Is China winning the war?

📉As stocks continue to sell off this morning given the entry of Iran-backed Houthi forces entering the conflict and an expanded US military presence, leading crude oil to climb back above the US$100 mark, one can’t help but wonder, are certain markets over-penalised?

📰Financial Times have painted China as one of the winers from the ongoing Iran war. If so, what does this mean for China’s equities?

✍Macquarie Sales and Trading’s (S&T) addresses this question in a report published today on 30 March 2026

👀Read on for important disclaimers

The below communication has been prepared by Sales and Trading (S&T) Personnel at Macquarie and is not a product of the Macquarie Research Department.  For important disclosures relating to this communication, please see: www.macquarie.com/salesandtradingdisclaimerIt is increasingly argued that China might emerge as one of the winners of the Iran war (FT). Does S&T agree, and what does it mean for equity investors?

1. China is positioning itself as a harbor of tranquillity in an unpredictable world.As US degrades global norms and refuses to provide public goods, China's own boycotts and coercion policies are fading from memory or, at the very least, no longer viewed as exceptional in a "might is right' world.Indeed, the last 12 months saw a collapse in US's favourability ratings and a corresponding improvement for China. This creates opportunities, from geopolitical, economic and monetary perspectives (e.g. Iran pricing the so-called Straits of Hormuz "toll" system in Yuan), with China now more likely to be a key beneficiary of infrastructure rebuilding, and not only in the Gulf but other places, even Ukraine.

2. Since GFC, China has deliberately reduced its reliance on fossil fuel while encouraging a technology stack focused on electricity and ways of generating, using and storing energy.Whereas in 2010, electricity accounted for approximately 18% of energy consumption, today, it is above 30%, with solar & wind increasing its share of electricity from around 1% to 20%; renewables are at 1/3.While China is still heavily dependent on fossil fuel, its exposure to oil and gas has been reduced and hedged via pipelines from Russia and Central Asia, with less than 10% of energy exposed to the Gulf. China also has lower vulnerabilities to derivative products (e.g. fertilizers).

3. Finally, it is sheltered behind protective wall of capital controls which allows for a delay in recognizing losses while offering a greater perceived stabilityBut, debates downplay the downsides of any planned economy. The best description is one of state capitalism that has elements of planning and heavy-handed state directives mixed with a highly competitive capitalism. If executed well, it is capable of structural overhauls (e.g. SEZ, green tech). But, there are side effects.

1. Misallocation of capital. Since GFC, China had four super cycles of credit and investment that channelled around 100% of global GDP in FA investment. This led to over capacities and bubbles (e.g. real estate, infrastructure), an explosion of debt (approximately 4x GDP) and banking assets (3X), rise in ICOR (incremental capital-output), disinflation and the inability to get off the investment-export treadmill

2. China has found itself in a liquidity trap, which narrows policy choices, as it is no longer about supply of money but lack of demand for money, reflected in HH and corporate surveys that show a strong preference for saving. As over capacities grew, corporates have been suffering from steep falls in profit margins, ROE's and asset turn.

Implications?

1. US policies and the Iran war are strengthening China's geopolitical and economic position

.2. But, "involution" cannot be solved until saving rates (~45% GDP) decline, which requires productivity rebounds and policies to raise consumption.

3. In a world where no one is special - everyone struggles with their own demons - there is no need to excessively penalize anyone. China's equities, while not perfect, look over-penalized,

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