In an analytical note published by Bank of America, the bank's analysts mentioned that they expect a significant rise in Chinese stock markets in the second half of 2025, provided there is a acceleration in credit growth.
Bank of America clarified that while markets rebounded in 2024 due to changes in local policies, uncertainty surrounding global trade conditions, supply chain disruptions, and geopolitical tensions could weaken investor confidence in 2025.
Bank of America emphasizes that strong stimulus will be needed to support broader economic recovery in China in 2026, noting that such measures, which could include cutting the benchmark lending rate by 40-60 basis points, increasing the budget deficit, or a moderate depreciation of the yuan, are all factors that could spur credit growth from below 8% to nearly 9% year-on-year.
Bank of America suggests starting investments in Chinese stocks in 2025 defensively by focusing on high-yield and value stocks. As the year progresses, more high-quality stocks can be added during market corrections or in response to monetary or fiscal policy stimulus.
Bank of America also added that preferred stocks for investment in the upcoming new year are from the internet sectors, non-bank financial institutions, information technology, semiconductors, shipping, and logistics, while warning against the healthcare, heavy machinery, and alcoholic beverages sectors, indicating they may face declines due to negative business results.
This comes after the MSCI China index rose by 16% throughout 2024, recovering from a loss of about 50% over the previous three years. Technology (up 40%), financial services (up 38%), and communications (up 26%) sectors led the gains, while the healthcare sector fell by 20% and real estate declined by 11%.
However, analysts at Bank of America pointed out that the price-to-earnings ratios for Chinese stocks remain below the historical averages they previously achieved, with negative risks to earnings growth forecasts of 18% for 2024 and 9% for 2025.
.png)