China’s New Role: Stability in an Unstable World

Please find below our latest thoughts on China:

• China as a safe haven marks a notable turnaround from a few years ago – but it is nonetheless emerging as one investor takeaway from events of the past month.
• In fixed income, while government bond yields across most markets have risen notably since the outbreak of the war, China stands out as the clear exception. China’s 10-year government bond yield remains just above 1.8%, almost unchanged from levels before the Middle East conflict began.¹
• The Chinese currency has appreciated against the US dollar year to date (YTD) and is little changed during March.²
• And while no equity markets globally have been immune, China A-shares in particular continue to play their role as a valuable diversifier in global portfolios.

• The MSCI China A Onshore Index has outperformed the S&P 500 by 6% YTD, and by 18% over the last two years (USD).³
• So what’s behind this? Partly it reflects that China’s diversified economy is relatively well positioned for extreme scenarios, especially after years of building self-reliance across energy, food, and supply chains.
• While China is still quite heavily dependent on fossil fuels, for example, it has looked to reduce exposure to oil and gas, and also to hedge this via pipelines from Russia and Central Asia. Less than 10% of energy in China is exposed to the Gulf.⁴
• Indeed, over a sustained period, China has been developing a technology stack focused on electricity and ways of generating, using and storing energy. Whereas in 2010, electricity accounted for around 18% of energy consumption, today it is above 30%. Solar and wind have increased their share of electricity from around 1% previously to around 20% today.⁵
• As such, while sell-side analysts have been trimming China GDP growth expectations for this year, there have been greater reductions in the outlook for most other global economies.⁶
• At a micro level, within the China A market, energy security has been a strong theme benefiting a number of energy, renewables, power grid, energy storage and electric vehicle (EV) companies.
• The world’s largest EV battery manufacturer and major player in energy storage solutions, for example, has added USD 45 billion in market cap since the beginning of March.⁷
• Looking ahead, the recent experience of surging energy prices and fuel shortages, combined with heightened geopolitical uncertainty, will in our view prompt more countries to prioritise energy security.
• This will likely involve activities including building nuclear power plants, increasing renewable energy installations, accelerating EV adoption, and further electrifying economies. As China dominates many of these sectors, it stands to gain from this global shift over the longer term.

• Elsewhere, the Middle East conflict has also masked another AI development milestone in China – the rise of agentic AI.
• If the “DeepSeek moment” was a game changer, which proved China was capable of producing globally competitive AI models, the recent surge of token usage highlights how AI deployment in China is rapidly accelerating.
• Based on data from OpenRouter, widely used as an industry indicator, Chinese AI models have occupied the top four models globally for token usage during March8 – a key measure of model capacity and real-world demand.
• We believe this likely signals a structural shift, rather than a temporary spike, as China moves towards industrial-scale AI deployment.
• Indeed, we increasingly see a build out of China-centric AI infrastructure – including chips, data centres, models and applications – which is set to become the backbone of future industrial growth supporting a range of areas such as autonomous driving, humanoid robotics and biotech.
• In summary, in such highly unpredictable and uncertain times, we see China equities – and A-shares in particular – providing both valuable portfolio diversification as well as a number of idiosyncratic growth opportunities.

¹ Source: Bloomberg as at 30 March 2026
² Source: Bloomberg as at 30 March 2026
³ Source: Bloomberg as at 30 March 2026
⁴ Source: Macquarie as at 30 March 2026
⁵ Source: Macquarie as at 30 March 2026
⁶ Source: Goldman Sachs as at 30 March 2026
⁷ Source: Bloomberg as at 30 March 2026