(Bloomberg) -- Donald Trump’s return has cast a pall over China’s $10 trillion stock market, but for some money managers, the party isn’t yet over.
Man Group and abrdn Plc are among those remaining bullish, counting on Beijing to deliver greater stimulus to offset the US president-elect’s tariff threats. The policy focus for 2025 will likely be on boosting consumption, they say, opening up pockets of investment opportunities even as the specter of a trade war pressures export-reliant firms.
The euphoria that followed China’s monetary stimulus barrage in late September has now given way to caution. Yet investors sense a clear policy pivot by President Xi Jinping toward stabilizing the economy after a multi-year deleveraging campaign, a shift that bodes well for stocks. Despite a recent slide, the CSI 300 Index has risen more tha 12% this year, heading for its first annual gain since 2020.
“China policymakers may want more visibility before deciding on the size and timing of fiscal stimulus measures, given the US election result,” said Andrew Swan, head of Asia ex-Japan equities at Man Group. “However, we think the direction of travel is clear, and the continued structural reform in China supports our optimism.”
2017 Versus 2025
It’s been another tumultuous year for stocks. The CSI 300 languished at a five-year low before the People’s Bank of China’s stimulus package came to the rescue. The onshore benchmark surged more than 30% in just six sessions through a Oct. 8 peak. In Hong Kong, the Hang Seng China Enterprises Index rose 39% in less than a month.
But since then, a mismatch has emerged between traders clamoring for bigger fiscal spending and the authorities wanting to preserve policy firepower. That discrepancy, along with Trump’s election victory and his nomination of China hawks for cabinet roles, has pushed stocks lower.
Bulls aren’t giving up. They are taking comfort from the fact that China is in a better position to weather a potential trade war than it was in 2017, thanks to a diversification of export channels. There are also doubts as to whether Trump will push forward with the 60% tariff threat on Chinese goods that may drive US inflation higher.
“We are not worried too much about Trump’s second-term impact on China equities,” said Belle Liang, chief investment officer for investment and wealth solutions at Hang Seng Bank. “China’s economic structure has changed and its exports are much less reliant on the US now.”
Consumption Focus
Some positive signs have started to crop up in the economy, with retail sales expanding at the fastest rate in eight months and earnings’ projections by analysts bottoming out. Investors who were burnt during China’s tech crackdown and regulatory whiplashes have also come to believe that the leadership now sees a need to stabilize markets.
“What I know for sure is the government is not going to kill the stock market,” said Chauwei Yak, chief executive officer at GAO Capital, a multi-strategy hedge fund in Singapore. If Trump turns out to be willing to negotiate tariffs and Beijing seems keen to spur domestic demand, that could mean 20% upside potential for stocks, she said.
Some China watchers expect the authorities will more actively support consumption in 2025 as domestic demand remains a weak spot.
Elizabeth Kwik, investment director of Asian equities at abrdn, sees such policies taking shape nearer to the “Two Sessions” — China’s annual legislative meetings in March. “Any major pullback in the market due to US tariff uncertainties would be a good time to add to China,” she said.
Consumer stocks trailed behind their peers in the latest rebound, with the CSI sub-gauge of consumer staples still down nearly 7% for the year.
“With new money, I’d be looking to buy consumption plays on the hope that we’ve seen the worst,” said Christopher Wood, global head of equity strategy at Jefferies, adding that export stocks are more at risk until there’s clarity over tariffs.
Valuation Attraction
Lingering hopes aside, the recent slide in equities has prompted some investors to cut exposure. The Hang Seng China gauge has fallen about 17% from a peak, while the CSI 300 has lost 9%.
The iShares China Large-Cap ETF saw $984 million in outflows in the week through Nov. 15, extending a five-week streak of withdrawals. Strategists at Morgan Stanley and CLSA have recently reduced their allocation to Chinese equities.
Despite the signs of caution, Nikko Asset Management is positive.
“Domestic policy is a bigger driver of equity market returns than actually what the US does,” said Eric Khaw, senior portfolio manager for Asian equity at the money manager, who turned to neutral from underweight following the stimulus announcements. “If the tariffs are going to be really bad, then the response from China actually is going to be even stronger.”
--With assistance from Myungshin Cho and John Cheng.
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