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The conclusion of China’s Two Sessions has injected optimism into the Chinese and Hong Kong markets. Key policy measures include maintaining a 5% growth target and increasing deficit spending to 4% of GDP. Beijing has also pledged greater support for the private sector and cutting-edge technologies. Investors’ reaction to these announcements have been positive so far as the government is shifting priority to restoring the private sector and help drive economic growth. In our view, this positive momentum is still in its early stages, given how negative global sentiment towards China has been over recent years.
US-led trade tariff hikes have introduced significant political and economic uncertainty, primarily through passing higher costs for consumers and businesses, alongside the threat of retaliatory measures from trading partners. This has contributed to market instability and has dampened business optimism. We are cautious about trade-related developments due to their potential impact on global supply chains. However, we believe it is too early to make significant portfolio adjustments, as supply chains have historically demonstrated resilience to changing conditions.
US consumer sentiment has dropped suddenly as rising inflation expectations weigh on confidence. Consumers are growing more cautious with spending, fearing a decline in purchasing power. This hesitation is reinforced by slowing economic indicators such as retail sales. A closer look at the data reveals a significant decline in sales at food service establishments, which could signal weakening consumer demand. We will closely monitor whether this is a temporary fluctuation or the beginning of a broader negative trend.
At this time, we are still comfortable with our risk positioning, which remains well-diversified across various sectors and regions.
Related Market Outlooks
2025 February Market Outlook: Deepseek Shakes Up AI—Is China’s Tech Rebound Just Beginning?
The launch of Deepseek marks a notable development for China as the startup claims it is significantly more efficient than widespread models developed by US companies. The startup also claims to have developed the model with only US$ 6 million and has made their model publicly available for use globally. This stands in contrast to US technology firms, which have been spending billions of dollars. Additionally, the availability of Deepseek’s model has raised concerns about potential reductions in AI infrastructure investment.
2025 January Market Outlook: Strategies for Navigating a Shifting Global Landscape
The US equity market has benefited from the strength in its economy and leading position in artificial intelligence (“AI”) technologies. This has led to high earnings expectations being baked into stock valuations, which we find to be optimistic given the looming risk of tariffs and the ongoing cooling of the general economy. Some argue that the Trump administration will reduce corporate taxes to boost earnings and control interest rates despite inflation risks. Our view is that timing all these initiatives to benefit the US economy will be challenging and there will likely be knee-jerk reactions to any significant policy announcements, earnings misses and economic data surprises.
2024 December Market Outlook: Balancing Caution and Opportunity Amid Global Economic Shifts
Recently, China has expressed increasing urgency to stabilize its property market and domestic consumption, through stronger-than-usual language from the administration. Given that these were mostly high-level statements, we remain skeptical on the announcement given the Chinese government’s hesitance to implement substantial economic stimulus in recent years.
2024 November Market Outlook: Balancing Chinese Stimulus and U.S. Political Shifts
The Chinese administration have announced their intention to rollout an additional RMB 6 trillion package to support the debt burden of local governments and China’s finance minister also gave forward guidance that they would be introducing new measures to further stabilize the property market. While the headline number of RMB 6 trillion seems substantial, ultimately it was not impressive as the debt swap is intended to occur gradually over the next 3 years. Furthermore, there is uncertainty over how the local governments will spur their respective economies once their debt position improves. A positive note is that there has been some initial rebound in property sales. However, we believe near-term equity valuations in China are likely to remain rangebound until further stimulus measures are announced given the modest earnings results so far.
2024 October Market Outlook: Hong Kong and China Stocks Await Policy Boost as AI Growth Persists in the US
Since the initial surge in the Hong Kong and Chinese stock market, significant profit taking has followed. Despite this, we maintain our view that company valuations in the region remains attractive. The main event that we are monitoring is towards the end of this month, where China holds their Politburo Standing Committee.