China’s Politburo pledged a “moderately loose” monetary policy for next year, the biggest change in stance in more than a decade. Could this be the turning point for Chinese markets?
Translation: possibly bigger rate cuts ➡️ cheaper borrowing ➡️ more $$$ sloshing through the economy ➡️ hopefully more spending ➡️ and stronger growth.
But can China shake off its trust issues with investors? Its drip-feed stimulus over the past two years has only given markets brief adrenaline rushes before an inevitable crash.
If Beijing pulls it off, this might just be the golden moment to buy Chinese stocks, which are trading at fire-sale prices:
- The MSCI China index is at 13x forward earnings compared to the S&P 500’s 22x.
- JD.com and Alibaba are around 9x, Tencent is at 15x. By contrast, Nvidia’s sky-high at 33x, Amazon’s chilling at 37x.
- Alibaba and Tencent are both up more than 15% over the past three months, while JD.com is miles ahead with gains of more than 60%.
Bank of America even called Chinese stocks a solid hedge for 2025 against risks in the overheating AI market.
It’s not just (Chinese) tech riding the wave, though. Green shoots of recovery in China have sent global mining giants like Glencore and Rio Tinto and luxury powerhouses like LVMH and Kering climbing.
These companies thrive on China’s appetite for commodities and high-end goods, and the positive moves out of Beijing have reupped investor interest in these sectors.
Maybe it’s Trump?
The timing might have something to do with Trump. He’s threatening a 10% tariff hike on Chinese goods. If Beijing doesn’t act, it risks its already fragile economy taking a bigger hit. But tariffs could backfire on the US too.
China supplies over 60% of US imports in categories worth around $80 billion, and about 90% of goods such as festive objects and portable lamps, according to BofA. Wall Street won’t be immune either; US stocks heavily reliant on Chinese supply chains will take a beating.
That wouldn’t be a good look for Trump as he steps back into the spotlight.
China isn’t waiting to see what Trump does. It just launched an investigation into Nvidia, America’s chip darling, for potential anti-monopoly violations. With China making up 15% of Nvidia’s revenue, the move sent Nvidia stock down 2%.
What’s the end game?
The choice in front of Chinese policymakers “is simple: either to provide a large dose of policy offset or to accept a notably lower headline real GDP growth,” Goldman Sachs’ chief China economist, Hui Shan, says in a note.
“We expect them to choose the former.”
China’s playing a risky but calculated game. If policymakers deliver on stimulus, it could be the perfect opportunity for investors to go long on China. But if Trump’s tariffs and Beijing’s counters escalate, both economies — and their markets— could feel the burn.
The dragon is stirring, and everyone’s watching to see if it takes flight.
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