Looking back at 2024, Chinese government bonds delivered strong returns relative to other fixed-income asset classes, with a total return of 6.2%, outperforming US treasuries (1.6%), and the euro benchmark (2.6%). In contrast, the equity market began 2024 on a muted note. Sentiment improved in February when Chinese regulators intervened, sparking a 20% rally over the following three months. However, this momentum quickly faded as China's macroeconomic data deteriorated through Q2 and Q3, highlighting continued deflationary pressures and weakening retail activity.
In response, the Chinese government introduced a series of monetary and fiscal measures in late September, signalling its commitment to stabilise the property market and support economic growth. This 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%, a respectable performance, though not as strong as the rally seen in US markets.
The policy environment in 2025 is expected to remain pro-growth, with further measures such as increasing quotas to address local government debt, easing property restrictions, and mobilising funds for property inventory issues. The market expects an expanded consumption-focused stimulus, including an extended home appliance replacement program and increased social benefits spending.
Siow said: “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. Like the Fed, 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.
During the 2018 trade war, tariffs were smaller in both rate and scope than originally announced, with most impact absorbed through RMB depreciation. Over the past six years, China’s global export share has remained stable, indicating resilience. This dynamic is likely to 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. Even before Trump’s re-election, Chinese firms began establishing production bases closer to end markets, e.g., South America and Southeast Asia, providing a buffer against potential new tariffs or trade frictions,” said Ma.
During Trump’s first term, the primary adjustment mechanism for emerging markets was through the FX 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, like Mexico and China, remained relatively resilient.
Ma added: “From an emerging markets perspective, much of the potential risk appears priced in. 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% over the last decade, exports to intermediate countries like Vietnam and Mexico increased, reshaping trade flows and underscoring global trade resilience.”
“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. Chinese bonds have proven crucial as diversifiers, and we see value in US dollar-denominated Chinese corporate credit, particularly in investment-grade and selective high-yield opportunities,” said Siow.
Ma said: “In the equity space, we continue to find a variety of stocks with idiosyncratic investment drivers. For example, high-quality, high-growth opportunities in sectors like 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."
“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. 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,” Ma added.
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 remarked.
Siow said: “ In fixed income, we anticipate 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. We plan to use market dips as opportunities to add exposure, focusing on local currency and dollar-denominated instruments across investment-grade and high-yield segments.”
China presents immense opportunities but realising 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.