China: Reawakening
The Hang Seng China Enterprises Index and the MSCI China Index have both surged at least 30% from mid-January lows, which BoA see being akin “to the pace of gains seen in 2015 before the market plummeted. There are quite some fundamental similarities between the current cycle and 10 years ago, with the economic rebalancing cycle and policy cycle. Nonetheless, a multiple-expansion-driven rally could be vulnerable.”
Bank of America’s caution stands out given several investment banks have pivoted and become more bullish on China. DeepSeek’s technological advancements and Beijing’s determination to achieve economic expansion have driven a revaluation of Chinese equities.
However, I would argue “no bull” this time and rally & cycle is different this time. China/Hong Kong stocks are in my view, within a new bull market (that many are still slow to recognise). The incumbent bull cycle could be similar to the 2000s and quite different to what occurred in 2015. Of course, bull markets are never linear and are often interrupted by corrections and short term drawdowns, and China/Hong Kong will likely prove no different, but the primary trend is higher.
The Hang Seng China Enterprises Index, which comprises 50 major Chinese companies listed on the Hong Kong Stock, has finally broken out of a multi-year bear market. The index remains well below the 2008 peak and has significant recovery potential over the coming years in my view.
I believe that the Bank of America view is wrong and whilst correction risks are high, key China/Hong Kong benchmarks will continue to climb a wall of worry this year as early-stage bull markets are prone to do.
Firstly, the AI advances made by China are very different and will be transformative for the economy – in a similar vein as it will be to the US. However, the China tech sector will roll this out across the economy at a much lower cost. AI is going to be transformational for both the US, China and the rest of the world. The pace of transformation will occur at a much faster pace than the internet.
It is not outlandish to expect China’s economy to have similar benefits from AI to the US.
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