Analysis: Middle East Turmoil Raises China’s Safe Haven Status
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As the U.S.-Israel-Iran conflict has roiled global markets in recent weeks, China has appeared relatively insulated from the energy-driven shock that is reshaping asset pricing worldwide.
The most immediate transmission channel is oil. With Brent crude having surged from around $70 per barrel to nearly $120 at its peak before pulling back after ceasefire news, the inflationary impact has rippled across economies. For China, while exposure to Middle Eastern crude is comparatively limited, the effect has still been felt domestically. Since March 9, gasoline and diesel prices have been raised repeatedly.
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- China insulated from oil surge (Brent $70-$120 peak) with manageable inflation; fuel prices raised since March 9.
- Markets resilient: CSI 300 fell in line with US stocks, bonds stable, yuan strengthened.
- Attractive for investors due to stability, AI potential; opportunities for yuan internationalization amid petrodollar weakening.
- China Securities Co. Ltd.
- Zhou Junzhi, chief macro analyst at China Securities Co. Ltd., noted that oil prices will exert upward pressure on prices, but the broader inflationary impact remains manageable and contained.
- Yuekai Securities Co. Ltd.
- Luo Zhiheng, chief economist at Yuekai Securities Co. Ltd., advises targeted relief and subsidies for businesses/households, monitoring core CPI and output gap. Policymakers should clearly state that price rises stem from external supply shocks, preserving accommodative monetary policy to anchor expectations.
- Barclays
- Zhang Meng, a macro and forex strategist at Barclays, noted that the yuan has gained strength and is among the currencies least vulnerable to oil shocks, supported by China’s sizable current account surplus and continued foreign exchange inflows from exporters.
- UBS
- Chun-lai Wu, head of Asia asset allocation at UBS Global Wealth Management, views Chinese market volatility as spillover from Asia, not negative sentiment. Since 2025, investors recognize China's AI breakthroughs, making it a long-term destination. Yuan bonds offer comparable returns to U.S. Treasurys via hedging, with yuan stability attracting equity/bond investors.
- Bank of America
- A Bank of America survey of global fund managers, released in mid-March, showed they remained overweight equities, particularly in emerging markets.
- AllianceBernstein
- Li Changfeng, head of market strategy at AllianceBernstein, said signs of capital returning to emerging markets are emerging, with the conflict potentially catalyzing a reversal of previous outflows.
- China International Capital Corp. Ltd.
- Miao Yanliang, chief strategist at China International Capital Corp. Ltd., cautioned that declining dollar dominance creates space for multi-currency systems, but China must advance exchange rate flexibility to increase the yuan’s global use.
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