Safe haven: Chinese assets outperform global markets on resilience amid war

The war in Iran has provoked a sharp rise in oil prices, but the market of the world's largest importer of raw materials - China - shows remarkable stability, Bloomberg writes. Since the beginning of the conflict in the Middle East on February 28, Chinese stocks have fallen much less than their global counterparts, the yuan has remained relatively stable against the U.S. dollar, and the yield on Chinese government bonds has remained virtually unchanged. Such dynamics looks unexpected, given analysts' initial concerns about Beijing's vulnerability to the energy crisis.

Since the end of February, stock markets around the world have shown mixed dynamics against the background of oil prices, which at times rose to almost $120 per barrel. Asian markets have suffered the most: since the end of February, the South Korean stock market has fallen by 10%, Japan by 7%, and India by 5%. At the same time, European indices lost about 5%, while the U.S. index S&P 500 fell by 1.4%.

At the same time, one of China's main stock indices CSI 300 remained virtually unchanged, declining by only 0.1% after the escalation of the conflict in the Middle East. In addition, the yuan became the leader in terms of stability among Asian currencies, maintaining a relatively stable rate against the dollar. The yield on 10-year government bonds in China remained virtually unchanged, showing growth of less than 1 basis point, while the yield on similar U.S. Treasury bonds jumped more than 20 points, indicating a sell-off in U.S. securities, Bloomberg reports.

Investors betting on China are focusing on sectors related to energy security and domestic demand, Bloomberg specifies. China's sectoral CSI 300 Energy index has gained about 8% since the end of February, becoming the most profitable segment of the market. The renewable energy sector, which is dominated by China, has also shown sharp growth: for example, shares of Jinko Solar in Shanghai have jumped more than 18% since the conflict escalated.

The Chinese market is holding up better than expected thanks to Beijing's competent energy strategy, Bloomberg explains. Earlier, analysts predicted a crisis in China, as the country is the world's largest importer of oil. However, after the energy crisis of 2021-2022, China has hedged its bets: it brought coal production to a record level, which coincided with the boom in solar and wind energy, explains Bloomberg. In addition, China systematically increased domestic oil and gas production.

At the same time, China is systematically displacing the use of fossil fuels in key areas of the economy, the agency points out. In particular, sales of electric cars and hybrids have already surpassed the indicators of traditional cars, which leads to a long-term decline in demand for gasoline. In addition, China has built up huge "buffer" reserves, including through the purchase of raw materials from countries that are under Western sanctions, Bloomberg reports. According to the analytical company Kpler, tens of millions of barrels of "cheap oil" from Iran, Russia and Venezuela are in tankers off the Chinese coast. Combined with strategic storage facilities, China's total reserves have reached 1.4 billion barrels. This is three times the US reserves and allows China to cover the supply shortfall from the Middle East for six months in case of a worst-case scenario, according to Kpler.

Global investors are overlooking China's asset classes - equities, currencies and bonds - as a safe haven, according to Cary Yung, head of Greater China debt at Pictet Asset Management. In addition, investment bank Goldman Sachs reiterated an "above market" rating for Chinese equities this week.

However, despite the stable performance of the PRC market, some analysts are cautious about the region. Macquarie Group analyst Larry Hu notes that with oil at $100 inflation in China will be only about 1%, but the main risk is a decline in global demand for Chinese exports due to the slowdown in the global economy. China's domestic problems haven't gone anywhere either: weak consumer demand and the crisis in the real estate market are forcing giants such as investment firm T. Rowe Price, to keep a "neutral" view on China, notes Bloomberg.

Nevertheless, if the conflict in Iran drags on, "China's relative attractiveness compared to the rest of the market could become even more pronounced," concludes BNP Paribas analyst William Bratton.

This article was AI-translated and verified by a human editor