Opportunities ripe in China, EMs to outperform in 2025: PM analysis

Despite concerns over underlying economic weakness and the threat of near-record trade tariffs looming over Chinese exports to its biggest trading partner, the US, a leading Singapore-based asset manager believes China’s equities market still presents compelling growth opportunities for investors.

Following a market surge in late September – which saw the MSCI China index up more than 20% between September 24 and 30 – in response to a coordinated government stimulus program, Prudential-owned asset management firm Eastspring Investments argues that China offers investment opportunities ripe for future growth.

Eastspring portfolio manager Navin Hingorani notes, in particular, opportunities to be had from current market distress and relatively cheap stock valuations.

“China’s economic and financial market stability is supported by the potential for greater levels of government stimulus, cheap valuations, and low institutional ownership despite the economic challenges of recent times,” he said.

Despite concerns over underlying weaknesses in the China economy, Hingorani believes cashed-upped consumers will help to spur growth over the longer term.

“While the last 20 years have been investment-led, we think the next five to 10 years will be consumption-led and will offer investors many interesting investment ideas.

“The Chinese consumer has got the highest savings rate in the world, so they’ve got the ability to go out and consume.

He added: “While we are waiting for greater levels of consumer confidence, we certainly see very good opportunities in the Chinese consumption space for investors.”

More broadly, he notes, Chinese equities are cheap and rising allocations from institutions could support prices in 2025.

At a 12-month forward price-to-earnings ratio of 9.8x (end of November 2024), the MSCI China index is trading at a discount relative to its history.

Hingorani sees an upside despite China’s ongoing economic woes, including a weak property market and low consumer confidence.

However, he notes, more stimulus from the government could lift investor sentiment.

US investment firm GQG, at least in the immediate term, takes a less sanguine view of China’s growth prospects.

According to GQG’s global investment strategist Josh Snyder, the Chinese economy “is moving at a panda’s pace”, with the September stimulus measures “not doing enough to revive the economy”.

“Chinese consumer confidence is still low, property overhang is massive, and the sale of land and development is the key mechanism for local governments to raise capital (approximately 30% or more of revenue),” he said.

He said QGQ will continue its focus on Chinese state-owned enterprises within financials and the energy sector, with a preference “to own more of the ‘steady eddy’ names over those that might see cyclical upsides”.

Beyond China

Other emerging markets (EMs) may be able to capitalise on the potential trade war between the world’s biggest and second-biggest economies, Hingorani eyeing rising opportunities in India, Vietnam, Mexico and other countries set to benefit from global trade shifts.

He notes further that EMs are trading on much lower valuations compared to developed markets, which could draw investor attention.

“Allocations in global mutual funds to EMs have been declining in recent years, with many drawn to US markets.”

This, he said, “has pushed down their price relative to developed markets”.

“So, relative valuations are now very attractive to investors, and EMs now represent an important value and diversification opportunity for investors as EMs often behave differently to developed markets.”