Investors learned the hard way that, without belief in fundamentals, one can still make money in China.
Key takeaways
- China’s leadership explicitly advocates for unconventional policies that include monetary easing and a more expansionary fiscal policy. However, we believe these policies will not offset the existing structural drags and US tariff impacts completely.
- We expect China’s growth to remain on a downward trend, slowing from 5.0% in 2024 to 4.1% in 2025, and 3.6% in 2026.
- In the case of aggressive US trade protectionism and export controls, China should keep its expansionary fiscal stance for longer than currently expected.
- Chinese equity will be influenced by the incoming Trump administration’s foreign policy, while additional stimulus could support Chinese markets, particularly domestic stocks. We maintain a neutral stance favouring domestic markets.
Over the summer of 2024, the prevailing sentiment was ‘ABC’ (Anything But China) – a full-blown existential crisis framing China as an uninvestable asset class. In late September, China equities rallied an average of 25% on the back of official talk, triggering a widespread ‘buy everything’ sentiment, as the fear of missing out spread across the market.
On 24 September, the PBoC announced equity market support pipelines; then two days later, the Politburo held an emergency meeting and changed economic policies. For those who rely exclusively on fundamentals, it is painful to sit out violent rallies. The takeaway is clear: top-down investing in China has become a tactical game and making short-term judgments most of the time.
You can now read the full whitepaper at the link below
