Chinese assets in focus as geopolitical tensions rattle global markets

As recent geopolitical tensions roiled global capital markets, the relative resilience of Chinese assets has come into sharper focus amid heightened volatility.

International oil prices have surged following the tensions, and rising energy costs are fueling inflation concerns and clouding expectations for monetary easing by major central banks, adding to volatility in global markets.

Global equities have come under broad pressure, with the Dow Jones Industrial Average, the Nasdaq and the S&P 500 falling between 7.68 percent and 8.27 percent from March 1 to 30, while Japan's Nikkei 225 and the Republic of Korea (ROK)'s KOSPI dropped 11.83 percent and 15.48 percent, respectively.

Against this backdrop, Chinese assets have appeared relatively resilient, drawing increasing attention from investors seeking greater certainty.

In March, the Shanghai Composite Index and the Shenzhen Component Index reported significantly smaller declines than those seen in the U.S., Japanese and ROK's markets.

In the foreign exchange market, the renminbi appreciated by more than 1 percent against the U.S. dollar in the first quarter this year, also outperforming other non-U.S. currencies by a notable margin.

Laura Wang, chief China equity strategist at Morgan Stanley, said the investability, sustainability and stability of the Chinese market have become more prominent. Over the next two to three years, China is expected to further strengthen its position as an investment destination.

Wang said the case for Chinese assets is supported by policy continuity and effectiveness, the relative independence of China's economic cycle, and the country's growing global leadership in high-end industrial chains. These strengths are likely to be further validated in the coming years by global demand and China's rising share in advanced industries.

Chinese equities, especially A-shares, have posted smaller declines than many other Asian markets since geopolitical tensions began to spread, Wang said, adding that policy predictability, the resilience of economic fundamentals and the improving global assessment of China's investability could all help attract more foreign capital over the longer term.

A Goldman Sachs research note echoed the view, noting that Chinese equities have shown clear diversification benefits in the latest oil shock, with A- and H-shares meaningfully outperforming their peers on a volatility-adjusted basis.

Rising geopolitical and growth risks are likely to increase investor demand for assets with lower correlation and lower volatility, adding to the appeal of A-shares, where foreign ownership remains low, valuations appear relatively inexpensive, and policy support is seen as effective, according to the note.

The relative resilience is partly linked to China's lower dependence on imported oil and gas, which analysts said leaves the economy better placed than many others to weather the latest energy shock.

Robin Xing, chief China economist at Morgan Stanley, said China has sharply increased the share of green power in its energy mix over the past decade, while domestically supplied coal remains a cornerstone of the broader energy system.

He said this has significantly reduced the share of imported oil and gas in China's energy structure, leaving the country less dependent on external energy supplies than many neighboring economies.

Steven Sun, head of research at HSBC Qianhai Securities, said China's complete industrial system and resilient supply chains could help sectors such as coal chemicals, ethylene and phosphorus chemicals stand out under high oil prices, while growing global attention to alternative energy and energy storage could also benefit Chinese firms with leading positions in solar and storage technologies.