Analysts See Positive Near-Term Outlook for China’s Equities
Capital Economics says that despite current headwinds, the near-term outlook for Chinese equities could be positive. In a note released Wednesday, the firm highlighted a strong day for China’s stock market, with the Hang Seng Index rising over 2% and outperforming most global markets.
Analysts cautioned, however, that Chinese equities still lag behind other global stock indexes. While July showed signs of recovery, momentum faded in early August despite a string of positive developments.
Positive Developments for China’s Markets
Capital Economics pointed to two recent pieces of good news:
- The delay of higher U.S. tariffs, originally set to take effect this week, has been extended by 90 days.
- China received clarity on access to advanced chips from Nvidia and AMD, with both companies securing export licenses in exchange for sharing some revenue with the U.S. government.
Current Challenges Focused on Earnings Expectations
In assessing the challenges, the firm noted that the usual culprit in past downturns — sudden valuation drops — is not an issue now. Instead, earnings expectations have stagnated since “Liberation Day.” Tariffs have contributed to market uncertainty, but analysts believe earnings will not be a major drag on equity prices in the near term.
“While we are not hugely optimistic about China’s economy, our view is that earnings expectations are unlikely to weigh much further on stock prices in the short run,” the note said.
Forecasts May Be Too Conservative
Capital Economics acknowledged other potential headwinds but said its end-2025 equity forecasts — which markets have already surpassed — may now be too cautious. The firm suggested that further near-term gains could be likely.
