The Market's Implicit Consensus: AI Logic Trumps Iran Conflict

The conflict between the US and Iran has not yet drawn to a close, but the performance during this period is worth summarizing and reviewing, especially as various assets have implied very different degrees of consensus and expected discrepancies. We believe that the major consensus formed in the market currently includes: the long-term impact of geopolitics on fundamentals is relatively limited; the AI technology mainline continues to strengthen; trends such as energy diversification, resource security premiums, and a weak US dollar are expected to accelerate in the medium to long term. Potential expectation discrepancies include: the stock market has priced in an optimistic expectation of peace in advance, which is mismatched with geopolitical situations in terms of timing, structure, and sentiment; whether US stocks are "expensive," whether high-odds assets such as Hong Kong technology stocks, US software stocks, and domestic non-bank financials can make up, and whether AI investments can be realized as planned. In terms of allocation, geopolitical conflicts are at a critical juncture, but market focus has decreased significantly. It is expected that there will still be some games around geopolitics in the short term, but the cycle of industrial production and the reporting season receive more attention, and sectors with strong profit realization and medium-to-long-term logic such as AI technology and new and old energy have higher chances of winning, while paying attention to the opportunities of short supply varieties such as helium, sulfur, and urea.

Core Theme: Industrial Logic Trumps Geopolitical Disputes

We believe that the current market implies a consensus that includes: 1) Fundamentally, this round of shocks may have a limited impact on growth, AI+defense drives the manufacturing cycle to continue warming up, with significant national differentiation; inflation faces a short-term pulse, the probability of the Federal Reserve raising interest rates is not high, but there are disruptions in the pace and magnitude of interest rate cuts. 2) The AI technology mainline continues to strengthen, and it is not sensitive to geopolitics, with strong demand for upstream computing power, leading to higher performance realization in corresponding sectors. 3) In the long run, geopolitical conflicts and the reconstruction of order strengthen medium-to-long-term trends such as energy diversification, resource security premiums, and a weak US dollar. In addition, potential forecast discrepancies include: 1) The stock market has priced in an optimistic expectation of long-term peace in advance, but supply chain pressures have not been substantially relieved, and there is still uncertainty in geopolitical situations, focusing on three levels of mismatch: timing, structure, and market sentiment. 2) Whether US stocks are "expensive," whether high-odds assets such as Hong Kong technology can make up, the core may lie in profitability. 3) The contradiction between the exponential growth in demand for AI digital worlds and the linear growth in supply from the physical world is becoming more and more prominent, with issues such as power bottlenecks, shortages of construction workers, long equipment delivery cycles, and community resistance constraining the pace of AI infrastructure investment implementation.

Market Condition Assessment: Geopolitical Situation Still Uncertain, Risk Preference Continues to Warm Up

Domestically, last week's data showed that external demand is still resilient, production recovery is differentiated, price trends continue to diverge, and overall domestic demand is still relatively weak. Overseas, the situation in the Middle East still has uncertainties, the transit of the Strait of Hormuz is still up and down, and we focus on the progress of the second round of negotiations between the US and Iran. Domestic monetary policy continues the main line of "reasonable liquidity abundance + moderate reabsorption + stable expectations." Fiscal policy continues to be proactively oriented, with a focus on accelerating the issuance of government bonds and advancing policy reserves.

Allocation Recommendations: Geopolitical关注度 Reduced, Industrial Cycle and Business Logic Dominate

Geopolitical conflicts are at a critical juncture, but market focus has significantly decreased. The risk preference of the global market continues to repair, US stocks, and Japanese stocks have broken through the pre-conflict level, and funds have quickly returned from an extremely oversold to a slightly overbought range. It is expected that there will still be some games around geopolitics in the short term, but the cycle of industrial production and the reporting season receive more attention, and sectors with strong profit realization and medium-to-long-term logic such as AI technology and new and old energy have higher chances of winning, while paying attention to the opportunities of short supply varieties such as helium, sulfur, and urea. This week, Chinese bonds began to suggest that the duration gradually returns to neutrality, 10Y government bonds can be taken profit moderately at high levels, and turn to