Despite renewed U.S.-China trade tensions under President Donald Trump’s administration, Chinese equity markets remain optimistic, with Goldman Sachs forecasting a 20% growth in Chinese stocks over the next 12 months. Here’s a breakdown of the outlook and key factors driving this sentiment.
U.S.-China Trade Tariff Concerns
Trump’s Tariff Proposal: On his first day in office, President Trump hinted at the possibility of additional tariffs on Chinese goods, potentially reaching 25%.
Goldman Sachs’ Forecast:
A 20-percentage-point increase in U.S. tariffs on Chinese goods is seen as a base case scenario for 2025.
While timing remains uncertain, China’s robust economic structure is expected to weather the tariff impact effectively.
Market Resilience and Drivers of Growth
Economic Rebalancing:
Shift to Domestic Demand: China is transitioning from reliance on external demand to a more domestic consumption-driven economy, which can mitigate the effects of external shocks.
Policy Support: Anticipated government measures, such as stimulus and structural reforms, could help offset trade pressures.
Projected Equity Growth:
20% Market Growth: Goldman Sachs predicts a 20% rise in Chinese equities, attributed equally to earnings growth and valuation expansion:
Earnings Growth: Expected at 7%, accounting for potential tariff impacts.
Multiple Expansion: Contributing the other 10% through recovery in market valuations.
Sectoral Strength:
Technology, consumer discretionary, and industrials sectors are likely to drive much of this growth, reflecting China’s push for high-tech innovation and infrastructure development.
Earnings Outlook
Low-Teens Growth (Excluding Tariffs): Without the impact of tariffs, Chinese corporates are expected to achieve double-digit earnings growth in 2025.
7% Growth (Including Tariffs): Factoring in a 20% tariff increase, earnings growth would still remain positive, albeit lower than consensus estimates.
Investment Implications
Key Takeaways for Investors:
Long-Term Opportunities: The forecasted market expansion highlights opportunities for global investors seeking exposure to China’s growth story.
Sector Focus: Emphasizing domestic-demand-driven industries like technology, consumer goods, and renewable energy could yield higher returns.
Tariff Mitigation: China’s fiscal and monetary policies are expected to provide a buffer against trade-related headwinds, enhancing market resilience.
For a detailed view of sectoral earnings trends and valuation metrics in China, consider leveraging FMP’s Sector P/E Ratio API and Sector Historical Overview API for actionable insights.