The steady and stable rise of China stocks
The jury is still out on the fate of Chinese equities: is it in the middle of a slow bull market or will the surging valuations burst soon?
China stocks have seen a stellar quarter, hitting multiple 10-year highs between July-September 2025. The rally has been so strong that it erased any losses dealt by sky-high tariffs initially imposed by the US against Chinese goods, which went as high as 145 per cent in April that tanked sentiment towards the domestic markets, particularly against the manufacturing sector. While trade negotiations continue between Beijing and Washington, the hefty tariffs quickly became yesterday’s news and optimism towards Chinese assets have prevailed.
The surge in valuations for Chinese equities came alongside surging US shares, but they are not the same. At Lundgreen’s, we view the ascent of Chinese stocks as more sustainable – therefore, more favourable – and we expect US stocks to head into correction mode soon.
Demand across all fronts
Shares in Chinese companies have recently become more palatable for both local and international investors.
Individual and institutional investors in the Mainland have been given more reasons to buy additional stocks. First, potential profits are higher in stocks than in bonds and cash deposits. This is because the People’s Bank of China has been on a rate-cutting cycle since June 2023, which brought benchmark interest rates to the current record low of 3 per cent for one-year loans. Unlike all other central banks that resorted to rate hikes when inflation picked up in post-pandemic, interest rates in China have remained on a decline ever since the domestic economy suffered a property market downturn in 2022. Investing in real estate has not been attractive either as pessimism towards the sector continues to linger. Since keeping one’s money parked across bank accounts or in debt papers will not generate any substantial return, this pushes investors to reallocate their portfolios by adding more stocks.
Second, domestic policies are shepherding asset managers to expand their holdings in the Chinese stock market. In January, the central government ordered mutual fund managers to increase their placements in A-shares, or local blue-chip stocks, by at least 10 per cent until 2028 to stimulate trades.
Third, and perhaps more game-changing, is the stronger external interest towards Chinese equities. We at Lundgreen’s have always been upbeat about China stocks – in fact, our multi-awarded China mutual fund has generated handsome returns over the past five years. Meanwhile, other global investment firms are only now paying attention to this market, one which they previously dubbed as “uninvestable”. China’s turnaround in their eyes conveniently comes as fund managers are diversifying away from US assets which are now languishing from the double hit of domestic policy uncertainty and a scenario of high interest rates while the rest of the world is on rate cut mode.
The confluence of these factors has pushed Chinese equities to outperform other major stock market indices, going beyond the boost provided by the global rally in tech stocks. As seen in Graph 1, the tech-heavy ChiNext index is up by 51 per cent year-to-date, while the broader Shanghai Composite Index is up 16 per cent during the same period. The Hong Kong Composite Index is up 39 per cent in January-September, easily beating major indices in the US and Europe like the S&P 500 (+13.7 per cent) and the FTSE 100 (+14.4 per cent).
It is true that US stock exchanges also recorded new all-time highs over the past months, at times shrugging off economic data and geopolitical developments that should have been market-negative. As a result, shares in US-listed firms have grown so expensive. In contrast, China stocks have been more responsive to typical market triggers, which is the more natural trajectory for equities. Day-to-day dips and rises occur, reflecting knee-jerk reactions to economic news and policy shifts. This is why we largely prefer the slow but sure ascent of China stocks against the US rally; we see that US stocks are due for a correction sooner than later, which could go as deep as 10-15 per cent.
Resurgence of IPOs
The year is also proving to be a great year for Chinese companies to pursue plans to go public. This comes after tumultuous financial conditions and some trouble with the central government, notably with how the mega-listing of Alibaba Group was blocked in 2020. The tech giant only managed to execute its long-planned initial public offering (IPO) through the Hong Kong Stock Exchange (HKSE) by August 2024, although with far less fanfare this time.
The projected IPO revival this 2025 appears on track. As Graph 2 shows, major stock markets in Hong Kong and the US are close to exceeding new listings from the previous year in just the first nine months.
Hong Kong’s stock market has become the go-to listing destination for global corporates. It serves as the meeting point of Mainland China-based firms and foreign investors who want to profit from China’s bustling economic growth without subjecting themselves to strict regulations set by the communist government. Further, the size of deals in Hong Kong have grown bigger; newly listed companies on the HKSE Main Board have managed to raise HKD 148.32 billion (USD 19 billion) as of 25 September, higher than the HKD 87.2 billion (USD 11.2 billion) raised by new entrants in 2024.
This wave of renewed optimism towards China stocks is well-deserved, and we see it contributing to a slow but sure bull run forming. Chinese equities remain undervalued relative to the rapid growth and strong returns they can provide, and so we keep our overweight rating towards Chinese assets. As investors recalibrate their portfolios, acquiring shares in Chinese firms is a smart choice.
