How investor confidence in China’s earnings growth could fuel a sustained stock market rally in the world’s second-largest economy, already hurt by government stimulus and rising tensions in the United States This is still a missing element. “For Chinese stocks to significantly outperform, we need to see whether policy announcements actually lead to easing deflationary pressures and a recovery in corporate profits,” said Aaron Costello, head of Asia at Cambridge Associates. , both of which will take time.” Email on Thursday. The CSI300 index fell 1% last week and fell 2.4% on Friday alone, after the Chinese government reaffirmed plans to widen the deficit and expand economic support next year, without providing further details. China typically announces its GDP targets and fiscal plans at its parliament in March. The stock is currently almost 12% below its 52-week high reached in early October. “China is clearly preparing to ramp up stimulus in 2025, potentially to counter adverse trade policies from the incoming Trump administration,” Costello said. Cambridge Associates is neutral on Chinese stocks and wants to see further evidence of accelerating growth. Improving Earnings Despite broader pressures on the economy, earnings in certain industries are expected to improve. Analysts at HSBC say Chinese medical device companies could see revenue growth next year, especially after the Ministry of Finance laid out a draft plan earlier this month that would allow local governments to buy domestically produced products 20% cheaper than foreign products. Yes, we said in our December report. .10 report. The public comment period ends in early January, but implementation remains unclear. HSBC analysts said: “Since September, medical equipment procurement for Chinese hospitals has been recovering, and we expect growth in China’s medical equipment sector to recover in 2025.” Shanghai-based United Imaging Co. predicts profits will rise 46% in 2025, reversing this year’s losses. Snive’s profits, which are traded on the Shenzhen market, are expected to increase by 19%, while Mindray’s profits are expected to increase by 15%. HSBC rates all three stocks as “buys.” The new policy favoring domestic brands confirms China’s desire to reduce exports to the United States and dependence on American-made high-tech products. The Biden administration has restricted Chinese companies from purchasing advanced semiconductors made in the United States, while President-elect Donald Trump has vowed to impose a flat 10% tariff on imports from China. However, the exact nature of the next administration’s China policy is unclear. “We’re going to have a lot of discussions with China. We have a good relationship with China,” President Trump told CNBC’s Jim Cramer after ringing the opening bell at the New York Stock Exchange on Thursday. ” he also said. President Trump criticized his previous stance on China as being too harsh, but also noted how talks with Chinese President Xi Jinping could address U.S. concerns. Separately on Thursday, President-elect Trump’s press secretary, Caroline Leavitt, told Fox News that the president-elect had invited Xi to his inauguration on Jan. 20. The Chinese government has not yet publicly responded. Upside is limited until foreign investors understand the scale of President Trump’s tariffs and sanctions and see profit growth across the Chinese economy, the Macro Research Committee said in a note Wednesday. He said it was limited. For now, foreign investors are only interested in trading around a potential change in China’s policy, the report said, and are focused on fundamentals such as whether there will be “significant” improvement in future earnings for major internet platform companies. Improvements are said to be ignored. “Important signals to upgrade your position in Chinese stocks” [from neutral] “Improvements in bank profits will be reflected in improved bank profits,” the MRB report said, noting that “therefore, the single most important indicator for upgrading China would be a recovery in credit volumes.” Analysts at Reuters and Citigroup said on Monday that official figures on retail sales, industrial production and investment in November showed that a decline in business demand was the main cause, adding: “The Chinese government expects more jobs, They hope to stimulate home purchases and personal consumption. [policymakers] “We also want to avoid incurring more debt on highly indebted sectors, a dilemma that could be exacerbated by the fact that support is more is likely to be limited,” he said in an email. “2024 is a great example of what we think will happen going forward,” Christopher said, noting how Chinese stocks have fluctuated this year as prospects for policy support fluctuate, and looking ahead to next year. He said. He said he still favors large-cap U.S. stocks over other asset classes, saying Wells Fargo “will take advantage of the upside in emerging market stocks to reallocate to large-cap U.S. stocks.” Ta. The 500 peso is up nearly 27% in 2024, on pace to rise more than 20%, but this year’s rally in Chinese stocks could break years of decline. Kong’s Hang Seng Index is on track to end a four-year losing streak, rising more than 17% year-to-date. The Shanghai Composite Stock Price Index has risen 14% since the beginning of the year after two consecutive years of decline. The MSCI China Index, which tracks stocks traded in both Hong Kong and the mainland, has retained more than half of its gains since surging more than 35% from a September low to an October high. Cambridge Associates’ Mr. Costello said in his outlook for 2025 that “a market collapse is unlikely.” “Downside risks to China appear to be contained, as monetary easing and local government debt risk mitigation measures help prevent further stress,” Costello said. —CNBC’s Michael Bloom contributed to this report.
China prepares for an uncertain 2025. How do investors plan to prepare?
