China’s transformation reflects a broader evolution across emerging markets.

China Equities Portfolio Manager Wenchang Ma argues that structural reform, stronger fundamentals, and sectoral innovation are transforming China and emerging markets into higher-quality, more resilient sources of long-term growth for investors.

Institutional investors and asset allocators are no strangers to diversification. Yet portfolios remain heavily weighted toward developed markets and domestic resource sectors. As global growth drivers shift, this creates a structural gap. China’s economic transformation, and the broader evolution of emerging markets, may offer precisely the type of long-term, diversified exposure investors need.

Wenchang Ma, China Equities Portfolio Manager: “For much of the past decade, China was considered the growth engine of emerging markets, only to fall short of expectations in recent years. Investors endured lacklustre equity returns, policy crackdowns and persistent geopolitical headwinds. Between August 2021 and August 2024, the MSCI China Index fell by 35.5%, even as the MSCI ACWI gained 18.4%.”

Now, with policy shifts, renewed shareholder focus, and economic transformation underway, China may be at a turning point. September 2024’s rally lifted valuations from decade lows, with the MSCI China All Shares Index gaining c.23%. Crucially, that rebound has since proved more durable, with almost 75% of the subsequent 12 monthly index returns from October 2024-September 2025, proving positive. But does this mark the start of a more durable recovery?

Policy evolution: from reaction to strategy

China’s initial efforts to stabilise growth through monetary easing did little to inspire confidence. By late 2024, however, policy became more balanced. Fiscal support for local governments and targeted interventions in the property sector signalled a willingness to tackle underlying imbalances rather than apply temporary fixes.

“This shift aligns with the longer-term “dual circulation” strategy, which emphasises domestic consumption and innovation alongside global trade. Realising this vision requires greater investment in healthcare, education, and social security to bolster household confidence and reduce precautionary savings,” said Ma. 

Beyond the U.S.–China lens

Investor focus often centres on Washington–Beijing relations. Yet China’s diversification of trade partners tells a different story. U.S. exports now account for just 14% of China’s total^[1], down by more than a quarter over the past decade^[2]. Growing investments in Southeast Asia and other emerging markets reinforce China’s role at the heart of global value chains.

For investors, China’s trajectory will be shaped less by U.S. politics and more by domestic reform and regional integration – factors best assessed through long-term fundamental analysis. 

Shareholder value and sector opportunities

China’s corporate sector is undergoing rapid change. Record share buybacks and dividend growth signal a stronger focus on profitability and shareholder returns. Companies such as Alibaba and Tencent illustrate a shift toward more disciplined capital allocation, marking a clear departure from the “growth at all costs” era.

Long-term opportunities align with three global megatrends:

• Decarbonisation: China now leads globally in solar, batteries, and electric vehicles.
• Healthcare: driven by demographics and rising demand for insurance and infrastructure.
• Technology and consumer innovation: reshaping behaviour and creating new channels for growth.

These sectors offer diversified exposure beyond commodities and developed-market cyclicals, helping build resilience and diversification.

The emerging market context

“China’s transformation reflects a broader evolution across emerging markets. Once viewed as inherently volatile, EM equities have shown remarkable resilience. Ten years ago, EM equity volatility was 1.5–2 times that of developed markets; today, it has converged, underpinned by stronger fundamentals and improved policymaking”, said Ma. Reforms in governance, fiscal discipline, and monetary frameworks have narrowed the gap with developed markets. During recent global shocks, from the pandemic to geopolitical turbulence, EM volatility has been comparable to or even fallen below that of developed markets. This structural shift has elevated emerging markets into a higher-quality, more resilient asset class. For asset allocators still underweight, the case for reassessment is compelling.

A selective, long-term approach

China and emerging markets are not without risks. Geopolitical frictions, demographic challenges, and uneven policy execution remain. But these are increasingly balanced by structural reforms, stronger corporate governance, and growing sectoral depth.

For pension plans, endowments, and other long-horizon investors, the opportunity lies in selective allocation. Targeted exposure to areas such as innovation, decarbonisation, and healthcare offers growth drivers less accessible in developed markets. At the same time, adding EM exposure can help balance portfolios still heavily tilted toward domestic and developed-market assets.

