Webinar with Bin Shi – From pessimism to prosperity

It is a complex moment in the world today, with disruptive forces on many fronts driving rapid market movements. While China’s equity market has always been fast-moving, volatility has been particularly high recently as sentiment turned optimistic seemingly overnight.

Is the breakout success of DeepSeek the start of a Chinese revival? Or will US trade tariffs keep the Chinese economy from bouncing back? These are some of the questions that we tried to answer during the webinar (on-demand replay below).

We think the China equity rally set off by the breakout tech story has more room to grow. Optimism should continue, as Chinese companies become more competitive globally and the economy improves. The current rally is better supported and more sustainable compared to the rollercoaster ups and downs in the past years.

Investors are very focused on AI companies now, and we are encouraged by the sector’s success. We follow closely how the technologies could impact the rest of the economy. However, changes are not only taking place in tech. We work to identify emerging opportunities with great potential that have not received as much investor attention, such as companies in autonomous driving.

Market pessimism surrounding China of the past years was overdone, hence the drastic turn in sentiment. It is interesting to look at Chinese and US equity markets side-by-side. While market expectations for US stocks are so high that a less-than-perfect result tends to be punished, expectations are so low for Chinese stocks that any positive news could boost performance.

Policy shifts and trade tariffs from the new US administration introduced a lot of uncertainty to markets, and we are not near the end of that process yet. To overturn the setup of globalization and move manufacturing back to the US are easier said than done – not to mention the impact on US inflation. China’s response has been measured so far, and while the China-US rivalry will continue, Chinese companies are more competitive and prepared for the shock this time.

President Xi’s rare appearance at a symposium – first time in seven years – meeting business leaders and tech companies is an important and positive signal on the government’s changing attitude towards the private sector. It lifts confidence among entrepreneurs, with many companies announcing to increase their capital expenditures afterwards.

The annual National People’s Congress (NPC) meeting provided no major surprises, with GDP growth target and fiscal target broadly in line with expectations. More of a reiteration, policy direction and priorities appear clear and consistent to us.

We think the next leg of the current rally will depend on China’s actual economic performance. The economy is seeing nascent improvement, and there is potential upside to the recovery. Even in the high-flying tech sector, valuations are still quite reasonable today in our view due to the previously depressed levels. Overall, we believe it is not too late to invest in China equities.