Freshwater Spring Investment: How to View Chinese Asset Performance Amid Iran Conflict Disruptions?

Source: Freshwater Fountain Investment

Important Notice: This material does not constitute any form of offer, promise, or other legal document from Freshwater Fountain, nor is it professional investment, legal, or financial advice. Past performance does not indicate future results. Invest cautiously.

Recently, the geopolitical situation in the Middle East has continued to escalate, with increased U.S.-Iran tensions disrupting shipping through the Strait of Hormuz, leading to uncertainty in global capital markets. In this context, how should Chinese assets be viewed? 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:

The first is the initial risk appetite and liquidity shock. After the conflict erupted, geopolitical uncertainties quickly boosted market risk aversion, causing 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 Fountain Investment, as of March 13, 2026.

The second is the inflation impact driven 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 crude oil futures term structure, the current pattern shows “front-strong, back-weak,” indicating that the market prices 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 must be continuously assessed.

02

Chinese Assets Demonstrate Endogenous Resilience and Risk Resistance

From the performance of different equity markets during this geopolitical turmoil, Chinese assets have shown 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 resilience against 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 ongoing efforts to curb internal competition and the impact of geopolitical events pushing oil prices higher, the pace of re-inflation is expected to accelerate, with the Producer Price Index (PPI) turning positive possibly as early as the first half of the year. PPI is significantly positively correlated with industrial corporate revenues, so its rebound will directly improve corporate profitability. From a liquidity perspective, increased policy emphasis on capital markets, coupled with a low-interest-rate environment that enhances the attractiveness of equity assets, suggests market liquidity will remain ample, strengthening market resilience.

Third, foreign capital’s underweight positioning 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. Additionally, the low correlation between the A-share index and global markets provides some buffer against external volatility. Recently, as other markets experience 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 intensify in the short term, a longer-term investment perspective suggests that as A-share listed companies’ earnings reports approach, market focus is expected to gradually return to fundamentals, with earnings growth certainty becoming the main source of returns. After short-term geopolitical disruptions, some assets in the current market have further attractive valuation prospects. At this stage, it is advisable to focus on fundamentals and select assets with clear earnings growth potential.

Since 2025, China’s advantageous industries, represented by technology and advanced manufacturing, have shown rapid structural growth, supporting a stabilization and positive turnaround in A-share profits. This year, macroeconomic data from January to February has already shown positive signs following the implementation of anti-inflation policies. If, during the upcoming earnings reporting season, more listed companies provide optimistic guidance, this structural profit improvement could spread across broader sectors, laying a solid foundation for a comprehensive recovery and valuation re-rating of A-shares. Furthermore, in response to the current energy price surge caused 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 Fountain. Markets carry risks; invest cautiously.)