Editor's note: The ceasefire process between the U.S. and Iran has seen new developments. Last week, U.S. President Trump said on social media that the ceasefire deadline with Iran would be extended. While negotiations between the two sides are still in a game-theoretic phase, global equities rebounded last week. Is the impact of the geopolitical situation on the market starting to weaken?
【Anchor】The ceasefire process between the U.S. and Iran has seen new developments. Last week, U.S. President Trump said on social media that the ceasefire deadline with Iran would be extended. While negotiations between the two sides are still in a game-theoretic phase, global equities rebounded last week. Is the impact of the geopolitical situation on the market starting to weaken?
【Anchor】Welcome to DDN Business Insider. Today, we're joined by Mr. Li Daxiao, former chief economist of a securities firm; Mr. Wu Lixian, global securities strategist at Everbright Securities International; and Mr. Zhang Chaoyue, head of the strategy team at Northeast Securities. They will help us analyze market trends amid changes in the Middle East situation. Hello everyone!
【Anchor】First, Mr. Wu, last week we saw a clear rebound in both U.S. and Hong Kong stocks, and major U.S. indexes even hit recent highs. Some believe negotiations between the U.S. and Iran are still stuck in a stalemate. So, does the stock market's rise mean that investors have already become "desensitized" to the Middle East situation?
【Wu】I don't think this implies that the market has become immune to the Middle East situation. In fact, for both Hong Kong stocks and global markets, we still see that investors are very focused on the Middle East, especially progress in negotiations between the U.S. and Iran, which remains a key focus.
As for the rebound, the main reason is that, compared with the intensity of the large-scale attacks between the two sides back in March, the market widely believes that the worst of that situation has already passed, so it helped drive a global market rebound.
Second, although investors are still paying attention to negotiation developments, the news changes every day. Today it might look more relaxed, and tomorrow it could become tense again. If investors keep reacting minute-by-minute, it can actually leave them feeling uncertain and unable to respond properly. So, some funds are now taking a more medium-term stance, observing how things ultimately play out. That provides the market with a "breathing space," which also supports the rebound.
【Anchor】Yes. Mr. Zhang, do you think it means the market's reaction to the Middle East situation is weakening now?
【Zhang】We believe that, although there are still geopolitical disruptions, we can basically understand that the market has already become desensitized. We think the most panicked moment for the market has already passed.
Trump still talks tough, but his actions show a strong desire for peace talks. This makes most market participants more willing to believe that the probability of the situation cooling down is higher than the probability of it escalating.
Second, we also have reassurance from the Federal Reserve. As we know, in early April, Powell and Williams both made statements aimed at calming the market. They also signaled that the Fed would not raise rates just because of a specific month's supply shock, i.e., not to choke off demand to combat what it sees as transitory inflation through rate hikes.
These signals have led to a clear "desensitization" in the way rates respond to oil prices.
【Anchor】Okay. Compared with the previous clearly defined ceasefire periods, for example, a two-week ceasefire, right now the U.S. and Iran are in a state of "indefinite extension of the ceasefire agreement." In this situation, Mr. Wu, for changes in market sentiment going forward, are there any key events or time checkpoints that we still need to pay close attention to?
【Wu】I think there are a few events that could be relatively important. First, there's a chance that in May, U.S. President Trump may visit China. His trip schedule and the content of what he discusses could have a fairly significant impact on Hong Kong stocks.
Second, the nomination process for the new Federal Reserve Chair is expected to move forward in May. The new chair's judgment on interest rates could also have a meaningful impact on external markets.
Third, we're currently in Hong Kong's earnings season. Many companies have released their second-quarter results, and the data that others release later will affect Hong Kong stock valuations and overall market sentiment in a significant way.
As for the fourth, it's the performance of the mainland economy. Looking at the first quarter this year, the economy still looks quite strong. The GDP for the first quarter reached 5%, which is also better than market expectations. If the second quarter can maintain a relatively strong performance, it will help the market reinforce confidence in the mainland's full-year growth target of 4.5% to 5%.
So overall, these four factors are relatively important for Hong Kong's equity investment market going forward.
【Anchor】Okay. Actually, when the idea of an "indefinite extension of the ceasefire agreement" was introduced, some analysts pointed out that this is Trump learning from past lessons—giving himself room to change his mind if needed. Mr. Li, how do you view it? Could the U.S. and Iran suddenly resume fighting?
【Li】No matter how we look at it, whether it's the stockpiles of weapons and ammunition, the production capacity afterward, or the state of readiness, I think the worst-case scenario and the largest impact have already been gradually absorbed rather than being yet to come.
So, from these angles, even though there could be some back-and-forth, I think the probability is higher that it will involve making some concessions rather than a sudden full restart of hostilities.
【Anchor】Okay. Mr. Zhang, what's your view?
