Asia & China Equities
December 2024
- Valuations remain low compared to both historical levels and other markets
- Our strategy in 2025 will focus on long-term trends in consumption, technology and clean energy
- Short-term sell offs in Chinese equities may lead to long-term opportunities
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
After a bear market from 2021 to 2023, as of the end at October 2024 the MSCI China Index was still almost 50% below the previous peak in 2021. The seed of the bull market is always planted in the previous bear market. Valuations remain very low compared to historical levels and other markets; the stock prices of many good Chinese companies went down 70%, 80% or even 90% from peak to trough. In our view, some of these companies were being “given away” at very low valuations, making it a great time for stock pickers to buy good companies at bargain prices.
Faced with a potential sharp increase in tariffs, Chinese policymakers are likely to introduce more measures to support domestic economic growth and the financial market. In 2025 we expect to see the most accommodative policy environment in the last 10 years, with clear goals to support the economy, the property market and the stock market. China’s sovereign funds started buying Chinese stocks in early 2024 and Chinese companies have been buying back their own shares in record amounts. We believe domestic investors have started to slowly move their substantial bank savings into the stock market, with more than 140 trillion yuan (USD 20 trillion) still held in the banks, an amount larger than China’s GDP.
The combination of low valuations, supportive domestic policies and investor positioning create an asymmetric return setup for Chinese stocks, offering a rare opportunity for investors. The Chinese stock index has significant upside potential and much smaller downside risk, in my view.
2. What do you see as the one major investment opportunity for you in 2025 and how can you capitalise on it?
Our strategy in 2025 will focus on Asian and Chinese companies that benefit from long-term trends in consumption, technology and clean energy. We target businesses that concentrate their growth on domestic, Asian or other emerging markets.
For example, leading players in the Chinese electric vehicle supply chain are expanding their market share in China, Southeast Asia, Latin America, Eastern Europe and Africa through product innovation and scale advantages. Despite US and European trade barriers, these companies have ample opportunities to generate revenue and earnings growth in other regions. The same dynamics apply to sectors like medical devices, semiconductors, software, selected consumer brands, online entertainment, games and travel.
3. What is the biggest risk to your asset class next year and how can you mitigate that risk, or even turn it into an advantage?
The most commonly perceived risk for China and Asia is Trump policies. The fear of Trump tariffs hurting China is keeping some investors away. However, during the last Trump presidency, despite the trade war and Covid-19, the MSCI China index practically doubled from early 2017 to early 2021. Chinese exports have also grown significantly since Trump started the trade war in 2018. We believe Chinese domestic policy matters more to the economy and stock market than Trump.
This perceived risk may lead some investors to sell Chinese equities due to short-term fears, creating opportunities for long-term investors like us.
Jian Shi Cortesi manages China and Asia equity strategies at GAM Investments.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.