Why we are positive on growth in China

Steven Williams, Head of UK Distribution, talks to Jian Shi Cortesi, Investment Director, Asia/China Growth Equities, on the opportunities she sees in Chinese companies, which segments of the market she thinks could benefit from Chinese government policy and the potential of artificial intelligence (AI), and how simplicity in investing can be effective.

12 March 2025

Steven Williams: Jian, what makes you positive on Chinese equities at this moment in time?

Jian Shi Cortesi: In the recent investor survey*, a lot of investors said that they see great potential in China equity. However, people are hesitant to buy China equity because they are concerned about the Trade War 2.0 [President Trump’s second trade war]. Investors may be surprised to find that in the last four years of Trump presidency, China equity actually rose 100%**. This was also during the period where Covid hit. So that is very much counterintuitive. The reasons are, number one, the starting valuation was very low, both for last time at the beginning of a Trump presidency and also this time, or even more this time, if we look at China equity, they're trading at very low valuation.

The second factor was ample global liquidity, and this time the same is expected. And the third factor and the most important factor is the massive Chinese policy. And we believe that is much more important for China equity compared for external factors. This year, we expect the Chinese government to roll out even more stimulus, and the government has clearly shown that they are determined to lift the stock market. They will not stop until they succeed.

SW: And with that stimulus in mind, which segments of the market do you expect to benefit most?

JSC: We expect growth stocks to perform particularly well, especially given the very cheap valuation of growth stocks. We don't tend to see growth stocks in China trade at such low valuations. And also compared to global peers, Chinese growth stocks are very attractive, particularly in consumption and innovation. So we like companies that some people hated, or at least they hated until recently, for example Chinese internet companies. After DeepSeek, a lot of people woke up to see the potential of these companies as AI beneficiaries in China.

And another area is consumption related to experiences. This is a multi-year trend we're seeing in China, particularly for areas such as travel, education and entertainment.

SW: So clearly growth stocks are an area that you're going to be allocating to. But are there also some segments that you're keeping away from or that you're more concerned about within the Chinese equity market?

JSC: Naturally, with the Trade War 2.0 coming, people are not sure what the tariffs will look like for which country, what degree of tariffs will be applied. So we are cautious on Chinese companies with large exposure to direct exports to the US. However, when we look at companies one by one, we see that a lot of companies in innovation and consumption in China have very little exposure to the US. So if we think about most of the Chinese consumer brands, they are not sold to the US. And if we look at a lot of Chinese technology companies, they also have very little presence in the US.

SW: And does your strategy allow you to be free to identify the pockets of alpha that you choose, going into different styles or market capitalisations?

JSC: Yes, in general, our strategy tends to focus on the growing areas: consumption, innovation, as I mentioned. However, we also have very strict valuation discipline. So we use valuation as our guide. Therefore, when growth is cheap, our portfolio tends to exhibit GARP characteristics, so growth at reasonable prices.

However, when growth stocks become expensive, our portfolio tends to exhibit value characteristics, because we will move into cheaply valued stocks. So this creates the flexibility that allows us to navigate the style rotation in the market and also help us to reduce our exposure to expensively valued growth stocks at the peak of February 2021.

SW: And having that nimble approach to where you see the most value, I imagine, is very important. But lastly, could you identify what it is that makes investors choose your strategy over your peers?

JSC: As I mentioned, we like simplicity, and we have an extremely clear investment framework. We focus on the most attractive areas in China. And we believe that even without stock picking, if investors just buy stocks in these areas, they should do better than the broader market. Then within these areas, we stick to the good companies, companies that can do what other companies cannot do because of scale advantage, technology leadership, network effect or brand power. And finally, we buy these stocks only when they are attractively priced.

We have been implementing this strategy for more than 10 years and the strategy has stood the test of bull markets, bear markets, style rotation, sector rotation, and we have generated significant alpha demonstrated by the 5-star Morningstar rating for our strategy. And most importantly, at this current moment, our portfolio is a good choice, we believe, in the market recovery. Our portfolio is currently filled with growth stocks trading at low valuations, and therefore we believe it is well positioned to capture the returns in a strong market.

SW: Thank you so much for your time.

JSC: You're welcome.

Jian Shi Cortesi manages China and Asia equity strategies at GAM Investments.
Read more about Jian and the strategies she manages here.