Chinese equities are increasingly being viewed as a relative safe haven as a month-long conflict in the Middle East continues to unsettle global markets, disrupt energy flows, and amplify fears of slower growth and rising inflation.
The closure of the Strait of Hormuz, a critical artery for roughly a fifth of global oil and gas shipments, has sent crude prices surging by nearly 50 per cent from pre-war levels, triggering broad sell-offs across major equity markets and forcing investors to reassess regional vulnerabilities.
Against that backdrop, China’s markets have shown relative resilience.
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The Shanghai Composite Index has declined about 6 per cent so far in March, a comparatively modest drop when set against sharper losses elsewhere in Asia. South Korea’s KOSPI Composite Index has fallen roughly 18 per cent, while Japan’s Nikkei 225 is down around 13 per cent over the same period.
That divergence is now shaping investor positioning.
J.P. Morgan has identified China as its most preferred market in Asia this month, citing the country’s relatively low dependence on Gulf energy supplies and its capacity to deploy fiscal support if external shocks intensify.
Similarly, HSBC has maintained an “overweight” stance, arguing that Chinese equities offer defensive characteristics anchored by a predominantly domestic investor base and a comparatively stable currency, which reduces exposure to volatile cross-border capital flows.
Strategists at BNP Paribas expect China’s relative outperformance to become more pronounced if the conflict persists, effectively positioning the market as a regional hedge against prolonged geopolitical disruption.
At the core of this resilience is an energy strategy. Analysts at Goldman Sachs estimate the conflict will shave about 20 basis points off China’s GDP, roughly half the 40 basis point drag projected for the United States. The bank attributes that differential to Beijing’s long-standing efforts to diversify energy sources and reduce exposure to external shocks.
Oil and liquefied natural gas accounted for just 28 per cent of primary energy consumption in 2024, among the lowest globally, while alternative and renewable sources contributed about 40 per cent of electricity generation. That diversification limits the direct transmission of oil price spikes into the broader economy.
In addition, China has built up significant strategic and commercial reserves. Estimates suggest the country could sustain domestic demand for up to 110 days even if crude imports were completely disrupted.
Supply diversification further reinforces that buffer. Unlike many economies heavily reliant on Middle Eastern crude, China sources energy from a wider network that includes Russia, Australia, and Malaysia. This reduces its vulnerability to disruptions linked to the Strait of Hormuz and the broader Gulf region.
The contrast with other major economies is becoming clearer as the conflict drags on.
Rising oil prices are feeding into inflation expectations globally, complicating the policy outlook for central banks and raising concerns about stagflation, particularly in economies more exposed to imported energy costs.
The implications are glaring for equity markets. This is because higher energy costs compress corporate margins, dampen consumer spending, and weaken growth expectations. In Asia, export-oriented markets such as South Korea and Japan are particularly sensitive to these dynamics, helping explain the sharper equity declines seen this month.
China, by comparison, is benefiting from a different set of drivers. Its large domestic investor base provides a degree of insulation from rapid foreign capital outflows, while policymakers retain significant room to deploy fiscal and monetary tools to stabilize growth if conditions deteriorate.
That combination is now attracting investor attention. What is emerging is not a traditional safe haven in the sense of low volatility or guaranteed returns, but a relative refuge in a market environment where geopolitical shocks are dictating capital flows.
The longer the conflict persists and energy prices remain elevated, the more likely it is that investors will continue to rotate toward markets perceived as structurally less exposed to the fallout.
China currently appears to be one of the primary beneficiaries of that shift.