Despite economic headwinds, China’s stock market is outpacing the S&P 500. Is the Hang Seng undervalued, or is Wall Street overhyped?
In recent years, the debate over China’s economy has intensified. Analysts and investors have repeatedly questioned the sustainability of the country’s growth, pointing to signs of a slowdown.
However, while China’s macroeconomic outlook appears less promising than during its golden years, the Chinese stock market is surprising investors by outperforming the S&P 500.
The Hang Seng Index, the benchmark for Chinese stocks listed in Hong Kong, has recorded impressive growth, even surpassing the main U.S. stock index.
This stands out as one of the biggest market contradictions of 2025. Is China a Hidden Opportunity?
A Challenging Macroeconomic Scenario
The year 2024 confirmed a contraction in China’s economic growth rate.
According to the National Bureau of Statistics of China, retail sales—a key indicator of domestic demand—fell from a 10-year average of over 10% to around 5% between 2020 and 2024. This slowdown is dragging down GDP growth expectations, with forecasts for 2024 hovering around 5%, and an outlook of 4% to 4.5% for 2025.
Several factors are negatively impacting growth: tariffs imposed by the United States—continuing the protectionist policies of former President Donald Trump—remain a significant burden.
The European Union is implementing a de-risking strategy to reduce economic dependence on China, affecting exports.
Meanwhile, weakening domestic demand has led to a drop in consumer spending, reducing the contribution of consumption to economic growth.
However, while these challenges dominate media and economic discussions, there are key elements that are often overlooked.
Still Solid Growth Compared to the United States
Despite the slowdown, China aims to maintain economic growth of around 5% between 2024 and 2025.
Although lower than the average of the past decade, this remains double the expected growth rate of the United States—an impressive achievement considering China is the world’s second-largest economy.
The projected fiscal deficit for 2025 stands at 4% of GDP, a manageable figure given the Chinese government’s strong intervention capacity.
Moreover, authorities have introduced a series of stimulus measures to support growth, underscoring their commitment to economic stability.
Notable interventions include a 50-basis-point cut in banks’ reserve requirement ratios in September 2024, followed by a 25-basis-point interest rate reduction in October to spur investment and consumption.
In November, tax incentives were introduced for the real estate sector, offering relief on property and land transactions.
In December, the government announced a 10 trillion yuan ($1.36 trillion) debt package to ease local debt and support growth.
January 2025 saw a record issuance of 3 trillion yuan ($409 billion) in special bonds, while February 2025 brought salary increases for millions of public employees, injecting $12–20 billion into the economy.
These measures are far from insignificant, especially considering that in the U.S., inflation remains persistent, and in Europe, concerns over a potential recession are growing.
China’s Stock Market Surprises Everyone
While analysts have focused on structural issues in China’s economy, investors have embraced a different narrative.
The financial market has not overlooked potential opportunities, and despite widespread pessimism, the Hang Seng Index has staged an extraordinary rally.
Since 2024, the index has surged 54%, outpacing the S&P 500’s 30% gain over the same period.
Several factors have fueled this rise.
Renewed confidence in the technology sector has revitalized Chinese companies, which, after a period of regulatory crackdowns, are now receiving stronger government support.
Expansionary monetary policies—including interest rate cuts and increased liquidity—have enhanced the appeal of Chinese assets.
A post-Covid export recovery has reinforced the country’s manufacturing strength, driving foreign sales.
Additionally, after years of underperformance, many Chinese stocks were undervalued relative to their fundamentals, attracting international capital.
An Opportunity Not to Be Underestimated
The argument that China is a poor investment often centers on structural and geopolitical risks.
However, the markets are telling a different story. While economic and political challenges are real, the combination of fiscal and monetary stimulus, private sector support, and a strong stock market recovery suggests that opportunities in China should not be dismissed.
As the world questions whether China can truly rebound, it may be worth remembering that its growth rate still surpasses that of the United States.
From a stock market perspective, if the Hang Seng continues to outperform the S&P 500, 2025 could be the year global investors are forced to rethink their stance on China.
Original article published on Money.it Italy 2025-02-23 13:10:00. Original title: La Cina è un pessimo investimento? Eppure guadagna più dell’S&P 500
