China's Stock Market Rally: This Time is Different, Says Fidelity

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Fidelity on why this year's Chinese stock market might have some legs.

"China has been one of the best performing equity markets and the question in everyone’s mind is whether this time it’s different. I’m inclined to say yes," says George Efstathopoulos, Portfolio Manager for Multi Assets at Fidelity International.

He notes that the 'mini' fiscal stimulus of Q4 2024 has resulted in better economic data and this is benefiting equity valuations.

"While the improvement has been gradual and uneven, China’s monetary and fiscal policy stance has firmly shifted. It was encouraging to see consumption responding to the subsidies, which sent a signal to both policymakers and market participants that there is a strong link between fiscal stimulus and the Chinese consumer," he explains.

Chinese equities delivered strong returns in 2024 and outperformed most equity markets outside of the U.S.

However, this outperformance was clouded by volatility: 2024 started with a deep correction followed by a strong rally after policymakers stepped in, but that only lasted a few months and had fully reversed by mid-year.

Another very strong rally ensued in September, but that also faded.

Looking ahead, Fidelity thinks 2025 will be shaped by whether further stimulus will be made available by Chinese authorities.

Encouragingly, the worst of the property market slump, which is at the source of a massive setback in consumer sentiment and credit availability, could be past its worst.

Regarding threats posed by a tariff war with the U.S., Efstathopoulos is sanguine:

"While markets have been monitoring the potential of a trade war, any tariffs announced so far have not been alarmingly high nor particularly disruptive. If anything, it appears that tariffs outside of China is where more of the action will be in Trump 2.0."

Elsewhere, China’s January credit data points to a solid start to 2025, comfortably surpassing consensus expectations and firmly pointing to growing policy support, while the emergence of Chinese artificial intelligence (AI) and Deepseek challenges the view that China is vastly behind the US on the tech front.

"This has been a strong reminder to investors that China can and does innovate. It has certainly helped with market confidence and sentiment around China's investability is clearly shifting," says Efstathopoulos.

Fidelity's analysts believe that Chinese AI can help drive earnings, productivity, and even help on the employment front.

:The recent meeting between Chinese officials and private tech companies shows that the government is embracing of 'new productive forces', and many would consider this development a catalyst for a new China tech chapter," says Efstathopoulos.