What’s next for Chinese markets?
As we mark the start of the Chinese Lunar New Year, and the Year of the Snake, investors are asking: what is next for Chinese equities? Donald Trump’s victory in the US presidential election was initially taken as positive news for US markets and negative for China; the MSCI China index fell 7% between the election result on 6 November and inauguration on 20 January, while the S&P returned 1.4%1. A similar market reaction greeted Trump’s first victory in 2016, with the MSCI China Index falling -1.1%, and the S&P 500 posting 6.6%. In 2017, Trump’s first year in the White House, China markets surged despite rising trade tensions to deliver 54% and outperformed the S&P 500 index which gained 22%.
Figure 1: Can history repeat itself in 2025?
Looking ahead, the ‘Year of the Snake’ is set to be volatile. We anticipate investors navigating a year of uncertainty as external challenges are expected to intensify, and domestic issues, such as insufficient demand and deflation, remain pressing.
What can investors expect on the policy front?
Economic data and policies out of China are typically delayed until mid-March, and stock volatility may be prevalent until initiatives are clarified after the Lunar New Year. We expect the policy environment is likely to remain pro-growth. Confidence desperately needs to be restored for investors, business owners and consumers. China’s policy focus has transitioned toward supporting and stabilising the economy, if not outright stimulating it. This shift is a significant development for investors, signalling a more supportive environment in 2025.
Fiscal spending is poised to grow at a faster pace compared to the previous year, with the deficit-to-GDP ratio likely to increase to 4%. Policymakers are expected to introduce further measures, such as increasing quotas to address local government debt, easing property purchase restrictions and mobilising government funds to tackle property inventory issues. Since September, measures aimed at encouraging homebuying have included cutting mortgage rates and minimum down-payments, as well as tax incentives to lower the cost of housing transactions.
The property market has shown some signs of recovery, with home transactions in October and November seeing year-on-year and month-on-month growth. China’s home prices fell at the slowest pace in 17 months in November, supported by government efforts to revive the sector, official data showed. Seasonality (property sales are typically strong in October during Golden Week2 ) and September’s policy pivot may mask the real picture where industry inventory levels remain high, and purchasers are sceptical the market has reached the bottom.
Figure 2: Property stabilising – China home price declines ease after stimulus
The monetary environment in 2025 is poised to remain moderately accommodative, with reductions in the reserve requirement ratio (RRR) and policy interest rates likely exceeding the cuts of 100bps and 30bps in 2024, respectively. In 2025, the credit cycle is poised to begin a new upward phase, with aggregate financing growth likely to follow a ‘low-high-low’ pattern throughout the year and M1 (money supply) growth turning positive for the first time in years.
The foremost priority for economic work in 2025 is comprehensively expanding domestic demand, with policies expected to focus on improving livelihoods and promoting consumption. The market expects an expansion of consumption-focused stimulus measures, such as extending and expanding the trade-in home appliance replacement programme, consumer vouchers and potentially increasing spending on social benefit. Possible measures include raising incomes for low- and middle-income groups, increasing basic pensions for retirees, enhancing rural and urban residents’ basic pensions, and raising financial subsidies for healthcare coverage.
The foremost priority for economic work in 2025 is comprehensively expanding domestic demand, with policies expected to focus on improving livelihoods and promoting consumption.
What can investors expect on the market front?
Chinese authorities are now taking the direct approach in their latest effort to revive the nation’s sputtering stock market: on January 22, the China Securities Regulatory Commission (CSRC), the nation’s top securities watchdog, Finance Ministry and the People’s Bank of China (PBoC) issued guidance to financial institutions (especially insurers and mutual funds) to boost investments in the stock market. Mutual funds need to raise their holdings of onshore equities by at least 10% annually for the next three years. Large state-owned insurers, meanwhile, will need to invest 30% of their new policy premiums in mainland A-shares from 2025.
Paid to be patient
China’s regulators and policymakers are trying to engineer a culture of shareholder returns akin to Japan. Policy measures, including a 300bn yuan share buyback financing programme and guidelines requiring mainland companies to improve shareholder returns and valuations, have helped sharpen the focus on higher-yielding firms. This has shifted investors focus on China from a pure growth-play to now one that is also an attractive dividend-yielding asset class.
Chinese firms distributed dividends totalling a record 2.4tn yuan (US$329.7bn) in 2024. Share buybacks too rose to a record high 147.6bn yuan last year, data from regulators showed3 . The market’s dividend yield of 3% has risen to its highest since 2016, attracting investors despite a sluggish stock market and lingering economic concerns. The dividend yield is now well above the 1.7% they can earn on 10-year government bonds. This shift signals a significant change in corporate governance like Japan’s. 310 companies are expected to pay out dividends totalling more than 340bn yuan in December and January. That is a 9-fold increase in the number of companies and a 7.6-fold rise in dividend amount versus the same period last year. Goldman Sachs estimates Chinese companies listed at home and abroad could return a total of 3.5tn yuan to shareholders in 2025, a jump of over 17%.
Figure 3: China market yields well above ten-year Chinese government bonds
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1 Source: Bloomberg
2 Golden Week is the name given to two separate holidays or festivals in China. The first occurs at the beginning of the year and is more commonly referred to as Spring Festival or Chinese New Year, while the other coincides with the National Day of the People’s Republic of China on 1st October.
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