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The tariff tussle between the U.S. and China has made many investors wary of the country’s stock market , but some still see opportunities in it. China launched tit-for-tat measures on Feb. 4, in a rapid response to new U.S. tariffs on Chinese exports, stoking fears of a trade war between the world’s two biggest economic powers. The additional 10% tariffs on Chinese goods by the U.S. were well telegraphed by President Donald Trump, though they’re far lower than the 60% he threatened during his campaign. Beijing’s response also appears modest, prompting investors to focus more on the direction and intensity of further policy stimulus to aid the faltering economy and support corporate earnings. So far, Chinese policymakers have largely kept investors guessing on the scale and specifics of their stimulus plans. Still, some investors already see promise in Chinese stocks. Reasons for optimism “We are adding to China,” as it is better positioned than other emerging markets in terms of cushioning the impact of U.S. tariffs, Louis Luo, head of multi-asset investment solutions for Greater China at Abrdn, wrote in a Feb. 6 note. Chinese stocks have an additional buffer compared with their emerging market peers, given their cheap valuations and an “already-light positioning” by investors, in light of uncertainty over how the economy will perform, he added. Meanwhile, Ivy Ng, chief investment officer for Asia-Pacific at asset manager DWS Group, notes “there are at least initial signs of a bottoming out” in the Chinese market. Tariff-induced uncertainty, geopolitical risks and weak domestic demand are likely to keep investors cautious, but a potential breakthrough in Washington-Beijing relations later this year could provide some relief, Ng said, adding that the key driver of market sentiment will be the rate of change in corporate earnings. The mainland’s blue-chip CSI 300 index advanced nearly 2% last week, narrowing year-to-date losses to around 1%, but still over 8% below the 52-week high reached in early October. In contrast, Hong Kong-listed shares had an upbeat start to 2025, with the Hang Seng index up over 5% year-to-date and Hang Seng China Enterprise Index up over 6% — outpacing the MSCI World Index which rose 3.4% year-to-date. The HSCEI, which closed at 7,784 last Friday, is at the top end of an anticipated price range, Abrdn’s Luo said. “If (the) market agrees with us and HSCEI is able to break higher from this range, we are looking at around 10% [upside],” he added. 2828-HK 5D mountain Hang Seng China Enterprises Index Beijing adopted several measures in the last year to support China’s stock market. For instance, its central bank launched a swap facility to increase market liquidity and directed state-backed institutions to buy more stocks. Such measures have put a floor on the stock market, and more policy details and implementations are expected to stabilize growth, support corporate earnings and drive more equity gains, Goldman analysts wrote in a Feb. 4 note. Chinese stocks are still relatively cheap, with a forward price-to-earnings ratio of around 10 , compared with nearly 28 for the S & P 500 . Goldman expects any further policy boost from Beijing to lift the P/E ratio of Chinese equities to 11 in the next 12 months. The P/E ratio measures the valuation of a stock; the lower the number, the more attractive the stock is. Goldman Sachs predicts a 14% upside in MSCI China, which tracks stocks traded in Hong Kong and the mainland, by end-2025. Corporate earnings could see a 7% pick-up this year, it projects. Sectors and stocks to watch Looking ahead, Bernstein is playing the Chinese market with a “barbell approach,” with a higher exposure to the tech, consumer discretionary and financials sectors. A barbell strategy strikes a balance between risk and reward, involving investments in both high and low-risk assets. “We started the year with a tactically positive view on Chinese equities … Unlike the first trade war, when momentum suffered because of peak valuations, earnings and crowding; the trade now has reasonable valuation with expected revival in both analyst/investor sentiment,” the bank’s analysts wrote in a Feb. 4 note. Shares they are overweight on include e-commerce players JD.com and Meituan as well as automakers Li Auto and Geely Holdings. Analysts at CGS International, meanwhile, are betting on “high-dividend stocks that have the characteristics of a safe haven.” The investment bank recommends trading around scientific and technological innovation themes, and China’s version of the “cash for clunkers” consumption-boosting program. Eugene Hsiao, head of China equity strategy at Macquarie Capital, remains cautious and prefers sectors benefiting from Beijing’s stimulus support while being insulated from trade concerns, such as electronics, white goods and autos. With the exception of the energy sector, which faces geopolitical risks and oversupply concerns, other stable-yield sectors like banks and utilities could provide some shelter for investors, Hsiao added.
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