Besides war, what other disruptions are there in March allocations?

Domestic economic recovery and investors’ high risk appetite are expected to continue supporting the performance of equity assets. However, the temporary risk-averse sentiment caused by the war may disrupt the stock market, but based on historical experience, the duration of such disruptions is likely short and has limited impact on the medium-term trend of the stock market. Besides the war, asset allocation in March will also face influences from major meetings, monetary policy changes, and possible visits by Trump to China. We expect the upward trend in the stock market to remain unchanged, but market volatility may increase.

According to historical experience, although war has a brutal and significant impact on human society, the spread of investor risk-averse sentiment caused by war does not last long, and its impact on non-combatant countries’ assets is relatively limited.

According to Xinhua News Agency, on February 28, the US and Israel launched a joint “preemptive” military strike against Iran. Iran responded with attacks on multiple targets in Israel and the Middle East. Iran’s Supreme Leader Khamenei was killed in the US and Israel strikes. Referring to historical experiences such as the Gulf War, Afghanistan War, and Russia-Ukraine conflict, even if the war itself lasts longer, as long as the battlefield scope does not expand continuously, the impact on asset prices often manifests as a spread of risk-averse sentiment before or at the early stage of the war. The risk-averse sentiment triggered by war usually does not last long; for example, during the Afghanistan War, US stocks fell significantly around 9/11, but although the war continued long-term afterward, its direct impact on the stock market was limited. For non-combatant countries geographically distant from the conflict, the impact may be even more limited. Overall, although in the short term, war-induced risk aversion may cause some adjustments in global stock markets and potentially transmit pressure to the A-share market, we expect the duration of such risk-averse trading to be limited and not significantly affect the medium-term trend of the stock market.

Besides the war, March will also see three key themes: major political meetings, global monetary policy changes, and Trump’s possible visit to China.

Regarding the two sessions, attention should be paid to their potential event-driven impacts on the market, as well as the specific policies for the year, which marks the start of the “14th Five-Year Plan.” Since the central economic work conference last year set a relatively clear policy tone, investor expectations for this year are generally optimistic but cautious about extraordinary policies. Additionally, the Chinese New Year was later this year, and due to the holiday effect, market trading volume declined seasonally before the festival. Currently, market sentiment has not significantly warmed. Therefore, with market consensus, subdued trading sentiment, and potential weakness from overseas markets due to war, investors should monitor the possible event-driven impacts from the two sessions at the beginning of the month. Moreover, as this year marks the start of the “14th Five-Year Plan,” attention should also be paid to the specific content of policy documents and market expectations.

In terms of global monetary policy, under the influence of the nearing end of Powell’s term, the Fed’s rate cut magnitude and path are highly uncertain. However, if the timing of rate cuts is delayed, the risk of US stagflation may increase.

Amid weakening US labor markets and rising inflation pressures, the Federal Reserve’s monetary policy decisions this year will be more challenging. With Powell’s term ending soon, guidance on future rate cuts becomes more uncertain. We expect the Fed to pause rate cuts in March, but if the timing of rate cuts is significantly delayed, considering that the US job vacancy rate is still transmitting to the unemployment rate, the US labor market may not stabilize soon, and the risk of stagflation could rise.

Additionally, Trump may visit China at the end of March. It is advisable to monitor potential changes in US tariffs on China before and after the visit.

According to Reuters, Trump may visit China at the end of March. Given recent US Supreme Court rulings declaring IEEPA tariffs illegal, and considering tariffs are one of Trump’s key policy priorities during his term, we expect that the 10% tariffs implemented on February 20 as a replacement for IEEPA will not mark the end of new tariff policies. If Trump’s visit to China is confirmed, due to his more extreme and unpredictable policy stance, investors should be alert to the risk of unexpected tariffs on China being announced before or after the visit.

Source: CITIC Securities Research

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