Chinese stocks face another volatile year as policy clouds gather at home, abroad

Chinese equities are in for another volatile year as markets weigh the impact of Beijing's seesawing stimulus against the potential threat posed by U.S. trade policy.

- Jiahui Huang

Unprecedented efforts by China to revive growth lit a fire under markets in late September, lifting depressed sentiment toward Chinese equities. In just six trading days in early October, the benchmark Shanghai Composite Index jumped to the highest level since February 2022.

That sparked hope of a Chinese equities comeback, but waves of subsequent stimulus have met with disappointment and selloffs.

Simmering U.S.-China tensions have added to the risk-off mood. Now that Donald Trump's re-election has crystallized the risk of another trade war, the potent mix of uncertainty is dimming the outlook for Chinese equities.

"Markets don't like uncertainty. This is a mountain of uncertainty that China faces," said Michael Kelly, global head of multiasset at PineBridge Investments.

Investment Nuveen had turned slightly more bullish on Chinese equities on the back of earlier stimulus, said Laura Cooper, head of macro credit.

"But when we overlay that with the tariff uncertainty now, we've tempered that perspective," the global investment strategist said.

Chinese officials, recent stimulus efforts have failed to impress, with the latest centering on local government debt and skirting other core issues. That could be in part because Beijing is saving its ammunition for another trade war.