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Chinese Equities: Resilience Amid U.S.-China Trade Tensions

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Image credit: Austin Distel

Despite renewed U.S.-China trade tensions under President Donald Trump's administration, Chinese equity markets remain optimistic, with Goldman Sachs forecasting a 20% growth in Chinese stocks over the next 12 months. Here's a breakdown of the outlook and key factors driving this sentiment.


U.S.-China Trade Tariff Concerns

  • Trump's Tariff Proposal: On his first day in office, President Trump hinted at the possibility of additional tariffs on Chinese goods, potentially reaching 25%.
  • Goldman Sachs' Forecast:
    • A 20-percentage-point increase in U.S. tariffs on Chinese goods is seen as a base case scenario for 2025.
    • While timing remains uncertain, China's robust economic structure is expected to weather the tariff impact effectively.

Market Resilience and Drivers of Growth

  1. Economic Rebalancing:

    • Shift to Domestic Demand: China is transitioning from reliance on external demand to a more domestic consumption-driven economy, which can mitigate the effects of external shocks.
    • Policy Support: Anticipated government measures, such as stimulus and structural reforms, could help offset trade pressures.
  2. Projected Equity Growth:

    • 20% Market Growth: Goldman Sachs predicts a 20% rise in Chinese equities, attributed equally to earnings growth and valuation expansion:
      • Earnings Growth: Expected at 7%, accounting for potential tariff impacts.
      • Multiple Expansion: Contributing the other 10% through recovery in market valuations.
  3. Sectoral Strength:

    • Technology, consumer discretionary, and industrials sectors are likely to drive much of this growth, reflecting China's push for high-tech innovation and infrastructure development.

Earnings Outlook

  • Low-Teens Growth (Excluding Tariffs): Without the impact of tariffs, Chinese corporates are expected to achieve double-digit earnings growth in 2025.
  • 7% Growth (Including Tariffs): Factoring in a 20% tariff increase, earnings growth would still remain positive, albeit lower than consensus estimates.

Investment Implications

Key Takeaways for Investors:

  1. Long-Term Opportunities: The forecasted market expansion highlights opportunities for global investors seeking exposure to China's growth story.
  2. Sector Focus: Emphasizing domestic-demand-driven industries like technology, consumer goods, and renewable energy could yield higher returns.
  3. Tariff Mitigation: China's fiscal and monetary policies are expected to provide a buffer against trade-related headwinds, enhancing market resilience.

For a detailed view of sectoral earnings trends and valuation metrics in China, consider leveraging FMP's Sector P/E Ratio API and Sector Historical Overview API for actionable insights.

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