The Investor's Guide to Asia: Where next for China's stock market

In the latest episode of The Investor’s Guide to Asia, portfolio managers Nick Price and Cynthia Chen discuss why Chinese stocks remain central to portfolios in an increasingly multipolar world.

 

Please note that this podcast was recorded on March 3.

 

Key takeaways

  • China looks relatively insulated from energy shocks thanks to world‑leading electric vehicle penetration, slower oil‑demand growth than five years ago, and an aggressive build‑up of strategic reserves, though higher oil is still a “tax” on growth. 
  • While US investors debate the sustainability of hyperscaler capex and monetisation timelines, local substitution dynamics provide a different underpinning for the AI sector in China. Nevertheless, the market is actively separating AI winners from potential losers, especially among internet and software firms whose models could be disrupted. Positioning wise, Nick Price, an equity portfolio manager covering emerging markets, has shunned potential Chinese AI “losers” such as traditional IT outsourcing, and concentrated his AI exposure in hardware - semis, memory, and ancillary services like datacentre cooling. 
  • Valuation discipline is front and centre after last year’s re‑rating. Cynthia Chen, an equity portfolio manager investing in China, notes the MSCI Golden Dragon Index is at a historical high, with valuations more than one standard deviation above long‑run averages. Within the Greater China markets, she finds Hong Kong/mainland China more attractive than Taiwan and points out last year’s A-share rally was narrow (commodities, select IT, parts of healthcare), leaving many segments still within reasonable historical ranges.
  • On earnings, Price is comfortable with a mid‑to‑high single‑digit growth outlook for China overall, though he remains cautious on banks. Some hyper‑competitive areas like solar may have troughed, even if visibility on improvement is limited. 
  • Consumption is the other battleground. Physical goods - dairy, sportswear, for example - are soft, international brands have struggled, and high savings, employment uncertainty, and sky‑high property price‑to‑income ratios weigh on confidence. Yet services are firmer: holiday retail trends were encouraging, and on‑the‑ground anecdotes from Chen who has recently returned from a trip to a fourth-tier city reveal bustling restaurants, ubiquitous self‑service gyms, and broadening audiences for live entertainment, hinting at evolving tastes and more demanding consumers.  
  • In emerging tech (such as eVTOLs (electric vertical take-off and landing), humanoid robotics), China has the ingredients to lead, but Price prefers earnings visibility and is wary of lofty IPO (Initial Public Offering) valuations. Chen instead favours established “traditional” companies with small but fast‑growing, higher‑margin exposure to datacentres, liquid cooling, or robotics - small revenue slices that can meaningfully re‑rate the whole business.