EJFQ Analysis | Middle East Conflict Safe Haven, A-Shares Gain Favor with Hard Assets

The member countries of the International Energy Agency (IEA) agreed to release a record 400 million barrels of oil reserves. Despite this, oil prices did not fall but instead rose again, as UK Maritime Trade Organization (UKMTO) confirmed 13 incidents of merchant ships being attacked in the Strait of Hormuz this month. Brent crude oil prices briefly surpassed $100 per barrel again during Asian trading hours yesterday. In the Asia-Pacific stock markets, most indices declined, but the A-shares held relatively firm, with the Shanghai Composite down only 4 points, closing at 4,129.

Amid market turbulence triggered by the US and Israel’s attack on Iran, mainland Chinese stocks unexpectedly became a safe haven for capital. Since the outbreak of Middle East conflict on February 28, the Shanghai Composite has only fallen 0.71% (the CSI 300 index nearly flat), outperforming South Korea’s KOSPI (-10.16%) and Japan’s Nikkei (-6.5%), as well as the MSCI World Index, which includes developed and emerging markets, down 3.23%. It even outperformed traditional safe-haven assets like gold (-1.94%) and US Treasuries (Bloomberg US Bond Index down 1.38%).

The overall performance of A-shares was even more surprisingly strong. As shown in the attached chart, Bloomberg data indicates that, based on the average stock price changes (weighted by market capitalization) of all listed stocks across markets, during the first eight trading days of March, the combined Shanghai and Shenzhen markets saw about 0.6% gains. This means the overall stock performance outperformed the benchmark indices, making it the only market to record positive returns, nearly 1.5 percentage points ahead of the second-place US stocks. Additionally, markets in Brazil and Canada—geographically distant from the Middle East and also major oil producers—and Spain, a major net oil exporter with world-class refining capacity, also showed greater resilience. In contrast, countries heavily dependent on oil imports such as the UK, Japan, Germany, France, and South Korea appeared most affected by the US-Iran conflict.

China, as the world’s largest importer of oil and liquefied natural gas (LNG), saw its stock market remain relatively stable despite high oil prices. This is likely because China’s dependence on Gulf oil is much lower than Japan and South Korea. According to Nomura Securities, oil imports related to the Strait of Hormuz account for less than 10% of China’s total energy consumption. Moreover, China’s high penetration of electric vehicles and renewable energy sectors may be benefiting from the Middle East conflict, reflecting the country’s diversified energy policy and reduced reliance on oil. Even with rising oil prices, these sectors remain relatively favored by capital, making them stand out as contrarian winners.

Overall, A-shares performed well. For those seeking more optimal returns, sector-based opportunities may be worth exploring. According to Bloomberg classification data as of March 11, the top three sectors in mainland China’s stock market in March are: the energy sector benefiting from soaring oil prices, the utilities sector covering major nuclear power stocks, and the industrial sector supported by central policies (which, during this year’s National Two Sessions, emphasized deepening reforms and targeted industrial development). These sectors offer promising opportunities for investors.

HFB Investment Research Department

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