Editor's note: Recently, Goldman Sachs, Deutsche Bank, and other foreign institutions have expressed optimism toward Chinese assets, and several well-known investors have made significant purchases, making them highly sought after. The sentiment of "bullish on China" has almost become the dominant narrative in the capital markets over the past period. Accordingly, both the Hong Kong and A-shares markets, as well as U.S.-listed Chinese stocks, have continued to rise. So, what are the driving forces behind this round of "bullish on China?" Will "bullish on China" become a theme in the capital markets in 2025?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Recently, Goldman Sachs, Deutsche Bank, and other foreign institutions have expressed optimism toward Chinese assets, and several well-known investors have made significant purchases, making them highly sought after. The sentiment of "bullish on China" has almost become the dominant narrative in the capital markets over the past period. Accordingly, both the Hong Kong and A-shares markets, as well as U.S.-listed Chinese stocks, have continued to rise. So, what are the driving forces behind this round of "bullish on China"? Will "bullish on China" become a theme in the capital markets in 2025? To discuss these topics, we invite renowned economist Song Qinghui and Liu Ying, researchers at Chongyang Institute for Financial Studies, Renmin University of China, to provide their insights. Hello everyone.
【Anchor】Recently, Goldman Sachs released a research report stating that the emergence of DeepSeek provides an opportunity for the medium- to long-term revaluation of Chinese tech stocks. The recent surge in Chinese assets can also be attributed to the rise of DeepSeek. However, the sectors where foreign capital has been increasing its positions are no longer limited to those related to DeepSeek. So, Mr. Song, besides DeepSeek, what do you think are the core driving factors behind this round of bullishness on China?
I believe there are three key factors: First, the Chinese economy has largely stabilized and is on an upward trajectory, especially against the backdrop of a series of measures and policies taken by the Chinese government to expand domestic demand, effectively promoting the recovery of the Chinese economy and continuously enhancing the momentum for stable growth. Second, some quality companies in the A-shares market are currently undervalued and highly attractive, making it a good time to invest in A-shares. Third, the Chinese government places great importance on the A-shares market and may introduce more measures in the future to help reduce volatility and attract more long-term capital into the market. In addition, there are other supporting factors, such as the current risks facing the U.S. stock market, which may prompt some capital to shift towards the A-shares market or other capital markets.
【Anchor】As Mr. Song mentioned, changes in the external environment are also an important factor in this round of "bullish on China." Ms. Liu, what are your observations on this?
I think the external environment may not be as unfavorable as we imagine. After Trump came to power, the so-called trade war has been somewhat restrained, especially with regard to small items priced below US$800, which are exempt from tariffs. On another front, the support from China's "deep state" as well as various aspects of our economic policies have also contributed to growth. In contrast, the layoffs in the U.S. federal workforce have led to significant domestic turbulence, capital is naturally flowing towards safety, liquidity, and yield. Therefore, global capital is undeniably flowing into the Chinese equities. Additionally, the trade war that everyone is worried about appears to be manageable, predictable, and negotiable. From this perspective, the external environment is also conducive to the rise of our A-shares.
【Anchor】We note that, in addition to the earliest batch of companies related to the DeepSeek concept, the current increase in foreign capital positions also covers various sectors such as energy, electricity, and banking. Mr. Song, what do you think this change reflects about foreign capital's expectations for Chinese assets and the outlook for the Chinese economy?
From the distribution of these sectors, it reflects that foreign capital has great expectations for Chinese assets. First, the increase in foreign capital in traditional cyclical industries such as banking, energy, electricity, and non-ferrous metals largely indicates that foreign capital is very optimistic about the recovery and growth prospects of the Chinese economy, as these industries are highly correlated with macroeconomic performance. As the Chinese economy warms up, it is expected to directly drive an increase in profitability. Second, the increase in foreign capital positions in the technology and internet sectors indicates that foreign capital highly anticipates long-term structural growth opportunities in China. Currently, technology and the internet have become key areas for China's economic transformation and upgrading.
The allocation of foreign capital in the dividend-paying and consumer sector reflects a focus on defensive and stable investments in a complex and volatile market environment, while also indicating optimism about China's vast potential for consumption upgrading and the domestic demand market. In fact, the allocation of foreign capital in the consumer sector is also indicative of a commitment to the long-term stable growth of the domestic demand market in China.
【Anchor】The last time foreign capital "bought everything in Chinese assets" was in September 2024, when China introduced a series of fiscal and monetary policies to stimulate the domestic economy. The current round of "bullish on China" coincides with the so-called "policy vacuum period" before the national two sessions. Therefore, some institutions believe that foreign capital is still underweight in Chinese assets overall, and attention should be paid to the policies and their implementation during the two sessions. What specific areas do you think we should focus on?
