China: Tailwinds Persist Despite Trade Turbulence

Chinese equities entered 2025 with positive momentum. Years of policy overhangs were finally beginning to lift. The combination of renewed stimulus, stabilising property markets, and a tech-sector rebound had markets pricing in a turning point. That optimism was tested in March, when the United States imposed sweeping new tariffs on Chinese imports — with Beijing responding in kind. The tariff war rattled sentiment. But despite the trade war escalation, portfolio manager BRIAN ARCESE writes that Foord remains cautiously optimistic.

The Chinese policy stance has turned meaningfully pro-growth. Since September 2024, the Chinese government has rolled out significant fiscal and monetary support for the world’s second largest economy. The first quarter of 2025 saw record government bond issuance, targeted rate cuts, and renewed infrastructure investment — all designed to offset persistent domestic weakness and the growing drag from global demand uncertainty.

Support for the beleaguered property sector continued. The housing market, long a source of economic fragility, is beginning to show tentative signs of stability. In Tier-1 cities, transaction volumes have picked up and prices have started to respond. While property investment remains muted and smaller developers continue to struggle, the government’s debt-swap programme and credit easing are working their way through the system. A disorderly housing unwind now looks less likely than it did six months ago.

Regulatory pressure on Chinese technology companies has also eased. A February meeting between President Xi and major tech CEOs signalled a clear shift in tone. The government acknowledged the sector’s importance to long-term competitiveness and employment, and promised a more predictable regulatory environment. This coincided with the launch of DeepSeek, an advanced AI model that impressed markets and showcased China’s innovation capacity despite ongoing restrictions on semiconductor imports. The Hang Seng Tech Index surged early in the quarter, buoyed by renewed investor confidence and strong earnings momentum.

Trump’s new tariffs have disrupted this narrative. By April, the US had raised effective duties on Chinese goods to nearly 145%, while China responded with a broad suite of countermeasures. Markets sold off sharply, with Chinese equities briefly entering correction territory. However, Beijing moved quickly to contain the fallout. State funds intervened to stabilise equity markets, and policymakers signalled further stimulus to cushion the domestic impact. Measures under consideration include enhanced tax rebates for exporters, increased consumption incentives, and targeted liquidity support.

While these developments are a clear setback, the broader story remains intact. China's export reliance on the US has declined meaningfully — from over 7% of GDP a decade ago to under 3% today — and its trade diversification continues. Rising intra-Asian trade, deeper integration via regional agreements, and a growing domestic consumer base reduce China’s vulnerability to US-specific shocks. Meanwhile, long-term growth drivers such as AI, green energy, and advanced manufacturing continue to attract investment.

Chinese equities remain among the cheapest in global markets. Valuations reflect deep investor scepticism, yet corporate fundamentals continue to improve. Foord is overweight the region, favouring companies aligned with long-term policy goals, robust balance sheets, and proven management. We see opportunity in technology, select consumer businesses, and dividend-paying state-owned enterprises.

While the tariff conflict introduces volatility, we believe it does not invalidate the investment case. China’s policy support, innovation push, and attractive valuations suggest the rally may not be over — only paused. We continue to invest in this market selectively and with conviction.