CITIC Securities: Optimistic on Industries Benefiting from Long-Term High Oil Prices, Such as New Energy and Energy Storage

China Securities Construction Investment Research Report believes that amid a sharp rise in global energy prices and suppressed consumption, the sectors likely to be significantly affected include: high-valuation sectors, high-energy-consuming (oil-consuming) industries, and industries facing rising costs due to demand suppression. The three promising directions are: 1) industries benefiting from the closure of the Strait of Hormuz and sustained high oil prices, such as coal chemical industry, new energy, energy storage, nuclear power, and power grids; 2) defensive stocks with stable cash flow, such as coal and hydropower; 3) certainty growth stocks that may be mistakenly undervalued, such as AI supply chain price increases and power shortage chains.

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Reconsider and Reallocate

U.S.-Israel-Iran War: Escalation with Far-reaching Impact

After high-level assassinations and mutual attacks on key energy facilities in Iran, both sides have entered a cycle of retaliation and counter-retaliation, with the war escalating to a new stage. The economic impact of the war has already become apparent, with global oil prices soaring. Oman crude oil spot prices once broke through $166 per barrel. According to Polymarket forecasts, the probability of a ceasefire before the end of April is only 37%, and the chance of ongoing conflict into the second half of the year is 36%. Global markets are gradually pricing in the long-term nature of the war.

Even if the Middle East conflict subsides, the world has already changed. Compared to pre-war levels, the global crude oil price center may have permanently shifted upward. Several certainties include: 1) Elevated energy prices driving global inflation expectations, with significant adjustments to Fed rate cut expectations, impacting global capital markets. 2) Energy shortages impacting industrial production in some countries, while China may gain relative advantages, further consolidating its position in global manufacturing. 3) Accelerated development of new energy power generation, energy storage, and nuclear power industries, with China’s full industry chain advantages attracting global attention. 4) Long-term high energy prices could suppress global consumption, affecting China’s external demand from both positive and negative perspectives.

A-shares Reconsideration: Current Position and Future Direction

Short-term perspective: Considering the rapid decline in sentiment index and the ongoing escalation of the U.S.-Israel-Iran conflict, the index is expected to further seek support downward. It is advisable to control positions in the short term, adopt a cautious approach, and wait for rebound signals.

Long-term perspective: Most broad-based indices are at high valuation levels, with low cost-effectiveness of equity assets. The AIAE indicator suggests that current market upward momentum has been overextended, and the market may face a prolonged period of consolidation.

Market outlook: Currently, due to the outbreak and escalation of the U.S.-Israel-Iran war, the assumption of a weak dollar faces challenges. Under high oil prices, the Fed’s rate cut expectations have shifted significantly. As previously stated in our annual strategy outlook, in the second half of the bull market, the market will shift from valuation expansion to earnings growth (digesting valuations). If earnings growth expectations remain positive, the A-share bull market may continue. However, before growth expectations are confirmed, the market will face a transitional pain period from valuation expansion to earnings realization.

Industry reallocation: Three strategies to respond to global changes

Amid a sharp rise in global energy prices and suppressed consumption, sectors likely to be adversely affected include high-valuation sectors, high-energy-consuming industries, and industries facing rising costs due to demand suppression.

Three promising directions are: 1) industries benefiting from the closure of the Strait of Hormuz and sustained high oil prices, such as coal chemical, new energy, energy storage, nuclear power, and power grids; 2) defensive stocks with stable cash flow, such as coal and hydropower; 3) certainty growth stocks that may be mistakenly undervalued, such as AI supply chain price increases and power shortage chains.

Risk warning: Policy implementation falling short of expectations; increased strategic rivalry between China and the U.S.; U.S. stock market volatility exceeding expectations.

(Source: First Financial)