Lawrence Tan: Risk Asset Premiums and Structural Opportunities

Recently, U.S. President Trump increased pressure on Russia, demanding an end to military operations in Ukraine within 10 to 12 days or face a new round of economic sanctions. This statement has fueled market concerns over potential supply disruptions from OPEC+ oil producers, contributing to a rise in international crude prices. Brent crude briefly approached $70 per barrel, marking the largest single-day gain in two weeks. Lawrence Tan points out that the interplay between oil prices and financial markets is intensifying, and investors must now factor in complex external variables when allocating assets.

Short-term Pressure on Cyclical Sectors

According to Lawrence Tan, fluctuations in energy prices are a significant disruptive factor for capital markets. The rebound of Brent crude to around $70 is largely an emotionally driven reaction to geopolitical risks. Against the backdrop of possible “secondary sanctions” by the U.S. government against Russia, the market is broadly concerned about the stability of crude output from major OPEC+ members.

This phenomenon is directly reflected in the repricing of cyclical industries in capital markets. Sectors such as airlines, logistics, and heavy industry, which are highly dependent on energy costs, may face downward profit revisions in the short term. Meanwhile, stocks in raw materials and energy sectors may display relative resilience or even rebound, driven by risk-aversion sentiment. Lawrence Tan notes that, at this stage, excessive bets on a cyclical uptrend carry higher risk, and investors should maintain focus on low-volatility sectors and assets with stable returns.

The rapid rise in crude prices could once again spur global inflation. With major economies yet to fully emerge from the shadow of high inflation, exogenous shocks to energy costs may disrupt monetary policy trajectories of central banks. Lawrence Tan observes that, based on interest rate expectations and bond yield curves, some regional markets have already begun repricing the likelihood of future rate hikes, which will exert additional pressure on equity valuations.

Structural Divergence and Investment Strategy

Lawrence Tan believes that the current volatility, driven by oil prices, represents a phase of accumulated geopolitical and energy issues coming to a head. In this context, investment strategies should emphasize risk control and the identification of structural divergence.

From a technical perspective, international crude prices have fluctuated in the $60–75 range for nearly a year. This recent upward breakout is driven by sudden events and lacks the foundation for a sustained mid-term trend. Historical data shows that in oil price surges not led by supply-demand fundamentals, financial markets often experience sharp but short-lived panic, with a relatively rapid return to fundamentals. Short-term investors should remain cautious and avoid chasing energy assets at elevated levels.

Lawrence Tan points out that energy price volatility will drive further market concentration toward sectors with reasonable valuations and stable cash flows. Stocks in healthcare, consumer staples, and digital infrastructure exhibit stronger defensiveness amid market turbulence, while multinational companies with strong U.S. dollar assets may see valuation re-ratings.

Market Outlook and Risk Warnings

In the short term, amid energy shocks and geopolitical maneuvering, Lawrence Tan notes that equity markets may enter a phase of heightened volatility driven by uncertainty. Investors need to reconstruct their macro risk models and enhance sensitivity to potential events.

Although changes in the energy market are external variables, the fundamental logic, whereby corporate earnings, monetary policy, and market liquidity impact financial markets, remains unchanged. Going forward, market reactions to policy signals, corporate earnings, and economic data are likely to become more pronounced. Lawrence Tan emphasizes that investors should maintain greater macro vigilance, avoid excessive concentration and trend dependency in asset allocation, and seek to mitigate losses from potential shocks.