Editor's note: The 12-Day War between Israel and Iran was a short yet intense conflict. Israel conducted airstrikes and ground operations in response, leading to considerable casualties and destruction. This conflict underscored the ongoing tensions surrounding nuclear capabilities and regional power dynamics. While it concluded after 12 days, the underlying hostilities between the two countries continued.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. The recent conflict between Israel and Iran has captured the market's attention. On the 24th, both sides reached a temporary ceasefire agreement, but within hours, they accused each other of breaching it. Will the situation in the Middle East fall into a cycle of "conflict-ceasefire-re-conflict" in the near future? What impact will geopolitical risks have on different asset classes? In this episode, we invite Tan Haojun, financial commentator and adjunct professor at Zhongnan University of Economics and Law, Yu Fenghui, new finance expert from Top100 HK-Listed Companies Research Center (HKLCRC), along with financial commentator Guo Shiliang, to provide analyses from various perspectives. Hello everyone!
The current "12-day flare-up" between Israel and Iran seems to have temporarily eased. As a result, the capital market has shown fluctuations, shifting from risk aversion to a more risk-on sentiment. Mr. Yu, how do you assess its impact on the market?
【Yu】Firstly, the 12-day flare-up between Israel and Iran, although brief, has caused significant volatility in market sentiment. As we know, investors typically exhibit risk aversion during conflicts, which is reflected in the stock market. Notably, oil prices have surged rapidly. This is particularly significant given the Middle East's traditional importance as a key base for oil supply, especially Iran. This greatly impacts oil supply. Another effect is on precious metals like gold. When risk aversion increases in the market, capital moves away from risk assets and seeks out safe-haven assets. Gold is considered the best safe-haven asset. We observed that gold prices once rose significantly but later corrected following the ceasefire. This correction has continued over the past few days, including with oil prices also adjusting.
【Anchor】OK, Mr. Guo, what are your thoughts?
【Guo】The conflict between Israel and Iran is currently viewed by the market as a short-term conflict and not likely to escalate into a full-scale war. This has led the market to adopt a cautiously optimistic attitude regarding the further deterioration of geopolitical circumstances. For the A-shares and Hong Kong stocks, while there may be short-term impacts from the fluctuations in geopolitical situations, the long-term effects—including those from previous conflicts like the Russia-Ukraine war—are relatively limited on A-shares, Hong Kong stocks, and even the global market. In terms of duration, the short-term impact generally lasts a few weeks to a month, while the medium-to-long-term impact does not exceed six months. Therefore, this localized geopolitical situation between Israel and Iran is expected to have a relatively limited effect on A-shares and Hong Kong stocks. In other words, as long as this conflict does not escalate or lead to a full-scale war, the impact of this geopolitical situation on overall market sentiment will remain relatively limited. The market is likely to digest this round of uncertainty risk in the short term.
【Anchor】Although there are signs of easing in the Middle East situation, we see that both sides have accused each other of violating the ceasefire agreement shortly after it was reached. Does this indicate that the uncertainty brought by the external environment still exists?
【Guo】After reaching the ceasefire agreement, both sides quickly accused each other of breaching it. In fact, this turmoil primarily relates to the geopolitical situation, especially localized geopolitical tensions. As mentioned earlier, the market's focus is on whether this conflict will expand from a localized situation to a full-scale war. However, at this stage, the likelihood of expanding to a full-scale war remains limited. Therefore, as long as this conflict does not experience a substantial escalation or transition into a full-scale war, its impact on the global economy and the Middle East situation is also relatively limited. In the short term, we will still see fluctuations in market sentiment, while in the medium to long term, we need to observe changes in the nature of this conflict.
【Anchor】Mr. Tan, what is your outlook on the Israel-Iran situation, including your thoughts on the role of the United States?
【Tan】This conflict, especially after the U.S. airstrikes on Iran, has produced a dramatic scene. President Trump unexpectedly announced that both Israel and Iran would soon cease fire. Notably, Trump did not seem upset at all when faced with Iran's attack on the U.S. military base in Qatar. This shows that the so-called ceasefire is entirely Trump's unilateral wish, likely aimed at giving Israel some breathing room. In fact, after this conflict, compounded by more than six months of ongoing fighting, Israel has reached an extreme level of fatigue. The Israel-Iran relationship is unlikely to calm down quickly; rather, it will likely involve ongoing skirmishes alongside negotiations.
【Anchor】So, will the geopolitical risk from the Israel–Iran conflict gradually diminish its impact on the market?
【Yu】In the short term, geo-political risks will certainly not disappear completely. This agreement between Israel and Iran was ultimately the result of Donald Trump and the U.S. government forcing it upon the parties, like trying to make an horse drink water by pushing its head down. However, the fragility of this agreement and the deep-seated contradictions have not been resolved, making it prone to flare up at any moment. Particularly in the oil market, given that the Middle East is a major oil-producing region, the geopolitical tensions are severe. The ongoing conflict in Gaza, along with groups like the Houthis, Hezbollah, and Iraqi militias—all proxy forces of Iran—are potential triggers for conflict with Israel. Therefore, while there may be a temporary downward adjustment in global oil prices, it is questionable whether prices will continue to decline in the long term.
