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Investing.com -- China’s stock market may still perform well despite escalating trade tensions, according to Capital Economics’ top strategist.
While the U.S. Court of International Trade’s recent decision and the temporary reinstatement of certain tariffs have added fresh uncertainty, the strategist believes there are reasons for cautious optimism.
“It’s not surprising that China’s equity markets have been among the most volatile globally over the past day or so,” said Thomas Matthews, Head of Markets, Asia Pacific at Capital Economics, referencing China’s particular vulnerability to U.S. tariffs.
He noted that Chinese equities have been among the worst performers since “Liberation Day.”
However, historical context offers a different view. Since the U.S. election, the MSCI China Index has outpaced the MSCI USA index and performed similarly to the MSCI World Ex USA.
"Wind it back further, for example to last August, and China’s performance looks stellar," Mathews added.
One key factor has been domestic policy. A major support package last September and renewed focus on private sector participation in artificial intelligence earlier this year gave the market a lift.
Mathews also pointed to investor sentiment and valuations, noting that Chinese equities are still trading at a discount relative to global peers. “Valuations, for example, remain low relative to those globally,” he said.
Although the overall economic outlook remains clouded by waning fiscal stimulus and limited room for monetary easing, Mathews is more bullish about China’s technology sector. Tech companies have delivered solid earnings growth and now benefit from a more constructive policy stance after a period of government crackdowns.
“We suspect that the authorities will therefore continue their recent support, which may help sentiment recover further,” he said. That could offer a further boost to Chinese tech stocks and, by extension, the broader market.