I think the specific focus may mainly be on the intensity of fiscal policies, the orientation of monetary policies, GDP growth targets, and the policy direction for key industries. Specifically, first, whether China will continue to ramp up fiscal policy in the future, such as increasing infrastructure investment, issuing more special bonds, and implementing larger-scale tax cuts, as these policies will directly impact the strength and sustainability of China's economic recovery, thus affecting foreign capital's investment returns. Second, the orientation of this year's monetary policies—whether it will remain moderately loose or tighten slightly—because a moderately tight stance compared to a loose monetary policy clearly benefits lowering financing costs for enterprises, thereby stimulating prosperous economic activity, and foreign capital will also reap the benefits. Third, foreign capital will also pay attention to China's GDP growth target for 2025, as compared to last year, whether this target is higher or lower will reflect China's confidence in economic progress and determination to stimulate the economy. Generally speaking, a relatively high growth target is usually regarded by the market as positive, which helps boost foreign capital's investment confidence. Fourth, regarding the policy direction for key industries, foreign capital is particularly concerned about the level of support for technological innovation in China, especially any new breakthrough policies in key core areas, as these will directly influence foreign capital's investment strategies in technology-related sectors.
【Anchor】Good. Regarding the investment strategies in the field of technological innovation, we see that the promotion of "AI + consumption" has become a new highlight at the first national executive meeting in 2025. Ms. Liu, what expectations do you think we can have in this area for 2025?
I believe that the support for policies in the technology sector will likely be further strengthened during the two sessions, especially under the leadership of DeepSeek. There will be greater emphasis on policy support for technological innovation, particularly in the AI field, and the development of technology in related industries, including our independent R&D efforts in core technologies. Our R&D intensity will also further increase, and these policies will support our technology industry chain, technology and innovation chain, and talent chain, including tech education and the virtuous cycle of talent. This will enhance the upgrading of our industrial structure. Furthermore, under the banner of artificial intelligence, we can expect rapid development in the digital economy, including trade-commerce and digital finance, with better prospects in related fields.
【Anchor】Besides the implementation strength of macro and sector-specific policies, what other aspects can release energy to promote economic and capital market development?
I believe there are also the reform dividends. The over 300 reform measures proposed at the 20th Central Committee's Third Plenary Session have now been allocated and implemented across various departments, with established timelines and roadmaps. The 2024 Central Economic Work Conference particularly emphasized leading economic system reforms, including the construction of a unified national market. We particularly look forward to the significant development space released by these reforms. These measures will exceed market expectations and will help boost China's economic growth and confidence, including the development of the capital market.
【Anchor】While foreign institutions are increasing their investment in Chinese assets, last year saw a decline in China's foreign direct investment (FDI) data. Consequently, the first State Council meeting of 2025 reviewed and approved the "2025 Action Plan to Stabilize Foreign Investment" to deploy measures to stabilize foreign investment. Ms. Liu, what do you think are the reasons for the decline in FDI data?
The decline in FDI data in 2024 is due to multiple factors. Firstly, global and external policies and environments have an impact. We know that 2024 is a global election year, with various uncertainties and intensified geopolitical conflicts. The global economic recovery process is also slowing down and uneven. This has led to a relatively sluggish state of global cross-border investment, and China cannot remain unaffected. Secondly, although the U.S. entered a rate-cutting cycle last September, the overall Federal Funds Rate remains above 4%. This interest rate differential can also affect foreign capital inflow. Additionally, there are adjustments in industrial structure and the adaptability of foreign investment. Whether it's supply-side structural reform or the acceleration of new productive forces, China is in a critical period of industrial restructuring and upgrading. The ability of some traditional manufacturing industries to attract foreign investment may decline, while emerging industries, especially in services, show great potential, including the consumption sector.
However, foreign companies and institutions also go through a process of adaptation and layout. Moreover, there are changes in the structure of foreign investment. In recent years, we have seen discrepancies in statistical data between the State Administration of Foreign Exchange and the Ministry of Commerce, with different scopes and metrics. The degree of openness of China's financial market is constantly improving. Foreign investment in China's market, whether in stocks or bonds, or through pipeline investments, is gradually increasing. The FDI data primarily reflects investments in the real economy. Changes in the structure of foreign investment could partly explain the relative decline in FDI data.
【Anchor】Now, with the backdrop of "buying Chinese assets," Mr. Song, how do you think the FDI data will improve in the new year?
Currently, the valuations of Chinese assets are generally low, and the long-term growth potential of the Chinese economy remains substantial. Therefore, a considerable amount of foreign capital is increasingly valuing Chinese assets. Especially against the background of buying Chinese assets, this year's FDI data is expected to show significant improvement. I have observed that the Chinese government has continuously introduced a series of policies to stabilize foreign investment, particularly emphasizing its commitment to expanding openness in various forums. Therefore, actively utilizing foreign capital also expresses optimism, which I believe will help stabilize foreign investment confidence and expectations.
【Anchor】In this context, the mainstream view in the market also regards A-shares and Hong Kong stocks as promising investment markets for 2025. Do you think there are still uncertain factors that could pose risks?
First, there are macroeconomic risks. If the pressures of a global economic downturn continue to increase, the strength of economic recovery may fall short of expectations, potentially hindering corporate profit growth, which would also drag down the stock market as it is a barometer of economics. Secondly, there are geopolitical risks. As we know, risks from technological competition and trade frictions still exist, which could affect foreign investment confidence and negatively impact market sentiment. Finally, there is market risk; if market sentiment suddenly reverses or there are significant changes in liquidity, the market could experience large fluctuations, making assets difficult to liquidate. Of course, there are other uncertainties, such as Black Swan events, public health crises, or other adverse events, which could unpredictably impact market sentiment.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Jerry Wang | Translate: Kato Ip | Proofread: Chris Liu
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