Indices: China’s Shenzhen CSI 300 Index
China’s equity market is increasingly split between two economies, with investors favouring export-focused industrial and technology winners over consumer-facing laggards. Manufacturing, equipment makers and metal producers are thriving on global demand for AI infrastructure, helping exports remain resilient despite tariffs, while domestic consumption continues to struggle under the weight of a painful property downturn. Their market mirrors the polarisation across the ASX, where miners are surging as growth stocks lag, reinforcing the case for active sector investing as we head into 2026.
China’s factory activity slumped last week, marking its longest contraction streak in more than nine years and prompting renewed calls for stronger policy support — even as Beijing reached a trade truce with the U.S.
Chinese stocks have drifted lower before the next round of US-China trade talks, with Treasury Secretary Scott Bessent and Vice Premier He Lifeng facing the task of negotiating down new escalatory measures between the world’s two largest economies.
Mainland Chinese equities have rallied ~34% from their 2024 lows, and have outperformed most other global markets during the tariff saga, probably due to Government support, though they continue trade at a meaningful discount to developed market stocks, on 14.6x earnings.
The Chinese market is arguably one of the best-valued, even after substantial gains over the last eighteen months. Chinese stocks look positioned for another “buy the dip” opportunity as we continue to target new multi-year highs into Christmas. In hindsight, we took profit too soon in May, but that doesn’t mean we won’t buy back in at higher prices, i.e. it’s all about profit and risk/reward, not e
Hedge funds have been piling into Chinese equities at the fastest pace in months as bullishness on the DeepSeek-driven technology rally adds to hopes for more economic stimulus.
US equities experienced a choppy session overnight, although they did encouragingly finish close to their session highs. On the stock level, Nike (NKE US) fell 6.8% after the sneaker giant pulled its full-year guidance ahead of its (sort of) new CEO. Tesla (TSLA US) declined 3.5% after reporting their delivery number, while the tech sector was lifted by a 1.6% rise by Nvidia (NVDA US).
China’s housing crisis deteriorated in May, triggering further calls for Beijing to support the important economic area. Yesterday’s data was the worst since 2011. The property market has weighed on China’s economic growth for years, and yesterday saw declines in real estate investment and home prices gather pace. Also, industrial production missed expectations for May, rising 5.6% from a year earlier but slowing from April. The only encouraging light on Monday was Retail Sales improving faster than expected, but the net result is China is still experiencing a weak economic recovery, with Beijing needing to step up if it’s going to achieve its 5% growth target.
China has pulled more stimulus levers over the last few days, and although they are targeted, as was previously flagged by Beijing, it does feel like Xi Jinping has drawn a line in the sand after recent economic data signalled the need for urgent action. The property sector, once an integral driver of economic growth, is still struggling with prices for new homes across 70 cities having declined for the last ten consecutive months after falling 0.6% in April, with property investment down a whopping -9.8% in the 1st four months of 2024 compared to last year. April’s fall represents the fastest month-on-month rate of decline in more than nine years, although interestingly, real estate stocks are starting to bounce.
The ASX200 rallied +1.6% last week, even after a sharp drop on Thursday when the retail and banking sectors came under pressure. By Friday’s close, 10 out of 11 sectors on the main board had closed higher, although 27% of ASX200 stocks closed lower over the five days. This illustrates that we are in a “stock pickers” market after the market’s +15% rally from its November low. We anticipate ongoing volatility through 2024, primarily on sentiment ebbs and flows around interest rates.
