its 20-day moving average; the put-call ratio remained unchanged from last week. Global economic data: US inflation expectations have eased. China’s recovery signals await further confirmation. US Federal Reserve rate cut expectations: as of 2026/3/28, expectations for rate cuts within the year have slightly increased. Key economic indicators next week: China March manufacturing PMI, US March employment data.

Risk warning: Short-term asset price fluctuations may not reflect long-term trends; deep recessions or unexpected downturns in Europe and the US; significant policy shifts in the US during Trump’s administration.

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