SwissCham Event in Hong Kong: Has China Become Investable Again?
China has been widely labeled as uninvestable by international investors in recent years. Following a recent meeting between President Xi Jinping and the country’s tech leaders, there are signs of potential change. A panel hosted by the Swiss Chamber of Commerce in Hong Kong discussed whether or not a turnaround is in sight.
There has been a lot to cheer about for China in early 2025. From its January low, tech stocks rallied more than 20 percent after revelations of an artificial intelligence breakthrough by DeepSeek which was developed with lower computing power and costs compared to US rivals.
In the latest, there was reason for more optimism from a symposium on Monday between President Xi Jinping and private sector leaders, including Alibaba founder Jack Ma, which signaled a potential end to the tech crackdown.
Does this mark a turning point for China’s financial markets and economy? Speakers on a panel hosted by the Swiss Chamber of Commerce in Hong Kong on February 18 spoke about the outlook.
«Big Change in Pragmatism»
According to Martin Hennecke, head of Asia investment advisory at St. James's Place Wealth Management, improved confidence is warranted and investors should include some exposure to China.
«I think there's a big change in pragmatism and it was cheap anyway,» Hennecke said on the panel attended by finews.asia, highlighting that emerging market valuations were trading at a 24-year low versus the US. «So I think there's something really big is potentially shifting now.»
Innovation Path
Even if valuations don’t see a significant upward shift, Eva Lee, head Greater China equities, Global Wealth Management CIO at UBS, believes that the latest symposium underlines China’s commitment to a path of innovation and technology.
«This is a very important recognition,» Lee explained. «So, I'm not saying that this will push the valuations by another 20 or 30 percent but at least that's how to expect, in the medium term, what these [technology] companies' power would be in terms of supporting the economy.»
Tariffs as Negotiating Tool
What’s more, the geopolitical environment could prove to be benign despite heated rhetoric. Yao Wang, macro manager at CIGP Group, believes that tariffs will be used as more of a negotiating tool rather than a serious method to redirect global trade.
«Basically, tariffs didn't do anything good to the US,» she explained, highlighting historical experience from Donald Trump’s previous term. «In 2018, 2019, [tariffs] didn't bring any production back to the US. We just moved them from China to other economies like Vietnam, like Mexico. And also, the trade deficit didn't go down.»
Foreign Investor Sentiment
However, the improved outlook has yet to translate into better sentiments in the international community. Thomas Taw, BlackRock’s head of investment strategy in APAC, observes that most of the flows entering the Chinese market have been from domestic investors. Although he believes that foreign investors could return if the market swings strongly upwards, it remains to be seen if they will be in it for the long-term story.
«The question is still, at what level do I get out of the market?» Taw shared. «That might change but for now, it's a short-term, tactical story.»
Long-Term Economic Challenges
In addition, China still faces long-term economic challenges that will not be resolved overnight, most notably a drag from the country's property market.
«We continue to see China through the lens of a post-bubble restructuring effort. Markets are very optimistic about DeepSeek but have they cleared inventories of unsold homes in second and third-tier cities? No. That's going to take a while,» commented Carlos Casanova, UBP’s senior economist Asia.
«So when we compare other examples of post-bubble restructuring economies […] we note two things. The first thing is to get out of the hole and you need to lean on your policy tools. And the second thing is that during those periods, total equity return to investors are negative.»