Ma concluded: “With greater resilience and a broader opportunity set than in the past, China and its emerging market peers can now play a more meaningful role in building diversified, forward-looking portfolios.”

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Last year highlighted the value of a diversified fixed income portfolio – Chinese government bonds and credit outperformed their large G3 counterparts.

Looking back at 2024, Chinese government bonds delivered strong returns relative to other fixed-income asset classes, with a total return of 6.2%, outperforming US treasuries (1.6%), and the euro benchmark (2.6%). In contrast, the equity market began 2024 on a muted note. Sentiment improved in February when Chinese regulators intervened, sparking a 20% rally over the following three months. However, this momentum quickly faded as China’s macroeconomic data deteriorated through Q2 and Q3, highlighting continued deflationary pressures and weakening retail activity.

In response, the Chinese government introduced a series of monetary and fiscal measures in late September, signalling its commitment to stabilise the property market and support economic growth. This led to a sharp reversal in market momentum, although some gains have since retreated. The MSCI China All Shares Index ended the year up 16.4%, a respectable performance, though not as strong as the rally seen in US markets.

What to expect from policymakers in the coming year

The policy environment in 2025 is expected to remain pro-growth, with further measures such as increasing quotas to address local government debt, easing property restrictions, and mobilising funds for property inventory issues. The market expects an expanded consumption-focused stimulus, including an extended home appliance replacement program and increased social benefits spending.

Siow said: “Reflecting on 2024 from a fixed-income perspective, policy announcements serve two audiences – domestic and international. We are currently witnessing a shift in posture in bond markets. Like the Fed, which signalled a turn by cutting interest rates after a period of increases, China’s policy focus has transitioned toward supporting and stabilising the economy, if not outright stimulating it. This shift is a significant development for investors, signalling a potentially more supportive environment in 2025.”

“The market continues to look for a more substantial, fiscally driven stimulus package, particularly around consumption. Such a package remains uncertain, as it would deviate from past policy norms. During COVID, China was one of the few major economies not to issue direct stimulus payments, shaping market expectations. Investors will need to carefully evaluate fiscal measures within this context,” Siow continued.

Trump’s election and the near-term and long-term implications

During the 2018 trade war, tariffs were smaller in both rate and scope than originally announced, with most impact absorbed through RMB depreciation. Over the past six years, China’s global export share has remained stable, indicating resilience. This dynamic is likely to persist, as ongoing US-China tensions continue to shape the economic landscape.

“Chinese companies have moved up the value chain, increasing self-sufficiency, and becoming more resilient to potential supply chain disruptions. Even before Trump’s re-election, Chinese firms began establishing production bases closer to end markets, e.g., South America and Southeast Asia, providing a buffer against potential new tariffs or trade frictions,” said Ma.

During Trump’s first term, the primary adjustment mechanism for emerging markets was through the FX channel, likely to play a key role again. After his victory in November, US treasuries were hit hardest, however, currencies of countries most exposed to tariffs, like Mexico and China, remained relatively resilient.

Ma added: “From an emerging markets perspective, much of the potential risk appears priced in. While the trade war headlines were alarming, global trade’s fundamental shape remained largely unchanged. Although China’s direct exports to the US declined by 30% over the last decade, exports to intermediate countries like Vietnam and Mexico increased, reshaping trade flows and underscoring global trade resilience.”

Exciting opportunities heading into 2025

“Last year highlighted the value of a diversified fixed income portfolio. Chinese government bonds and credit outperformed their large G3 counterparts – US and euro bonds – in a year marked by significant global events, including more than half the world going to elections, including the US. Chinese bonds have proven crucial as diversifiers, and we see value in US dollar-denominated Chinese corporate credit, particularly in investment-grade and selective high-yield opportunities,” said Siow.

Ma said: “In the equity space, we continue to find a variety of stocks with idiosyncratic investment drivers. For example, high-quality, high-growth opportunities in sectors like technology and healthcare, along with value in stocks offering strong cash returns, particularly in raw materials and financials. Our focus is on companies with strong earnings power and positive momentum, spanning both onshore and offshore segments of the China market.”

