Guoxin Strategy: How Much Room Is There for Strategic Commodities?

Since the beginning of the year, the global capital markets have sparked a “HALO trading” craze, quickly reflecting in the Chinese stock market. Coupled with ongoing developments in the Middle East, A-shares, represented by strategic resource commodities—heavy assets with low淘汰—have achieved significant excess returns. However, this week, under the dual influence of continued geopolitical conflicts and internal policy expectations, A-shares showed accelerated sector rotation, with declines in sectors like non-ferrous metals and oil & gas. Market discussions are lively regarding the future direction of resource-related sectors.

Behind the leadership of strategic resource commodities is the brewing concern over AI substitution and escalating geopolitical conflicts. Since the start of the year, market styles have shifted. The technology growth sector, which led in 2025, has experienced increased volatility, while strategic resources have delivered clear excess returns—coal with a 27.8% fluctuation, petroleum and petrochemicals at 25.1%, non-ferrous metals at 17.2%—significantly outperforming the CSI 300 index’s 1.2% gain during the same period. The current rally in strategic resource commodities is driven by technical trends and geopolitical patterns.

Fears of AI replacing human labor are intensifying, leading to re-pricing of heavy assets and irreplaceable strategic resources. AI technology is rapidly penetrating production and daily life. The swift development of generative AI has sparked concerns that rapid AI iteration could disrupt many light-asset business models. To hedge against AI-related uncertainties, global capital markets are re-evaluating heavy assets and sectors less susceptible to rapid technological obsolescence, fueling this round of strategic resource rally, known as HALO trading.

Deteriorating Middle East geopolitics has caused oil prices to soar, further catalyzing the strategic resource sector. On February 28, the US and Israel launched a surprise military operation against Iran, followed by large-scale retaliatory attacks by Iran. Due to the geopolitical conflict, the Strait of Hormuz—through which about one-fifth of global oil shipments pass—may be effectively closed. Driven by supply disruption fears, international oil prices surged, with WTI crude approaching $120 per barrel on March 9. The sharp rise in oil prices has boosted sectors like oil & gas and chemicals, and also supported the performance of coal and other sectors with substitution logic.

Given the significant uncertainty in Middle Eastern geopolitics, oil prices have experienced large fluctuations this week, and the structure of A-shares has also shown clear divergence, with frequent sector rotation. Previously strong performers like petrochemicals and non-ferrous metals have retreated. If geopolitical tensions ease and AI industry trends continue upward, will this affect the sustainability of the strategic resource rally?

Supply and demand changes support the upward shift of the price center for strategic resources, with the logic of these commodities evolving toward long-term fundamentals. We believe that this rally is driven not only by short-term shocks but also by supply constraints and rigid demand, which elevate the long-term price center and influence strategic resource allocation logic.

Insufficient long-term capital expenditure, rising resource nationalism, and increased operational risks constrain supply. First, the expansion cycle for strategic mineral resources like non-ferrous metals is lengthy. Mining capital expenditure remains in contraction; in 2024, global solid mineral exploration investment totaled $12.48 billion, down for two consecutive years, likely keeping supply tight. Second, resource nationalism and trade barriers are shrinking supply. Many resource-rich countries have increased control through higher licensing fees, export tariffs, or nationalization—for example, Zimbabwe suspended lithium ore exports in February 2026 to promote local processing. Third, declining ore grades and operational disruptions, such as the Grasberg copper mine in Indonesia halting production due to a mudslide in September 2025, also restrict output. Under supply constraints, metals like aluminum and cobalt remain at historically low levels, providing strong price support.

Industry trends and macro geopolitical shifts shape the rigid demand for strategic resources. The acceleration of AI and new energy industries has driven increased demand. Expansion of AI computing infrastructure and green energy transformation have led to rapid growth in demand for copper, aluminum, lithium, cobalt, and rare earths. For example, according to S&P Global forecasts, between 2025 and 2040, AI data centers and related infrastructure, along with energy transition efforts, will generate approximately 9 million tons of additional copper demand, with an average annual compound growth rate of about 4.0%.

Great power competition has reinforced the strategic importance of resource demand. Since the Russia-Ukraine conflict in 2022, geopolitical tensions have intensified. Ensuring supply chain security for critical resources and establishing strategic reserves have become core national strategies. In November 2025, the USGS added ten critical minerals to its list, increasing the total to 60. China’s new mineral resources law enacted in July 2025 emphasizes building a strategic reserve system combining product, capacity, and origin reserves. The recent two sessions again highlighted the importance of balancing development and security.

In the short term, before geopolitical uncertainties clear, market risk appetite may remain subdued. This week, Middle Eastern tensions continued to influence A-shares. We believe that as the earnings season approaches, geopolitical uncertainties will continue to suppress risk appetite, causing market volatility. However, as discussed in “How to Grasp Market Trends Amid Internal and External Changes? - 20260307,” short-term geopolitical shocks are inevitable, but medium-term stock market trends will still be driven by intrinsic logic.

Despite short-term disturbances from geopolitical and tariff uncertainties, the medium-term bullish environment since September 2024 remains intact. Multiple factors support the continuation of the A-share bull market. Domestically, policies remain positive, and economic fundamentals show signs of improvement. The government work report from the two sessions calls for more proactive fiscal policies and moderate easing of monetary policy to achieve better economic growth. In February, PPI increased by 0.4% month-on-month and contracted by 0.9% year-on-year, while CPI rose 1.0% month-on-month, indicating easing deflationary pressures. Overseas, expectations of Trump’s visit to China have boosted market sentiment. The White House announced that President Trump will visit China at the end of March, suggesting a potential phase of stabilization in US-China relations, which is positive for market risk appetite. Looking further ahead, as macro and micro fundamentals recover and expand from isolated points to a broader surface, combined with increased domestic capital participation, the A-share bull market may enter its second half by 2026.

Structurally, focus on strategic resources and domestic demand-related assets, with AI technology remaining a key medium-term theme. Security, domestic demand, and technology are the three major keywords from this year’s two sessions, aligning with our earlier insights in “Three Industry Opportunities for Winning the 2026 Bull Market - 20260221,” which highlight resource commodities, traditional assets like real estate and liquor, and the AI industry chain.

Prioritize strategic resources under security considerations. In a complex external environment, the two sessions emphasized coordinated development and security. Domestic policies to combat internal competition, combined with global liquidity easing, geopolitical factors, and emerging demand, support commodity prices. The strategic resource sector is expected to benefit continuously. Policies to expand domestic demand may also lead to a reversal of expectations for traditional assets. The two sessions prioritized “expanding domestic demand,” and historically, sectors that are cyclically aligned tend to perform better afterward. Currently, signs of improvement are evident in consumption and real estate fundamentals. With policy support and active catalysis, undervalued assets like real estate and liquor may see phased recovery. Additionally, the medium-term AI and technology theme remains unchanged. The two sessions proposed deepening the “Artificial Intelligence+” strategy, focusing on two aspects: ① AI applications—drawing lessons from the 2012-2015 tech boom, where AI waves are expected to expand from hardware to applications; ② upstream energy and power—advancing the development of new power systems, accelerating smart grid construction, developing new energy storage, and expanding green electricity, which also present investment opportunities.

Risk Tips: Policy developments domestically and internationally may fall short of expectations; economic recovery could experience volatility.

(Source: Guoxin Securities)