Chinese stocks shake laggard image amid oil shock as green transition pays off

Chinese stocks have emerged as outperformers in the latest oil shock, reversing their reputation as laggards, as crude takes a back seat to renewable fuels in the world’s second-largest economy. The CSI 300 Index of stocks trading on the mainland’s exchanges has dropped 3.1 per cent since the US and Israel began attacks on Iran on February 28, outperforming the S&P 500, the Euro Stoxx 50 and Japan’s Nikkei 225, which have all slid at least 4 per cent during the period. This marked a turnaround from the previous four oil disruptions from 2011 to 2025, when the CSI 300 fell by an average of 8.4 per cent and underperformed global peers. The S&P 500 was the best performer during these four disruptions, falling by an average of 2.9 per cent. Powering the change is China’s years of efforts to promote green energy, including solar and wind, and electric vehicles (EVs). The country is now the world’s largest producer of photovoltaic products and EVs. Consumption of non-fossil fuels rose by 2 percentage points last year, surpassing oil as the second-largest energy source, according to the National Bureau of Statistics. Analysts estimated the share at more than 22 per cent, with projections of up to 27 per cent in five years. “There could be very limited disruptions to China’s domestic economy, given its diversified import sources, strategic oil reserves and expanding use of renewables,” said Xiangrong Yu, an analyst at Citigroup. “Given China’s relatively [limited] exposure to the Middle East, Chinese equity markets showed relative resilience. China assets would be a likely beneficiary of such a capital shift.” The Iran war would entrench China’s dominance in renewables, said Yu, noting its global export share of 60 per cent in lithium batteries, 44 per cent in solar panels and 39 per cent in wind power equipment. As the conflict entered a third week, global investors sold stocks, bonds and even gold to hold cash, pricing in stagflation or even a recession after oil surged above US$100 a barrel. The latest attacks on Gulf energy facilities sparked fears beyond logistical disruption after the Strait of Hormuz blockade. The CSI 300 tumbled 22 per cent during Libya’s civil war in 2011 and 13 per cent during the Russia-Ukraine war in 2022. It fell 0.4 per cent during the drone attack on Aramco in 2019 that paralysed half of the oil production in Saudi Arabia. It gained 1 per cent during the 12-day Iran-Israel war last year, when all key indexes rose during the short-lived conflict. China is better placed to cope with the current shock. Beyond clean energy, it had oil reserves of 1.3 billion barrels, enough for four months of supply, according to UBS Group and S&P Global. While other major economies fret about inflation due to higher energy costs, China appeared better positioned to absorb price increases, a shift that could help the country break free from three years of deflation. “Higher input costs may actually help push up producer prices and pricing expectations in China, which would be a welcome change in the current environment,” said James Wang, head of China strategy at UBS. The CSI 300 rebounded by as much as 1 per cent on Friday after the People’s Bank of China pledged to maintain stability across financial markets, including stocks, bonds and foreign exchange. The central bank also said it would study a mechanism of liquidity support for non-banking financial institutions under special circumstances. Huachuang Securities said Chinese stocks had likely bottomed, citing limited downside and improving producer prices to boost earnings. “China has been more defensive in the current episode, and we continue to hold a positive view of the market given relatively manageable growth risks from the oil price spike and support from select structural themes,” Goldman Sachs said in a report on Thursday.