China's recent policy measures aimed at stabilizing the economy have had a limited impact due to various factors. While the government is prioritizing stability, deep structural challenges remain, requiring long-term reforms. Investors are advised to adopt a barbell strategy, focusing on both defensive and growth sectors.
China announced a series of policy measures to stabilize the economy, but their impact has been limited. The shift to a “moderately loose” monetary policy and plans for yuan depreciation aim to support growth, but weak consumer and business confidence, low credit demand, and global tariff risks have muted their effectiveness. Despite the lack of concrete actions, the government is prioritizing stability.
The raised fiscal deficit to 4% of GDP signals a more aggressive stance, but the modest expansion may not be enough to address persistent domestic demand issues and deflation risks. China faces deep structural challenges, including an aging population, high property inventory, and weak consumer sentiment. Restoring market confidence will require long-term reforms, particularly in healthcare, welfare, and the property market. Given the current environment, investors should focus on defensive sectors like consumer goods, healthcare, and utilities, while also exploring opportunities in autos, internet and green transformation for potential long-term gains. In 2024, Chinese equities failed to stage a real rebound. Despite a brief rally in Chinese equities following the stimulus announced in September, two-thirds of the gains were erased by the end of November. This reflects the deep structural issues facing the economy. Recent weeks have seen a flurry of policy announcements, signaling intent to support the economy. However, the lack of clarity and concrete measures has muted their impact.
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