【Zhang】Compared with many market perspectives, we're actually more optimistic. We believe the probability of a renewed round of hostilities is very low. There are mainly two reasons.
First, if we look from Trump's perspective, although Trump's personality is very "dramatic" and he can be inconsistent and swing back and forth, the main line of his behavior has always been very clear—his midterm election.
We know that if he loses the midterms, Trump could face impeachment, and over the next two years, he could effectively become a "lame-duck" president—being stuck in that awkward situation where orders can't be carried out from the White House. That is definitely an outcome he cannot tolerate.
At the moment, we see that as the war continues, it turns into "spending money to invite trouble", or at least a situation where he puts in effort but gets nothing favorable in return. This is particularly unfavorable to the midterm election. We believe Trump already doesn't want to keep continuing in that direction.
Second, looking at Iran: Iran itself is also under heavy pressure. The Strait blockade means Iran is still bleeding about USD 400–500 million in economic losses every day. As those fiscal and economic pressures keep accumulating, it becomes increasingly painful for Iran.
On the other hand, as the blockade drags on longer and longer, the international community's patience for maintaining the Strait blockade may continue to decline. So, Iran will face stronger pressure from the international side as well.
So, in this context, where both sides have incentives to pursue a peaceful outcome, we believe the likelihood of renewed fighting is not high.
【Anchor】Okay. If geopolitical risks keep recurring, Mr. Li, do you think market "resilience" for major asset classes such as equities and gold is stronger than before?
【Li】Judging from gold's recent trend, it's gradually moving into a phase after a major shock—more like the aftershocks stage. In this stage, it's similar to the stock market. After a major shock, it gradually transitions into a period where other factors play a larger role.
Also, U.S. stocks, Japanese stocks, and Korean stocks have already reached historical highs. That means expectations have already reflected a gradually improving trend to a considerable extent. So, I think the "big shock" phase across major asset classes may be gradually over. Going forward, it's more likely that basic fundamentals will matter more than before, especially earnings and performance. Of course, some assets that were priced too expensively will also revert to fundamentals, and the probability of that happening is higher.
In the next stage, earnings may become the main driver, and the rollout of AI could also be a key factor.
【Anchor】Okay. Mr. Wu, if the geopolitical situation continues to fluctuate, how do you view gold's outlook going forward?
【Wu】Traditionally, gold is a good safe-haven asset. But in this round, amid the Middle East escalation, gold's safe-haven effect hasn't been very obvious. That's because gold is influenced not only by safe-haven sentiment, but also heavily by the interest-rate environment.
When the U.S.-Iran conflict broke out and oil prices rose, market expectations for future U.S. rate cuts also shifted downward. That, in turn, weakened gold's upward momentum.
Looking ahead, I think this situation still has a chance to persist. That means in the short term, gold prices can still be affected by the Middle East situation. However, for the medium-to-long term, I believe the logic behind gold's prior large, long-running rally hasn't changed much. So once the Middle East situation is resolved, or at least eased, I believe gold's medium-to-long-term uptrend will remain intact.
【Anchor】Okay. What about the stock market—how will volatility in geopolitics continue to affect it?
【Wu】As for the stock market, I think its volatility is still strongly correlated with the Middle East situation. If tensions rise, it's a major hit for equities, because the market is worried that war could affect the economy and, in turn, corporate earnings. Conversely, if the conflict eases, stocks would likely enter a window for rebound. This has also been reflected in the past few weeks.
So, in the short term, for the stock market, it's still relatively driven by news flow.
【Anchor】Yes. At the moment, besides geopolitics, what other factors will become key drivers for the market in the next stage? Mr. Li.
【Li】Whether new industries can actually be implemented, how quickly they can roll out, and the overall pace of economic recovery—these will be very important considerations. Relatively speaking, "earnings are king" may be the main direction going forward.
In other words, the market may need to move away from relying too much on imagination and very forward-looking expectations. Instead, it will likely revert to fundamentals—back to performance and returns.
【Anchor】Okay, Mr. Zhang, beyond geopolitics, what factors do you think will become the core drivers of the market at the next stage?
【Zhang】We believe there are two areas to focus on.
First, overall performance in the first quarter earnings season. That could help the market better position different sectors in their respective business cycles. Sectors with strong earnings and high-growth prospects will undoubtedly attract further investor attention.
Second, we think the Federal Reserve's personnel changes are also very worth watching. Currently, we see that the nomination process for Wash has progressed to the public hearing stage. In late April and early May, there will be committee votes and then a full Senate vote. If everything goes smoothly, Wash is very likely to assume office in mid-May and chair the FOMC meeting in June.
At that time, his indication of whether he is hawkish or dovish will be extremely important.
【Anchor】OK, thank you to all the guests. 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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