CICC published a research report today (13th) saying that, over the past week, the situation in Iran has rapidly evolved toward escalation halt, which has also been the underlying implicit expectation of most asset. Otherwise, markets would have experienced heightened volatility in recent weeks.

This judgment is not difficult to make, given that US President Donald Trump needs to consider the midterm election at year-end and cannot continuously bear high oil prices, high inflation and financial market turbulence.

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The key challenge lies in the timing. Even at present, negotiations remain uncertain and it is unclear whether the fragile balance will be broken again. This broadly aligns with the broker's previous base-case assumption that there would be short-term volatility and twists, with April being critical, but a complete loss of control in the medium term is not the base-case scenario.

The impact of high oil prices and geopolitical shocks on earnings takes time to materialize. Meanwhile, the market still holds strong expectations for the 'TACO' logic, believing that Trump may still compromise in 2H26 under pressure from the midterm election.

With regard to the China market, assuming the Fed does not cut interest rates this year and US bond yields reach 4.2% by year-end, and taking into account the rise in risk premiums following the normalization of the Russia-Ukraine conflict, the HSTECH could face a decline of approx. 6% to 4,500-4,600, while the HSI could fall by about 10% to around 23,000.

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