Freshwater Capital Investment: How to View the Performance of Chinese Assets Amidst Iran Conflict Disruptions?

Source: Freshwater Investment

Important Notice: This material does not constitute any form of offer, promise, or other legal document from Freshwater Investment, nor does it constitute professional advice on investment, legal, or financial matters. Past performance is not indicative of future results. Investment involves risks.

Recently, the geopolitical situation in the Middle East has continued to escalate, with increased U.S.-Iran confrontation leading to disruptions in shipping through the Strait of Hormuz, causing uncertainty in global capital markets. In this context, how should we view the performance of Chinese assets? After the geopolitical shock, what changes might occur in market focus?

01

Shifting from Emotional Impact to Inflation Pricing

Regarding this round of Iran conflict, the capital markets have experienced two rounds of pricing impacts:

The first is the initial risk appetite and liquidity shock. After the conflict erupted, geopolitical uncertainties quickly boosted market risk aversion, triggering short-term pulse adjustments. As market expectations regarding the intensity and duration of the conflict gradually became clearer, panic sentiment eased compared to the initial stage, and market volatility marginally declined.

Source: Dario Caldara and Matteo Lacoviello, Wind, Freshwater Investment, as of March 13, 2026.

The second is the inflation shock caused by rising crude oil prices. As a key hub for global energy transportation, the Strait of Hormuz accounts for about 20% of global oil trade. Continued conflict will intensify supply tightness for crude oil and other energy commodities, pushing up inflation levels, and exacerbating global stagflation concerns, while disrupting global monetary policy expectations. From the futures curve of crude oil, the current structure shows a “front-strong, back-weak” pattern, indicating that the market is pricing this conflict as a short-term supply disruption, and long-term oil prices are likely to gradually decline. The ultimate impact on the crude oil price center depends on the duration of the Strait of Hormuz blockade and the severity of the final conflict, and the tail risk potential must also be continuously assessed.

02

Endogenous Resilience of Chinese Assets Builds Risk Resistance

From the performance of different equity markets during this geopolitical turmoil, Chinese assets have demonstrated stronger resilience compared to markets like Japan and South Korea, mainly supported by intrinsic market dynamics.

First, energy reserves provide a “safety cushion” for Chinese assets. In recent years, China has continuously increased its strategic crude oil reserves. According to data from the global commodities platform Kpler, by the end of 2025, China’s apparent crude oil inventory reached 1.204 billion barrels. Based on China’s import structure from the Strait of Hormuz, even if there is an extreme supply interruption in this critical route, the existing crude oil stockpiles can support over 200 days of consumption, surpassing Japan, South Korea, India, and other major Asia-Pacific economies. This energy reserve advantage not only enhances the ability to withstand geopolitical shocks but also constitutes a competitive edge for Chinese assets relative to other Asia-Pacific markets.

Second, policy support combined with liquidity provides additional resilience. On the policy front, with the continued implementation of anti-inflation policies and the upward push from geopolitical events, the pace of re-inflation is expected to accelerate, and the PPI turning positive may occur as early as the first half of the year. PPI is significantly positively correlated with industrial enterprise revenues, and its rebound will directly improve corporate profitability. From a liquidity perspective, thanks to increased policy emphasis on capital markets and the attractive environment for equities under low interest rates, market liquidity is expected to remain ample, strengthening market resilience.

Third, foreign capital underweighting combined with capital rebalancing. Since December 2025, overseas hedge funds have generally reduced their holdings of U.S. stocks and increased allocations to Europe, Japan, and other emerging markets. During this global reallocation, Chinese assets remain systematically underweighted. Coupled with the low correlation between the A-share index and global markets, this gives Chinese markets a certain buffering characteristic against external volatility. Recently, as other markets have experienced increased turbulence, signs of foreign capital returning to Chinese assets have emerged.

03

Market Focus Likely to Shift from Geopolitical Conflict to Fundamentals

Although the Iran conflict may continue to ferment in the short term, from a longer-term investment perspective, as the earnings reports of A-share listed companies approach, market focus is expected to gradually shift back to fundamentals, with earnings growth certainty becoming the main source of returns. After the short-term geopolitical disturbances, some assets in the current market have further attractive investment value. At this stage, it is more important to focus on fundamentals and select assets with clear profit growth prospects.

Since 2025, China’s advantageous industries, represented by technology and advanced manufacturing, have shown a rapid structural growth trend, supporting a stabilization and positive turnaround in overall A-share profitability. This year, macroeconomic data from January to February has already shown positive changes following the implementation of anti-inflation policies. If, during the upcoming intensive earnings disclosure period, more listed companies provide optimistic guidance, this structural profit improvement could spread to broader sectors, laying a solid foundation for a comprehensive recovery and valuation re-rating of A-shares. Additionally, in response to the current energy price surge driven by geopolitical conflicts, referencing the impact of the Russia-Ukraine conflict in 2022, uncertainties in energy supply may reshape valuation logic across related industries. It is also worth paying attention to whether new industry trends will emerge during this process.

(This article does not constitute investment advice or recommendations regarding any securities or investment tools from Freshwater Investment. Market risks are inherent; please invest cautiously.)