①**** Wu, Head of Asia-Pacific Equity Strategy at Bank of America Global Research, pointed out that the rise in Chinese stocks this year has been primarily driven by investors accepting higher valuations, and the next wave of increases will need to come from corporate earnings growth; ②**** Wu believes that China has demonstrated its technological innovation capabilities, while geopolitical concerns have also significantly eased.
On Tuesday local time, **** Wu, Head of Asia-Pacific Equity Strategy at Bank of America Global Research and Co-Head of China Equity Strategy, stated that the rise in Chinese stocks this year has been largely driven by investors' willingness to accept higher valuations, and the next driver will come from corporate earnings growth.
The next wave of increases will need to come from improvements in corporate profitability.
She stated: "In 2025, we see a continued rise in global markets, with a significant portion driven by the expansion of price-to-earnings ratios, which means stock valuations are becoming more expensive rather than improving corporate profitability."
She added that thanks to ample liquidity and a noticeable improvement in people’s long-term outlook for China, Chinese stocks have already experienced a wave of rallies.
She believes: "The next rebound in Chinese stocks needs to be driven by corporate earnings rather than over-reliance on valuation increases at current levels." She added that investors will be more inclined to buy on dips but are reluctant to chase highs.
However, Wu stated that after an adjustment in November, the forward valuation of the MSCI China Index has dropped from nearly 14 times at the beginning of October to around 12.7 times.
China has demonstrated its technological innovation capabilities
**** Wu also mentioned that 18 months ago, some investors might have questioned whether China had any growth prospects in the artificial intelligence era, fearing that China might fall behind in advanced technology fields.
However, this year, "China has actually proven that there is still a lot of innovation and a great deal of productivity improvement," said **** Wu, citing advancements in humanoid robots, autonomous driving, and innovative drugs as evidence of the productivity gains brought about by technological innovation in China.
At the same time, she noted that concerns over geopolitical issues have eased somewhat, with China successfully demonstrating its significance within the global supply chain.
She stated that investors no longer view China merely as a market for 'quick in-and-out trading within two or four weeks'; instead, 'people are beginning to regard the (Chinese) market more ordinarily.'
**** Wu mentioned that recent volatility in the U.S. market has also prompted some investors to reassess risks and begin seeking diversification in their investment portfolios. Against this backdrop, China, with its relatively low correlation to the U.S. stock market and its vast domestic economy, has emerged as a potential destination for diversification within Asia.
Editor/Doris