President Trump has extended a deadline for higher tariffs on Chinese goods by 90 days. Chinese exporters have temporarily dodged tariffs as high as 145% on sales to the US. It may help extend the recent rally in the Chinese stock market and encourage investors to give the country another look.
While Chinese stock markets have bounced a little in response to the deferral, they appeared remarkably unbothered as to whether the Chinese government secured a deal anyway, having been climbing steadily since April. Perhaps this was the famous ‘TACO’ assumption (‘Trump always chickens out’), or perhaps it was the sense that China had a little more leverage than many other countries – its valuable store of rare earths, for example, or its relatively low export dependence.
Either way, its stock market has been gliding higher, after a brief blip in the wake of Liberation Day. The Shanghai Composite is up 9.90% for the year to date, and 28.87% over the past year*. The Hang Seng (comprising Hong Kong-listed shares) is up 27.69% for the year to date and 49.69% over one year*.
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Economic resilience and growth outlook
Shao Ping Guan, manager on the Allianz A-Shares fund, says: “Since the middle of last year, a time when China’s equity markets were being described as “uninvestable”, China A-Shares have rallied. China H-share returns have been even stronger.”
The team on the Federated Hermes Asia ex Japan Equity fund say that the trade tensions between the US and China need to be kept in context. “Exports to the US account for less than 3% of China’s GDP and consumer products and electronics make up the majority of these exports.” It says that while punitive tariffs could negatively impact Chinese exports, they will also raise costs for US importers – and potentially US consumers.
It adds: “If tariffs persist, key emerging market countries and regions – particularly China, India, and Southeast Asia – are still expected to grow at 4-6% annually, against a global GDP growth of 0.5-1%, supported by structural reforms and fiscal stimulus.” The Chinese government still has the financial firepower to stimulate growth if it needs to.
China’s economy has been doing just fine. It grew slightly faster than expected in the second quarter, rising 5.2% over the previous year**. This suggested real resilience in the face of US tariffs. Forward-looking economic indicators also suggest strength. The Caixin services Data showed China’s services activity expanded at its fastest pace in 14 months in July, rising to 52.6 from 50.6 in June***.
Rebecca Jiang, portfolio manager and specialist for Greater China equities at JPMorgan, believes this strength can be sustained: “We continue to believe that in pursuit of its 2025 GDP target, China will remain reactive to external events. For now, given the temporary de-escalation of the tariff war, Beijing is likely to rely on existing measures, with limited new stimulus for consumption.”
Innovation, policy shifts and investment opportunities
Some good may come of the ongoing tensions between the US and China. It has been a galvanising factor for innovation across China. The launch of Deep Seek showed it is building technical know-how and there are areas where it continues to lead the world – clean energy, electric cars and robotics.
This creates compelling investment opportunities, says Jiang: “We maintain our focus on technology names, given the use cases for AI post-DeepSeek and also the drive for technology self-sufficiency in China.”
Ping Guan at Allianz agrees, saying that many of the problems in the Chinese economy, such as its weak property sector and local government debt financing, are being resolved. He adds: “A key change has been a shift in government policy. Overall, the key long-term policy objective of developing a future growth model based on technology-intensive manufacturing has not changed.
“Linked to this has been a renewed focus on the private sector. The high-profile symposium chaired by President Xi Jinping earlier this year and attended by China’s highest-profile business leaders, including Alibaba founder Jack Ma, sends a clear policy signal, in our view.”
Valuations remain very cheap, even after the recent rally. China has been out of favour with investors for some time and may only be in the foothills of a recovery. Investors reconsidering the China opportunity can look at specialist options such as the FSSA Greater China Growth fund. Alternatively, the Federated Hermes Asia ex Japan fund gives more diversified exposure to Asia, with around 42% in China^, well ahead of its benchmark. Another option is the Baillie Gifford Pacific fund, a good option for investors seeking exposure to high-growth opportunities in the Asia Pacific region; it currently has around 38% in China^.
