China’s stockmarket had been broadly trending down since the start of 2022 until a bounce last September.
The surge was triggered by a government stimulus package, but that appears to have been fully priced in. On the plus side, the emergence of the DeepSeek AI models highlight the potential China has in the technology realm.
The Shanghai Composite went sideways during the back end of 2024 and so far this year. Sooner or later it will break one way or the other, but which is most likely?
The arrival of Donald Trump to the White House for his second term as president certainly complicates the picture.
One of the stand-out features of his first term was a trade dispute with China, and we are heading for round two. Trump has already proposed a 10% tariff on Chinese goods coming into America.
China also faces domestic questions over the rate of economic growth and its troubled property sector.
Kate Marshall, lead investment analyst at Hargreaves Lansdown, said: “In China, the snake is known for its cunning and careful planning, and calculated decision making.
“For investors, this could signal a year of being thoughtful and measured, focusing on long-term gains over impulsive risks.
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“The key areas to look out for in China are the potential disruption to global trade, strained relations with the US, problems in the property sector, and weakening economic growth.”
Mark Harries, chief investment officer at Square Mile, added: “When Covid restrictions were finally lifted in China, investor optimism was high. However, what followed fell well short of expectations. Economic performance was, at best, underwhelming.
“The markets had largely anticipated that Chinese consumers would go out in their droves and spend the money they saved during lockdowns – yet, this bounce back failed to materialise in a meaningful way. However, a turning point did eventually emerge in late 2024 and China’s GDP achieved 5.0% growth, meeting its annual target.
“The country’s path to reinvention will not be without obstacles, though,” Harries continued. “A significant challenge lies in the ongoing tensions with the US, which could arguably worsen with Trump returning to the White House.
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“Amid these complexities, investable opportunities remain. With US equities appearing increasingly expensive, China’s valuations could become more attractive to global investors. Furthermore, with an increasing emphasis on shareholder returns in the region, 2025 could be a key year for China’s economic recovery.”
Nicholas Yeo, head of China equities at abrdn, said: “Contrary to what some investors think, history suggests that the ‘Trump is bad for China’ narrative isn’t necessarily enough to drive equity returns in the long run. We see domestic issues as the most important driver of Chinese stock prices.
“From a valuation perspective, we are still seeing a disconnect between low valuations and yet strong earnings delivery for quality companies in China,” he added.
“With the margin of error in China still attractive, valuations palatable, and the country’s unloved status with investors, we believe there is scope for a long and sustained re-rating of these companies, especially given how negative sentiment has become.”