Moreover, in the stock market, investors may focus more on corporate fundamentals and macroeconomic data rather than individual geopolitical events. Thus, the impact of Middle Eastern geopolitical issues on the stock market is very short-lived, primarily affecting gold, oil, and precious metals. The stock market will gradually respond to these events, but such reactions will diminish over time.
【Anchor】Additionally, the Israel–Iran relationship is not only bilateral but also affects surrounding countries. How do you assess this aspect of the impact?
【Yu】Surrounding countries may adjust their foreign policies based on their interests. Some may support one side in exchange for security guarantees or economic assistance. Furthermore, the stability of the North Africa and Middle East regions will affect Europe's immigration trends and the risks of terrorism. Lastly, in the context of conflicts in the Middle East, ESG (Environmental, Social, and Governance) investments might flow to relatively stable regions. The first choice would be the U.S. stock market, followed by Southeast Asia, which seeks a secure investment environment. This also includes Hong Kong and Macau, where firms could pursue Hong Kong listings to avoid regional risks. Thus, the Hong Kong financial market and stock market may see opportunities. However, we must be realistic about whether such trends will materialize, as they depend on specific market conditions and changes in other factors, especially the policies of the central government and the Hong Kong Special Administrative Region government regarding openness and attractiveness to capital.
【Anchor】Hong Kong has recently strengthened cooperation with Middle Eastern countries. Will geopolitical factors adversely affect Hong Kong's cooperation with these countries?
Mr. Tan, what is your view on the prospects for cooperation between Hong Kong and Middle Eastern countries?
【Tan】Hong Kong's strengthening of cooperation with the Middle East is a very correct choice and a necessary step to further expand Hong Kong's economic influence and enhance its ability to withstand risks. Although the Israel–Iran conflict has had a significant impact on the Middle East, it does not hinder cooperation between Hong Kong and the region. In particular, attracting Middle Eastern companies to list in Hong Kong for a secondary offering is an excellent choice and a very sound decision. This can enhance the activity and influence of the Hong Kong market, providing investors with more investment opportunities. It can be expected that in the near future, the Hong Kong market will become a key focus for Middle Eastern companies, and the Hong Kong stock market will enter a new bull market phase.
【Anchor】Recently, the Hong Kong Stock Exchange has been actively attracting Southeast Asian and Middle Eastern companies for secondary listings, accelerating efforts to bring regional enterprises to Hong Kong. Mr. Guo, do you think the influx of funds and companies from the Middle East and Southeast Asia into Hong Kong will become a new trend?
【Guo】From a future trend perspective, the Hong Kong stock market has already established a certain profit-making effect. With this profit-making effect in place, more companies and funds will likely flow into the Hong Kong market. We particularly need to pay attention to the process and speed of large-cap A-share companies listing in Hong Kong in the second half of the year. If an increasing number of A-share companies move to the Hong Kong market, it could intensify the competition for existing liquidity. In the context of existing capital competition, if there is no substantial influx of new capital into the Hong Kong market, it may lead to a shift from a one-sided upward trend to high-level fluctuations. Therefore, the main focus for the Hong Kong market in the second half of the year will be the progress of large-cap A-share companies listing in Hong Kong and the scale of IPO fundraising in the market.
【Anchor】The influx of capital has increased the strength of the Hong Kong dollar, but it has also raised the risk of carry trade. Last Thursday morning, the Hong Kong dollar reached the "weak side convertibility guarantee," prompting the Hong Kong Monetary Authority (HKMA) to purchase a total of HKD 9.42 billion to stabilize the exchange rate. Mr. Guo, how do you view the challenges posed by the influx of funds into Hong Kong on the linked exchange rate system?
【Guo】From a medium to long-term perspective, the linked exchange rate system does not face systemic risks. Although short-term arbitrage pressures exist, with the Federal Reserve gradually entering a new round of interest rate cuts and the continued recovery of Hong Kong's economic fundamentals, the foundation of the linked exchange rate system remains intact. In the short term, the HKMA will also implement a series of measures to maintain market liquidity. Therefore, while short-term arbitrage pressures are present, they will not significantly impact the entire linked exchange rate mechanism. For the market, short-term sentiment may fluctuate greatly, but medium-to-long-term issues are manageable.
【Anchor】Finally, looking ahead to the second half of this year, considering factors such as Trump's tariff policies, the Israel–Iran conflict, the AI race, stablecoin issuance, and exchange rate fluctuations, Mr. Guo, which factors do you think will be core influences on the market?
【Guo】In my view, whether Trump's tariff policies continue to escalate should be the main factor influencing the market for the second half of this year and even for next year. Trump's policies bring the most uncertainty, especially the risk of black swan events, and his tariff policies are erratic. As the 90-day tariff policy window gradually come into effect, will they be extended? Or will there be more black swan events? There are still certain uncertainties. Therefore, we should pay attention to changes in tariff policies and whether the Federal Reserve will take substantial interest rate cut actions in the second half of the year, as these will directly affect the direction of the global economy and capital markets.
【Anchor】OK, Mr. Yu, what do you think?
【Yu】Overall, I am relatively optimistic about the outlook for the second half of the year. I believe that if geopolitical tensions gradually ease and Trump's tariff war moves towards resolution, the overall global financial markets—especially in Asia, including our Hong Kong market and the mainland markets—should see some positive developments in the latter half of the year. I feel quite hopeful about this.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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