Should you invest in the Chinese stock market in 2025?

In China, the snake is known for its cunning and careful planning, and calculated decision making. For investors, the ‘Year of the Snake’ could signal a year of being thoughtful and measured, focusing on long-term gains over impulsive risks.

Investing is never certain. But it feels particularly prevalent for investors worldwide this year.

The key areas to look out for in China are the potential disruption to global trade, strained relations with the US, problems in the property sector, and weakening economic growth.

This article isn’t advice. All investments and any income from them can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future. If you’re not sure if an investment’s right for you, ask for financial advice.

US/China trade spat – what could it mean for investors?

There was no doubt that tariffs from the US, not only on Chinese goods, would disrupt global trade and lead to rifts and retaliations.

At the start of February, US President Donald Trump hit imports from China with a 10% tariff above existing US tariffs.

China quickly retaliated and imposed tariffs on a range of US imports, including natural gas, coal, rare metals and some cars.

Its antitrust regulator also announced an investigation into Google for suspected violations of anti-monopoly laws.

The problem with trade wars is they can escalate quickly, and could lead to issues like inflation, job losses and even recession. So, the full and final detail of these new tariffs is critical, to evaluate the impact on company earnings and whether companies can absorb some of the costs.

On the domestic front, there are signs that issues in China’s property sector are bottoming, and even a revival in consumer demand following some government-led policies.

In recent years, consumer confidence has been low, partly due to the weak property market (a lot of Chinese wealth is tied up in property). This has contributed to slowing economic growth, falling inflation (to 0.1% at the end of 2024) and some weakness in company earnings.

Many of these issues look set to persist. However, there’s some hope the government’s announcement of monetary and fiscal stimulus in September 2024 could lead to improved growth and confidence this year.

China stimulus boosts markets – what’s next in 2025?

China implemented a range of stimulus measures last September. It cut interest rates and the reserve requirement ratio (the amount of reserves lenders must hold), as well as providing government funding and support to the property market.

Later in November it announced a further package to support debt-burdened local governments.

These announcements provided an immediate boost to Chinese company share prices.

In fact, China’s stock market turned out to be one of the world’s best-performing markets over the course of 2024. This demonstrates that the strength of an economy doesn’t necessarily translate into good (or bad) stock market returns.

The MSCI China Index grew 21.82%* in sterling terms over the year, compared with 27.32% for the US, 20.13% for the broader global market, and 14.42% for India (which had previously been in the spotlight on account of its growth prospects).

The scale of last year’s stimulus package suggests renewed determination from the government to support China’s economy and stabilise the market.

Further stimulus measures are expected this year, but the authorities are likely to tread carefully, being wary of encouraging speculation or unnecessary financial risks.

Despite the strong performance last year, the Chinese stock market trades on a lower valuation than many other markets. This implies its shares are ‘cheap’ and could perform more strongly off the back of any good news.

There are no guarantees of this though, and a market can remain cheap if prospects don’t improve, or companies struggle to grow earnings.

Looking to invest in China in 2025? – 2 investment ideas

Investing in funds and investment trusts isn’t right for everyone. Investors should only invest if the investment’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of an investment before they invest, and make sure any new investment forms part of a diversified portfolio.

For more information on these investments and their risks, including charges and the key investor information, visit the funds and investment trusts section of our website.

Remember, as an emerging market, China is a higher-risk place to invest. That means it should form a part of a broader investment portfolio with a long-term outlook that can accept periods of volatility.