Oil price shocks hit the global markets, and the A-shares surprisingly become a safe haven?

Since the outbreak of the Iran conflict, global markets have come under pressure, oil prices have surged sharply, but the world’s largest crude oil importer’s capital markets have defied the trend and stabilized—China is quietly becoming the most unexpected safe haven in this energy crisis.

Since the conflict erupted in late February, the CSI 300 Index has only fallen 0.3%, while oil prices temporarily soared nearly 65%, approaching $120 per barrel. Meanwhile, the RMB/USD exchange rate has remained relatively stable, outperforming almost all Asian currencies. The CFETS RMB Index hit a one-year high last week; China’s 10-year government bond yields have risen only about 1 basis point, while U.S. and French government bond yields increased over 20 basis points.

This phenomenon reflects China’s long-term strategic energy planning—massive investments in renewable energy, promotion of electric vehicles, and the establishment of large strategic reserves have reduced China’s dependence on imported fossil fuels. “Chinese assets are being overlooked as a safe haven by global investors,” said Cary Yeung, Head of Fixed Income for Greater China at Pictet Asset Management.

Analysts believe that China’s domestic economic fundamentals and policy implementation remain the core factors determining the medium- to long-term market direction.

Global Market Turmoil, China Maintains Stability

Since the outbreak of the Iran conflict in late February, global markets have experienced intense volatility. Oil prices approached $120 per barrel, sparking concerns about renewed inflation and central banks being unable to cut interest rates. However, after signals from Washington suggesting a possible push for a ceasefire, prices retreated.

Asian markets, heavily reliant on energy imports, bore the brunt. According to Bloomberg data, Japan, South Korea, and India’s stock markets have declined approximately 6%, 9%, and 4% respectively since late February; European markets fell about 5%, and U.S. stocks declined 1.4%.

In contrast, the CSI 300 Index only dropped 0.3%. This indicates that if investors choose to keep their funds in Chinese stocks rather than withdraw and shift to the U.S., their capital preservation is better than in most major markets. The same pattern is seen in exchange rates and bond markets—RMB outperformed similar Asian currencies, and China’s 10-year government bond yields rose far less than U.S. and French bonds.

Energy Transition Buffering, Strategic Reserves Creating a Safety Net

Analysts believe China’s energy strategic layout provides structural support for the market’s relative resilience.

After 2021 and 2022, the government prioritized ensuring stable energy supply. Coal production hit record highs, solar and wind capacity expanded significantly, and energy storage infrastructure rapidly advanced, leading to a rapid growth in renewable electricity. China also continued to steadily increase domestic oil and gas production.

In reducing reliance on fossil fuels, electric and hybrid vehicles in China have already surpassed traditional gasoline-powered cars, with gasoline—accounting for over one-fifth of China’s oil consumption—entering a long-term decline. Regarding strategic reserves, data provider Kpler reports that China’s strategic petroleum reserves could cover about six months of Middle Eastern imports in the worst-case scenario.

Larry Hu, Head of China Economics at Macquarie Group, said, “The short-term impact is limited and can be buffered.” He estimates that even if oil prices rise to $100 per barrel, the inflationary pressure on Chinese consumers would only be about 1%.

Tactical Opportunities, Not a Full Reallocation, Investors Remain Cautiously Optimistic

“Chinese assets may continue to show relative strength in the near term, but we see this more as a tactical opportunity rather than a structural shift,” said Clarence Li, Chief Portfolio Analyst for Multi-Asset and Equity Strategies at T. Rowe Price. He added, “China’s investment logic leans toward selective thematic exposure rather than a full bet on stocks, bonds, or currencies.”

Currently, investors focusing on the Chinese market are mainly interested in energy security and domestic demand sectors. The CSI 300 Energy Index has risen about 8% since late February, making it the best-performing sub-sector; the renewable energy sector has performed even better, with JinkoSolar’s stock up about 13%.

Trevor Slaven, Head of Global Asset Allocation and Multi-Asset at Bahrain Asset Management, believes that defensive capital shifting into Chinese assets is more likely to occur after market volatility subsides, and more so into stocks rather than government bonds.

William Bratton, Head of Cash and Equity Research for Asia-Pacific at BNP Paribas, stated in a Monday report that if the Iran conflict lasts longer than expected, China’s relative resilience may become even more apparent. “We believe China is more attractive than other Asia-Pacific markets because of its more domestically driven economic structure, including in energy supply,” he wrote.

Risk Warning and Disclaimer

Market risks are present; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Investment is at your own risk.