Shenwan Hongyuan's research team led by Fu Jingtao indicates that the stalemate in US-Iran conflicts is dampening market risk appetite. Capital that supported the "first phase rally" is experiencing a concentrated short-term outflow, evidenced by shrinking sector ETF scales and emerging selling pressure from annuity and "fixed income+" products. The present moment may represent the phase of maximum pressure. Mid-term variables are being underestimated: monetary tightening is not the optimal solution for combating imported inflation, while both the US and Chinese economies are demonstrating unexpected resilience. China's energy and supply chain security are poised to become a source of global alpha.

Firstly, the deadlock in US-Iran conflicts continues to suppress risk appetite. Attention is drawn to the concentrated short-term retreat of funds that supported the "first phase rally," including contractions in sector ETF scales, annuity funds reducing positions to avoid net value losses, and "fixed income+" products facing redemption pressures. This suggests the current period may already be the peak pressure phase. Policy support for stable, long-term growth is expected, but it is crucial to note potential discrepancies between the focus of these stabilizing policies and the sectors targeted by absolute return funds' sell-offs, which could constitute a tail risk. The team reiterates that mid-term uncertainties are underappreciated: 1. For both the US and China, monetary tightening is a suboptimal response to imported inflation. Increasing tolerance for inflation is highly probable. 2. The US economy shows resilience, and China's economy possesses flexibility; recession is not the baseline assumption. 3. Within the geopolitical stalemate, China's energy and supply chain security could emerge as a global alpha. Even if US-Iran conflicts see mid-term fluctuations, their impact on A-shares is likely to diminish gradually.

The US-Iran stalemate finds all parties ill-prepared for a new Middle Eastern order. Establishing a new equilibrium will require prolonged negotiation, manifesting as recurring short-term event-driven disruptions that directly pressure capital market risk appetite. Short-term market assessments of the US-Iran conflict often draw parallels to the two oil crises: rising oil prices and freight costs lead to heightened inflation, prompting monetary tightening, economic recession, confirmation of a stagflation cycle, and a concurrent decline in stock market fundamentals and valuations. This logical chain remains unchallenged in the short term.

Concurrently, a concentrated short-term outflow of funds that supported the "first phase rally" is observed: 1. Sector ETF scales are contracting, notably in areas like non-ferrous metals, chemicals, computers, and media. 2. Absolute return funds, experiencing rapidly narrowing floating profits, are forced to reduce equity positions to prevent capital loss. Annuity funds that significantly increased equity allocations earlier are seeing decreased stability in their high positions. Based on the holdings of active mutual funds and "fixed income+" products, sectors like non-ferrous metals, chemicals, communications, and electronics may face selling pressure. As "fixed income+" products were a key channel for increased equity allocations in this cycle, short-term redemption pressures are beginning to surface. Given this concentrated fund outflow, policy support for stable, long-term growth is a logical response. Attention should be paid to potential mismatches between the sectors targeted by these stabilizing policies and those being sold by absolute return funds. Overall index risk is considered controllable, but structural impacts may still harbor tail risks.

Secondly, in the mid-term, the A-share market is in a consolidation phase between a "two-stage rally." Short-term, the market may follow a sequence of "oversold conditions → policy support for stability → rebound." Subsequent trading is expected to remain range-bound, with leadership potentially rotating among sectors. During phases with new thematic opportunities, such as short-term rallies in energy storage and optical communication driven by solid fundamentals, the market may test the upper bound of the range. Conversely, if thematic sectors struggle after a rebound, the market could test the lower bound.

Thirdly, for the short term, the recommendation remains focused on "fundamentals-driven" sectors, with CPO and energy storage being strong contenders. Under energy cost pressures, new energy and new energy vehicles, benefiting from energy diversification and resilient supply trends, alongside traditional energy, may become crucial strategic resources. Furthermore, structures likely to participate in the "second phase rally," such as the AI industry chain and cyclical alpha sectors, present buying opportunities on pullbacks, although their short-term timeliness is limited.

Historical analysis suggests that the style characteristics of the two rally phases are consistent. The intervening consolidation period is not characterized by a switch from high to low valuations, but rather by a diffusion within the main thematic sectors. High-elasticity investment opportunities primarily stem from extensions of core assets and the expansion of macro narratives. Currently, the focus on "fundamentals" is expected to persist at least until the Q1 earnings season. Subsequently, the evolution of the AI industry trend may shift from hardware towards applications, highlighting opportunities in enablers like cloud computing, edge computing, and robotics, the potential for China's domestic AI chain to leapfrog, and AI's application in transforming traditional industries. The expansion of macro narratives should monitor the potential for increased pricing of shifts in relative national strength, which could catalyze a reassessment of the manufacturing sector.