“We are taking advantage of opportunities in areas such as power grid investments, construction machinery and consumer-focused companies gaining domestic market share or competitive in the export market, particularly those exposed to non-US markets for growth. We see potential along the electric vehicle (EV) supply chain, an area poised for sustained structural growth in China and globally, with the Chinese equity market offering a wealth of names to choose from,” Ma added.

Potential risks in the Year of the Snake

China’s road to reflation is anything but smooth, with persistent deflationary pressures and uncertain duration. For recovery, companies need reduced pricing pressure and improved profitability. The corporate sector growth must regain momentum, and earnings revisions among listed companies must stabilise and shift towards a positive trend.

“Heightened geopolitical uncertainty in 2025 may create volatility in equity markets, with fragile sentiment. We believe in a blended investment style, focusing on bottom-up, individual stock selection as the best strategy for long-term performance,” Ma remarked.

Siow said: “ In fixed income, we anticipate headline-driven volatility, similar to Trump’s first presidency. While market reactions may be significant, much of the risk could already be priced in. Based on experience, the impact may be less severe than initial concerns suggest. We plan to use market dips as opportunities to add exposure, focusing on local currency and dollar-denominated instruments across investment-grade and high-yield segments.”

China presents immense opportunities but realising its full potential requires a thoughtful and intentional approach. The Year of the Snake represents reflection, growth and making calculated decisions in the face of unpredictability – precisely the approach to take as we enter this new year.

By Wenchang Ma, China Equites Portfolio Manager and Alan Siow, Co-Head of Emerging Market Corporate Debt.

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The Fund is a best ideas approach investing primarily in Chinese equities listed onshore with offshore flexibility. It comprises a high conviction adaptable portfolio, both style and size agnostic. Managed by Greg Kuhnert and Wenchang Ma and an experienced Asia team, the Fund uses Ninety One’s 4Factor consistent and repeatable evidence-based investment process. Ninety One has a proven track record managing dedicated All-China and Asia strategies, with experience in Chinese equities since 1999.

As first in and out of the crisis, China is leading the rest of the world in recovery from COVID-19 on both an economic growth and earnings perspective. Consensus earnings revisions are trending downward, but China is expected to be more resilient than its global peers, particularly in the onshore A-share market. For the MSCI China A Onshore index, consensus is forecasting 10% EPS growth for the current year and 17% EPS growth for next year^[1].”

With their typically greater domestic focus, China A-shares have outperformed emerging market and offshore peers through the crisis and beyond, supported by abundant liquidity and sentiment. In recent months, market velocity, a measure of the frequency of trading, is rising, which is a sign of high retail investor participation in this market. This indicates the inherent behavioural biases that exist in retail-dominated equity markets, leaving scope for active investors to capture mispriced opportunities and generate alpha.

For international investors, access is becoming more possible. China’s capital markets are opening up to foreign capital and A-shares are gaining increasing representation in global indices. With the 20% inclusion of China A shares last year, China’s constituents’ total weight increased to 41% of the MSCI Emerging Market Index^[2]. In July 2020, MSCI announced plans to launch a series of thematic indices based on China’s A-share market, seeking to capture those companies that may be impacted by emerging macroeconomic, geopolitical or tech trends.

This growing interest in the A-share market is also reflected in the number of A-share IPOs almost doubling over the past year^[3]. Given China’s series of capital market reforms^[4] in an attempt to facilitate this, IPOs are expected to keep accelerating this year and beyond, offering a further opportunity to tap into this expanding universe.

Wenchang Ma, Portfolio Manager at Ninety One said: “We are seeing strong demand from investors to allocate to China as the country opens its capital markets and to access the breadth of the opportunities available in the A-share market. We are focused on selecting good quality companies that are showing favourable operating and share price momentum, trading at attractive valuations. We believe this is the best way to generate alpha over the long run.”

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[1] Source: FactSet, I/B/E/S, CSI, Goldman Sachs, 5 August 2020
[2] As at 30 June 2020.
[3] Source: Jefferies, 30 June 2020.
[4] Examples include such as the register system reform of the CHINEXT Board and the launch of the New Third Board.

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