Stagflation trading in three stages: How should the allocation strategy change in April?

1. A three-stage playbook for stagflation trading—how should the April allocation approach change [Taoguba]

Although the market is currently thick with FOMO sentiment, we must remain respectful of volatility! The conflict in the Middle East has already caused a tangible impact, and the allocation after April will be completely different from the usual spring uptick.

Review history: stagflation trading in three steps

Drawing from the 1970s oil crisis and the 2022 Russia-Ukraine conflict, the pattern is clear:

1. Phase one (trading inflation): Copper and oil surge; interest rates rise; stocks fall, but not deeply.

2. Phase two (trading a slowdown): Growth is revised down; tightness pressures are high; stocks sell off hard; industrial metals turn lower.

3. Phase three (a new logic takes over): Technology innovation breaks through (e.g., the PC back then, the AI last year), leading the market out of the gloom.

Key differences in this round:

The starting point is low, and the risk of a deep slowdown is smaller, but revisions to growth come earlier! The market has already priced in liquidity pressure and inflation (oil price at 100 USD), but it has only partially priced in growth downside.

Structural changes: compared with February, there are three “changes” here:

Even if the conflict ends, conditions have already changed:

Liquidity: The USD oil price is stronger than expected; the degree of easing is low, making it hard for valuations to rise.

Growth: There is a risk that global growth will be revised down; for a broad cyclical allocation, we need to “shrink the circle.”

Stock picking: Place more emphasis on fundamentals and cash flow! Stay alert to material shortages from external exposures and supply-chain risks.

Latest allocation suggestions

U.S. stocks: A defensive mindset

With forward energy prices stabilizing, add to gold, bonds, and growth stocks with low correlation.

Domestic assets: three main lines

1. Core position (certainty + high consensus): Energy and power-grid/electricity-related sectors.

2. The expectation gap between domestic and external demand:

Domestic demand: Increase allocation to low-cost, low-churn, low-volatility consumer staples; focus on sectors that benefit from policy.

External demand: Avoid electronics, textiles, and home appliances (weak price pass-through); look for opportunities where midstream capital goods are sharply undervalued due to mispricing.

3. Mid-term theme (near-term pressure is also the opportunity): AI-related sectors, and RMB appreciation. Pullbacks are a good time to accumulate!

4. Resin price hikes are starting; PCB upstream materials keep seeing inflation

Event: CCL’s leading company Janten/建滔 issues a letter—prices of core layer laminates (and pp semi-cured sheets) are uniformly raised by 10%. #The main reason is that upstream resins and electronic glass-fiber fabrics, among other key raw materials, have “soared in price dramatically and face tight supply.”

This round’s price increase by Solar is essentially explicit cost pressure transmission from upstream raw materials. #We reiterate our positive view on the upstream core materials segment (resins, electronic fabrics, copper foil, and additives). This round of price hikes has validated the strength of its fundamentals.

1️⃣#Supply constraints are the core driving force: The main driver is “tight supply.” Currently, upstream chemical raw materials face structural constraints such as global geopolitical instability, tightening environmental inspections, clearance of old capacity, and limited new capacity ramp-up. The chemical industry’s big-cycle is just starting. With insufficient supply elasticity, the persistence of high prices may exceed market expectations.

2️⃣#Industry standing and bargaining power increase during industry-chain restructuring: In the chain “basic chemical raw materials → electronic-grade materials (resins/additives) → copper-clad laminates → PCBs,” the electronic-grade materials segment has high technical barriers and long certification cycles. Upstream companies are currently benefiting from both rigid demand (AI servers, AI hardware, etc.) and supply constraints, significantly enhancing their bargaining power over the midstream.

3️⃣#Copper-clad laminate leaders raising prices is the key validation signal: As a cost-control leader, Janten/建滔’s price increase sends two messages:

1. Upstream price hikes confirm the authenticity and strength of cost-driven pressures from upstream.

2. It provides a pricing anchor for the entire copper-clad laminate industry, opening up pricing power for other manufacturers as well.

Solar #We reiterate our positive view on upstream core materials:

#Resin: Focus on leading companies with production capacity for high-end electronic-grade products and advantages in end-to-end integration of the industrial chain. #Also pay attention to additives developed through resin-customized formulation.

#Copper foil: We like lithium battery copper foil ahead of a demand inflection, and electronic circuit copper foil with high barriers—best supply-demand landscape.

#Electronic fabric: Benefiting from downstream technology upgrades, the industry is highly concentrated, and bargaining power is strong.

3. 0-coin/Ge Song chain, Doubao chain, and fiber optics bring new changes

Google Cloud Next ‘26 will be held from April 22–24. The conference may unveil a new generation of TPU architecture, revealing the actual applications of memory pooling and the OCS optical switching gear, as well as the deployment cadence of the new architecture. Google I/O 2026 developer conference will be held on May 19–20, focusing on showcasing the latest AI breakthroughs and updates to products under the company’s portfolio, covering many areas including Gemini and Android.

【Google chain】related targets:

(1) 【Optical modules, optical chips】Recommended targets: COWIN High-Tech, New Ease, Source Photonics; Benefiting targets: Changxin Boteer, etc.;

(2) 【Liquid cooling】Recommended target: Inveack;

(3) 【OCS】Benefiting targets: Tengjing Technology, Juguang Technology, and Guangku Technology;

(4) 【Server power supplies】Recommended target: OPL;

(5) 【Optical components】Benefiting targets: FiberHome, etc.

【Silicon photonics CPO chain】related targets: (1) 【Four key focuses】Recommended targets: COWIN High-Tech, New Ease, Inveack, Source Photonics, and Tianfu Communications; (2) 【Four “small dragons”】Benefiting targets: Robotech, JepTech, Juguang Technology, and Zhishang Technology; (3) 【Optical chips】Recommended target: Source Photonics; Benefiting targets: Changguang Huaxin, YD Holding, and Sijia Photonics, etc.

On April 2, the Doubao large model’s average daily Token usage has already exceeded 1.2 trillion, doubling from three months ago and increasing more than 1,000x compared with the first release in May 2024. According to LatePost reporting, recently only three companies globally have average daily Token consumption above 1 trillion: OpenAI, Google, and ByteDance.

【Doubao chain】related targets: (1) 【AIDC】Recommended targets: GView, Bigwei Technology, XinYiNet Group, UPT Optics? (奥飞数据), BaoXin Software, Runze Technology, etc.; Benefiting targets: Dongyangguang, Dataport, etc.; (2) 【CDN】Benefiting targets: uCloud? (网宿科技), etc.; (3) 【Networking】Recommended targets: ZTE? (盛科通信-U), Huagong Technology, ZTE, Unisplendour, etc.; Benefiting targets: Ruijie Networks, etc.

AI takes over the baton of telecommunications demand; the global fiber-optic market has entered a cycle of both volume and price rising together. According to data from the UK Commodity Research Unit (CRU), global fiber demand is expected to climb to 880 million fiber-kilometers by 2027. In terms of pricing, in China, the spot price of bare G652.D optical fiber reached 83.40 yuan per fiber-kilometer in March 2026, with a cumulative increase of over 400% since May 2025. Prices of similar products in Europe have also risen 136% quarter-over-quarter from January and up 159% year-over-year. The price-hike trend in optical fibers has spread across the globe; the supply-demand gap in 2026–2027 is expected to widen to 15%.

【Fiber optic cables】Recommended targets: FiberHome, and ZTT; Benefiting targets: FiberHome’s fiber optic cables and fiber units, Far East Shares, Hangdian Shares, YD Holding, Tongding Interconnect, and Shenzhen Technologies, etc.