Positive Outlook for Chinese Stocks

Gavekal Research has outlined that the balance of risks towards Chinese stocks remains positive despite challenges posed by the Trump presidency and insufficient stimulus measures.

Market Resilience

The report highlights that Trump's election win led to anticipated tariffs and disappointing fiscal policies from the National People's Congress, which could have negatively impacted local stocks. However, the Shanghai Shenzhen CSI 300 and Shanghai Composite indices only reported limited losses last week, indicating resilience in local investor appetite.

Gavekal stated, "This blithe response by local investors to what could have been a major disappointment suggests that the Chinese equity bull market has plenty of support and further room to run."

Risks Ahead

The primary risk to China’s stock rally is the expected increase in tariffs due to Trump’s presidency. He has proposed a minimum of 60% tariffs on all Chinese imports, which poses a significant threat to the Chinese economy, potentially harsher than tariffs imposed during his first term.

Despite these concerns, the balance of risks for Chinese stocks appears 'decently positive,' especially as the country enters an early-stage stimulus cycle. Recent government interventions aimed at supporting equity prices are optimistic for local markets.

China’s blue-chip CSI 300 index has surged nearly 21% in 2024, with significant gains following the announcement of aggressive stimulus measures in late September.

Commodities Outlook

While Chinese equities are resilient, commodity prices are not exhibiting the same trend. According to Gavekal, the current stock rally has not led to increased prices in commodities, particularly iron ore and copper.

Gavekal noted that the recent stimulus by China seems focused on enhancing local liquidity, stabilizing property markets, and addressing local government debt, rather than boosting infrastructure and property development, which historically drives commodity demand.