The Chinese indices, which are a long way from their highs, could embark on a solid uptrend. DeepSeek has surprised and erased the impression that China is lagging behindsign, a solid argument for the optimists. What if the downturn triggered by the trade war offered an attractive entry point for long-term investors in an economy that is just emerging from a long hiatus?
Since its all-time high in 2021, the Chinese stock market has rebounded, but is still showing a loss of around 30%. The economic slowdown combined with a property crisis has dampened investor enthusiasm. To make matters worse, the financial woes of a number of developers underpinned the economic news by fuelling household gloom, against a backdrop of unfinished homes and falling prices per square metre.
On 7 April, Donald Trump’s tariffs caused the CSI 300, theShanghai and Shenzhen stock market index made up of 300 of the largest market capitalisations, to plummetby 10% in a single day, and even by 15% for the Hang Seng, the Hong Kong index, which focuses more on growth stocks. Since then, the American President seems to be looking for a favourable outcome to the confrontation with China, and has promised to be “very kind” to Beijing and is showing his desire for conciliation with the great geopolitical rival.
The International Monetary Fund, Goldman Sachs and UBS all recently downgraded their economic growth forecasts for China in 2025 and 2026, citing the impact of Trump’s tariffs – none of them expecting the economy to reach Beijing’s official growth target.
Has the Chinese market eaten its fill and reached a low point? Even if the trade war comes at a particularly difficult time for its economy, which is flirting with deflation due to slow income growth and a prolonged property crisis. Buy at the sound of the gun, as the saying goes….
And analysts expect Beijing to offer more monetary and fiscal stimulus over the coming months to support growth.
According to Lang Wan Simond, founder and manager of the Pictet TR – Mandarin strategy, the outlook could be brighter, despite the new tariffs. It’s important to set the scene.
Since the first wave of tariffs in 2018, China’s exports to the United States have not recovered their volume. China has reduced its exports to the United States and entrepreneurs have pursued the clever objective of circumventing the tariffs. Many Chinese companies have chosen Mexico, which has taken over some of their exports, or South-East Asia (Vietnam, Cambodia, Malaysia…) as the location for their production, mainly textiles. Apple has also redirected part of its IPhone production, reducing it from 100% to 80%, opting for India as its second base.
A redeployment of activities, a different economy
To sum up, the manager of the Pictet TR-Mandarin strategy explains that China has begun to redeploy its activities. And today, the Chinese President appears to be a more reliable partner in the Asian regions than Donald Trump.
Another important change is that power is once again reaching out to entrepreneurs. Last autumn, new measures to support the Chinese economy were announced, but Beijing recently sent out a strong signal: the announcement of a meeting between President Xi Jinping and several emblematic figures from the private sector, including Jack Ma, who had been sidelined after making comments that were not well received by the authorities, and the creator of DeepSeek. “According to Lang Wan Simond, “This is a major change of direction, and signifies a real commitment to strategic support.
China seems to be gradually redirecting the core of its economy towards technology. And, of course, AI is an open battlefield. Its growth has played a key role in the recent stock market revival. DeepSeek’s announcement surprised everyone and demonstrated the country’s ability to compete with the American giants, erasing the impression that China is lagging behind.
A bull market?
But beyond these announcements, the government is also trying to encourage the development of the private sector by creating a more competitive environment, particularly in a few key sectors: industry, cutting-edge technologies and the energy transition.
Against this backdrop, Lang Wan Simond goes further: “Valuation levels are currently attractive”. She believes that the Chinese stock market offers a tactical opportunity for investors. The icing on the cake is that institutional investors are still absent and underweight Chinese stocks. An important factor in a bull market..
And for the manager, customs tariffs are just an aside: “Before the tariff decision, we were already relatively constructive and we’re still there. The worst is behind us. The property sector has now been massively cleaned up and local government debts have been deflated. The economy is much healthier. The cycle may already be turning. Earnings revisions are looking better. The good stars are beginning to align and, as a reminder, investors are under-invested in Chinese stocks. With all the pessimism, all the boxes are ticked for a bull market to start
A final brick
There was perhaps one more brick missing from the wall: removing the deflation caused by overproduction, existing overcapacity and a lack of consumer demand. “A more generous stimulus offered by the Chinese government to its own population is necessary and was in the pipeline before this tariff crisis broke out. Unfortunately, the authorities have since had to adjust their priorities. But we remain convinced that they will end up delivering more stimulus to consumers rather than investing in infrastructure or production capacity,” says Lang Wan Simond.
China is becoming a leader in many sectors. DeepSeek is a surprising and concrete example of a result achieved without outside help. Private sector investment in AI has increased significantly. Electric cars and smart cars (cars that park automatically, manage motorway journeys, etc.) are booming and becoming the norm in China. “Biotech discoveries are multiplying. Sales of molecules and patents are soaring. With reduced costs, and following the same logic as DeepSeek, the biotech sector is booming.
TR-Mandarin, the absolute strategy managed by Lang Wan Simond, maintains a long bias to optimise returns. Against its best convictions and ideas, selected independently of the benchmark, the manager combines short (bearish) positions in stocks deemed to be overvalued or with deteriorating fundamentals. This balance, this tactic, makes it easier to cushion market reversals and limit the damage. For example, on 7 April, the day the tariffs were decided, the strategy lost just 4% compared with the 15% fall in the Hang Seng. In the face of uncertainty, the manager has reduced the size of her portfolio, trimming both long and short positions, which have performed well. Current bets are more focused on the domestic economy rather than exports,” explains the manager, whose strategy has fallen by just over 5% since the start of the year in euro terms. However, calculated in US dollars, the strategy’s base currency, it is up, which distinguishes management performance from the currency effect.
According to Quantalys data, Pictet TR-Mandarin Eur Acc has posted a positive return of 14.2% over the last three years (to 29 April), compared with 9.38% for its category. It has outperformed the benchmark since its inception, with volatility halved. Short positions had a hand in this.
