Heading into Chinese New Year, the Year of the Snake, Wenchang Ma, China equites portfolio Manager, and Alan Siow, co-head of emerging market corporate debt at Anglo-South African asset manager Ninety One, explore the opportunities and challenges in China.

China is likely to be in pro-growth mode this year, Wenchang Ma and Alan Siow at Ninety One said in a note about prospects, reflecting on a respectable performance by Chinese equities in 2024, even if not as strong as in the US. 

The asset manager, looking back at 2024, noted that Chinese government bonds were strong relative to other fixed-income asset classes, with a total return of 6.2 per cent, outperforming US Treasuries (1.6 per cent), and the euro benchmark bond (2.6 per cent). The Chinese equity market got off to a slow start last year, but in response, the Chinese government introduced a series of monetary and fiscal measures in late September to bolster growth. A package of measures from Beijing led to a sharp reversal in market momentum, although some gains have since retreated.

The MSCI China All Shares Index ended the year up 16.4 per cent.

Founded in South Africa in 1991, Ninety One is a relatively large player: It oversaw £130.2 billion ($175 billion) in assets as at the end of 2024.

What to expect in 2025
The managers at Ninety One expect a pro-growth policy environment in 2025 to endure, with further measures such as increasing quotas to address local government debt, easing property restrictions, and mobilising funds for property inventory issues. There appears an expecation of a consumption-focused stimulus, including an extended home appliance replacement programme and increased social benefits spending.

“Reflecting on 2024 from a fixed-income perspective, policy announcements serve two audiences – domestic and international. We are currently witnessing a shift in posture in bond markets,” Siow said. “Like the US Federal Reserve, which signalled a turn by cutting interest rates after a period of increases, China’s policy focus has transitioned toward supporting and stabilising the economy, if not outright stimulating it. This shift is a significant development for investors, signalling a potentially more supportive environment in 2025.” 

“The market continues to look for a more substantial, fiscally-driven stimulus package, particularly around consumption. Such a package remains uncertain, as it would deviate from past policy norms. During Covid, China was one of the few major economies not to issue direct stimulus payments, shaping market expectations. Investors will need to carefully evaluate fiscal measures within this context,” Siow continued.

Impact of Trump’s election

The asset managers reflected on how China will ride out a possible rise in tariffs under Donald Trump. 

During the 2018 trade clash with the US in Trump's first term of office, tariffs were smaller in both rate and scope than originally announced, with most impact absorbed through the Chinese renminbi depreciation. Over the past six years, China’s global export share has remained stable, indicating resilience. Ninety One thinks this dynamic should persist, as ongoing US-China tensions continue to shape the economic landscape.

“Chinese companies have moved up the value chain, increasing self-sufficiency, and becoming more resilient to potential supply chain disruptions,” Ma said. “Even before Trump’s re-election, Chinese firms began establishing production bases closer to end markets, such as South America and Southeast Asia, providing a buffer against potential new tariffs or trade frictions.” 

During Trump’s first term, the primary adjustment mechanism for emerging markets was through the foreign exchange channel – likely to play a key role again. After his victory in November, US Treasuries were hit hardest. However, currencies of countries most exposed to tariffs, such as Mexico and China, remained relatively resilient.

“From an emerging markets perspective, much of the potential risk appears priced in,” Ma said. “While the trade war headlines were alarming, global trade’s fundamental shape remained largely unchanged. Although China’s direct exports to the US declined by 30 per cent over the last decade, exports to intermediate countries like Vietnam and Mexico increased, reshaping trade flows and underscoring global trade resilience.”

Opportunities in 2025
“Last year highlighted the value of a diversified fixed income portfolio. Chinese government bonds and credit outperformed their large G3 counterparts - US and euro bonds - in a year marked by significant global events, including more than half the world going to elections, including the US,” Siow said. Chinese bonds have proven crucial as diversifiers, and he sees value in US dollar-denominated Chinese corporate credit, particularly in investment-grade and selective high-yield opportunities.

In the equity space, Ma finds a variety of stocks with idiosyncratic investment drivers. For example, high-quality, high-growth opportunities in sectors such as technology and healthcare, along with value in stocks offering strong cash returns, particularly in raw materials and financials. “Our focus is on companies with strong earnings power and positive momentum, spanning both onshore and offshore segments of the China market," Ma added.

“We are taking advantage of opportunities in areas such as power grid investments, construction machinery and consumer-focused companies gaining domestic market share or competitive in the export market, particularly those exposed to non-US markets for growth,” Ma said. “We see potential along the electric vehicle (EV) supply chain, an area poised for sustained structural growth in China and globally, with the Chinese equity market offering a wealth of names to choose from.” 

Potential risks in the Year of the Snake
Ma and Siow said that China's road to reflation is anything but smooth, with persistent deflationary pressures and uncertain duration. For recovery, companies need reduced pricing pressure and improved profitability. The corporate sector growth must regain momentum, and earnings' revisions among listed companies must stabilise and shift towards a positive trend.

“Heightened geopolitical uncertainty in 2025 may create volatility in equity markets, with fragile sentiment. We believe in a blended investment style, focusing on bottom-up, individual stock selection as the best strategy for long-term performance,” Ma said.

In fixed income, Siow anticipates headline-driven volatility, similar to Trump’s first presidency. “While market reactions may be significant, much of the risk could already be priced in. Based on experience, the impact may be less severe than initial concerns suggest,” Siow said. He plans to use market dips as opportunities to add exposure, focusing on local currency and dollar-denominated instruments across investment-grade and high-yield segments.

Although Ma and Siow think China presents immense opportunities, they realise that its full potential requires a thoughtful and intentional approach. The Year of the Snake represents reflection, growth and making calculated decisions in the face of unpredictability – precisely the approach to take as we enter this new year which starts on 29 January. The celebrations culminate in the Lantern Festival on 12 February, which signifies the end of Winter and the arrival of a new year. The holiday falls between January 28 and February 4, marking the arrival of the Year of the Snake, which last happened in 2013.

The Chinese zodiac works as a 12-year cycle which assigns an animal sign annually. In Chinese symbology, those born in the Year of the Snake are said to be recognised for their keen insight and extraordinary intelligence.  See more commentary here on investment opportunities in China.