Markets Bet On Faster Energy Transition After Iran

By Charlie Zhu, Bloomberg Markets Live reporter and strategist

Three things we learned last week:

1. Markets are pricing in the Iran oil crisis as a powerful catalyst for the global energy transition, with China’s renewable energy leaders outperforming oil majors in the US.

Shares of China’s leading battery and EV maker Contemporary Amperex Technology and BYD have both gained more than 15% since the war began in Iran, outperforming that of Exxon Mobil and Chevron. 

Energy shipments through the Strait of Hormuz are still far from normal. Even a ceasefire would take time to translate into lower energy prices. A growing number of investors believe batteries and energy‑storage systems will accelerate the displacement of fossil fuels, driven by both cost and supply-security considerations.

Chinese automakers regained momentum in Europe in February after a brief sales slowdown at the start of the year. Soaring fuel prices tied to the conflict in the Middle East have increased the attractiveness of EVs. Chinese brands like BYD and Leapmotor may see further momentum in coming months.

2. China’s shift toward reflation may be near, raising hopes it can revive corporate earnings and spur gains in stocks.

Rising commodity prices due to the Iran war are expected to bolster producer and consumer prices in China, which may bring an end to the deflationary stretch that has persisted since October 2022.

A pickup in inflation might help companies regain pricing power after years of cutthroat competition and improve the outlook of their earnings and stock prices.

Growing regulatory efforts to rein in excessive competition also support a recovery in profitability. Food delivery giant Meituan expects losses per delivery order to start narrowing in the current quarter. Its share price jumped 8.5% in Hong Kong last week.

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3. China has barred two Manus co-founders from leaving the country. The move may heighten concerns among entrepreneurs and investors over political risk in China’s technology space.

Manus’s chief executive officer and chief scientist were summoned to a meeting with regulators in Beijing, and then told they couldn’t leave China, according to the Financial Times.

Meta Platforms agreed to buy the AI startup for a valuation of more than $2 billion last year. Soon after the announcement, Beijing started investigating whether the takeover violated regulations, with potential national security implications.

The steps complicate the prospects of a rare US acquisition of an Asian tech company. They may also make Chinese AI talent more cautious in choosing where to found companies and which investors they’ll allow to back them.