(News Bulletin 247) – If the Chinese markets regained momentum in 2024, the horizon appears uncertain in this year 2025, that of the snake in the Chinese horoscope. Particularly because of the customs duties that the Trump administration could impose. Once again, potential stimulus measures from the Chinese authorities will be crucial.

To say that the year 2024, that of the “dragon” in the Chinese horoscope, was good for the Chinese stock markets may seem paradoxical. The slowdown in Asia’s largest economy worried investors throughout the year and hit certain sectors hard, notably luxury and automobiles.

However, Chinese indices rose in 2024, ending four years of drought. The CSI 300, which brings together the large capitalizations of the Shenzhen and Shanghai stock exchanges, gained 14.6% while the Hang Seng of Hong Kong gained 17.7%.

“Chinese stock markets rebounded in 2024. They experienced a fast and furious rally in September-October 2024, driven by a reorientation of domestic policy,” underlines Bank of America.

The American establishment refers to decisions taken last fall by Chinese authorities. The latter then launched a series of targeted measures to support growth, such as rate cuts or the removal of restrictions on real estate.

“Nevertheless, the strength and scope of these policies remain to be determined, and the impact on GDP and business results will be expected for several quarters,” adds the American bank.

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

Trump, the great unknown

Will the year of the snake, which begins Wednesday January 29, allow the Chinese stock markets to transform the test? According to Deutsche Bank this sign is, in any case, often associated “with renewal and transformation”, in reference to the shedding of the snake.

However, several themes that have influenced Chinese markets will still be relevant this year. Firstly, the uncertainties over Donald Trump’s foreign and trade policy, an unknown factor that has weighed heavily since the end of last year.

The President of the United States, during his presidential campaign, declared on several occasions that he wanted to introduce massive customs duties on Chinese imports, citing a rate of 60%.

“Despite the many unknowns, it is certain that a trade war with the United States would have a considerable negative impact on the Chinese economy,” JP Morgan pointed out in November. The American bank estimates that China’s exports to the United States represent around 4% of the country’s GDP.

Donald Trump, however, surprised a little on Tuesday by mentioning customs surcharges which could apply from February 1 and would be limited, at least initially, to 10%.

“On China, Trump’s tone was a little more accommodating than expected, suggesting that he wishes to negotiate rather than sanction China in the short term,” judges Xavier Chapard of LBPAM. “He did not announce new customs duties on the first day, and spoke of increases in customs duties of 10% on Tuesday against the 60% indicated during the campaign. Furthermore, he recalled that he had already imposed significant customs duties during his first term and that he had constructive exchanges with President Xi,” he explains.

A softened tone

Donald Trump then declared, Thursday evening, that he “would prefer not to have to use” customs duties against China, thus seeming to soften the tone.

“Clearly these are sweeping remarks, but the market was left with the impression that there was a scenario in which China escaped the worst consequences of the tariff regime. I think it “There is still plenty of time for a more aggressive approach,” warns Deutsche Bank.

Nicholas Yeo, head of China equities at asset manager Abrdn, believes that the scenario of heavy tariffs against China by the United States could very well be avoided. Such a policy would have significant negative repercussions on the American economy, he argues.

Furthermore, the market expert recalls that, in the past, China had responded to trade risks on customs duties with more aggressive stimulus measures to accelerate growth. In other words, Donald Trump’s policy could also lead China to step up its efforts to revive domestic demand and therefore mitigate the impact on the economy. This is also a scenario that UBS foresees.

“Contrary to what some investors believe, history suggests that the ‘Trump is bad for China’ rhetoric is not necessarily enough to influence long-term stock performance. We view domestic issues as the driving force. most important Chinese stocks”, also underlines Nicholas Yeo of Abrdn.

What about stimulus measures?

This is the other big question mark: what will the Chinese authorities do to stimulate the economy this year? “Government stimulus measures are essential for the outlook. In 2024, the Chinese government has repeatedly over-promised and under-delivered on this point,” points out brokerage Charles Schwab.

In any case, strategists agree that more actions are required to support growth. “While recent government initiatives, such as reducing mortgage rates and down payment ratios, and improving access to financing for cash-strapped developers (real estate, editor’s note), have undoubtedly constituted a step in the right direction (…), other incentive measures will probably be necessary,” explains Allianz Global Investors, for example.

In 2024, China narrowly achieved its GDP growth target of 5%. The government has not yet announced its target for 2025. But Pictet AM expects a “robust” target of around 5% with a range of 4.5% to 5%.

Deutsche Bank expects Chinese growth of 4.8% in 2025 and expects stimulus measures representing 2.5 points of GDP. UBS uses a more restricted figure, of 2 points of GDP.

“We believe that China could do more to support youth employment, private entrepreneurs and new births, thanks to certain cost-effective measures,” said Bank of America.

The bank mentions, for example, allowances granted to newborns for the first six years, a measure which has been successfully tested in the “small” (1.1 million inhabitants) city of Tianmen. Or even subsidies that would be granted to companies to recruit young graduates.

In terms of stock market potential, in November UBS saw the MSCI China, an index which measures the performance of Chinese stocks in dollars, reaching 69 at the end of 2025 compared to 63 at present, an increase of 9.5%.

The Swiss bank emphasizes that Chinese stocks tend to be relatively resilient despite the complicated economic context. These shares show a discount of 40% compared to the shares of other emerging countries, compared to a premium of 13%, on average, over the last ten years, also observes the Swiss establishment.

Pictet AM, for its part, is counting on an MSCI China at 71 at the end of the year, in the event that American customs surcharges of 20% are put in place.