Zheshang Strategy: The US-Iran Conflict Is Complex and Changing, Chinese Safe Assets Are Expected to Be Reassessed

Key Takeaways

Since the Iran–Iraq conflict in March, the U.S.–Iran conflict has caused significant disruption to global capital markets, increasing the volatility of risk assets. Combined with the April earnings season, more uncertainty has emerged. We believe that in a market environment full of uncertainty, assets with a high degree of matching between performance and valuation (safe assets), directions with marginal catalysts, or areas favored by capital, could see China’s safe assets undergo a reassessment of their value. Based on this, this paper introduces the PEG and PB-ROE frameworks, selecting—wherever possible—directions in which performance and valuation are well matched. Then, combined with judgments about industry fundamentals, we appropriately raise tolerance for valuations in certain sectors. We recommend focusing on three major directions: beneficiaries (coal, power, oil and petroleum refining/chemicals, and new energy), desensitization (innovative drugs with independent cyclical characteristics, and agriculture, baijiu, and home appliances with consumer-dividend characteristics), and hedging (infrastructure built by China’s “Zhongzi” state-owned enterprises).

Executive Summary

**1.**Using the PEG and PB-ROE framework to find China’s safe assets

The complex and shifting U.S.–Iran conflict increases the volatility of risk assets, and together with the April earnings season, uncertainty factors grow. We are trying to find certainty amid uncertainty. At this stage, the impact of risk appetite on valuation and the impact of earnings reports on performance are both key considerations in sector selection. We believe that assets with a high degree of matching between performance and valuation (safe assets), directions with marginal catalysts, or areas favored by capital, could see China’s safe assets undergo a reassessment of their value. Based on this, this paper introduces the PEG and PB-ROE frameworks, selecting—wherever possible—directions in which performance and valuation are well matched. Then, combined with judgments about industry fundamentals, we appropriately raise tolerance for valuations in certain sectors. For example, although valuation levels in coal and power industries are slightly higher, under an energy security backdrop, they can still be considered sectors worth watching. Overall, it is recommended to focus on the three major directions: beneficiaries, desensitization, and hedging.

2. Beneficiary Direction: Against the backdrop of disruption from external supply shocks, the necessity of ensuring energy security increases

Coal: China’s “stabilizer” for energy security, with strategic security status likely to be enhanced. Coal is an absolute dominant in China’s energy consumption mix, with a consumption share far higher than in Japan, South Korea, and the U.S. and Europe. China’s coal external dependency is significantly lower than that of crude oil and natural gas; the self-sufficiency characteristic of coal indicates that China’s energy supply system has strong resilience. At the same time, China’s coal chemical capacity can provide some supplemental coverage for crude oil imports from the Middle East, strengthening the autonomy of energy security.

Electricity: Energy security and the AI industry revolution resonate, and power assets may face an opportunity for valuation reassessment. From the perspective of energy security, the obstruction of the Strait of Hormuz exposes the fragility of traditional energy supply chains. Under the trend of the new energy industry, electricity, as the hub of secondary energy, has clearly increased its strategic security status. From the perspective of the AI industry revolution, the explosion of computing power is reshaping the structure of electricity consumption, and power assets are entering an opportunity for reassessment under a HALO logic.

Oil refining and petrochemicals: Rising oil prices boost profits, while also benefiting from strong “price-following” capability and inflation expectations. High oil prices directly thicken profits in the refining and petrochemicals sector, expand earnings elasticity, and the petrochemicals industry has strong cost pass-through capability.

New energy: New incremental demand emerges on the demand side, industry clears on the supply side, and industry fundamentals could improve. On the demand side, oil and natural gas prices are experiencing extreme volatility, and the fragility of global energy supply chains is being fully exposed. On the supply side, capital expenditure is moving upward from low levels, and industry concentration is further increasing; with supply clearing, industry earnings reports may improve.

**3.**Desensitization Direction: Independent cycle (innovative drugs) and the consumer dividend (agriculture, baijiu, and home appliances)

In the pharmaceutical sector, innovative drugs in 2026 enter the profit period, accelerating overseas expansion, and their global competitiveness continues to be validated. In 2026Q1, the total value of China’s innovative-drug BD transactions exceeded $60 billion, approaching about half of the full year of 2025.** In the agriculture sector,** directions benefiting from geopolitical strategy are in a long-cycle turning point.** In the baijiu sector,** pricing stabilizes; Maotai’s price increases release signals of a sector recovery, and the increase in valuation floors raises the safety margin of the segment.** In the home appliances sector,** in 2026 the “trade-in for upgrades” policy continues + sustained high dividend returns + overseas expansion and globalization can serve as a safe core holding.

4. Hedging Direction: Infrastructure led by “Zhongzi” enterprises, steady progress leading to long-term success

With improving business conditions in the construction industry, and against the backdrop of high oil prices, stabilizing growth may be an important way to hedge; the construction industry is expected to benefit. With the Ya’an hydroelectric power station proceeding smoothly into construction, it could provide solid earnings support for the construction industry. In an environment full of external uncertainties, safe assets represented by “Zhongzi” infrastructure participating in construction are expected to undergo a reassessment of their value.

5. Risk Warning

The U.S.–Iran conflict may turn out to be beyond expectations; the PEG and PB-ROE framework may fail; and there may be deviations in understanding safe assets.

（Source: Founder Securities [Zhejiang]）