By Ankur Banerjee, Summer Zhen
SINGAPORE/HONG KONG (Reuters) -As U.S. President Donald Trump’s wide-ranging trade war rouses fears of recession, global investors have found an unlikely new sanctuary: Chinese equities.
Hong Kong’s benchmark Hang Seng Index – where many major Chinese companies are listed – is up 17% since Trump entered the White House in January.
That compares to an about 9% drop in the S&P 500, which has also shed $4 trillion in market value from record highs last month.
Trump’s erratic pronouncement on tariffs and moves to slash federal government spending have challenged assumptions about the appeal of U.S. stocks, which have vastly outperformed most of their global counterparts since 2021.
Investors have moved from believing in “TINA” – There is No Alternative to U.S. assets – to “TIARA” – There Is A Real Alternative – said Andy Wong, a senior Hong Kong-based executive at Pictet Asset Management.
Much of the Chinese rally has been led by technology shares that have risen 29% so far in 2025, hitting their highest level in more than three years last week. Like many of the new China equities bulls, Wong said he sees opportunities in tech, defense and consumer-facing plays.
A key reason for the optimism: Chinese stocks are cheap, trading 30% under their 2021 highs. The Hang Seng Index is priced at 7 times its projected 12-month earnings – a commonly used metric to value stocks – compared to 20 times for the S&P 500, according to LSEG data.
To be sure, Chinese equities traded cheaply for a reason. Many investors were burned after a pandemic-era government crackdown on tech stocks and questions remain over the property market and the economy. Concerns about the concentration of power in the White House are magnified in Beijing, where President Xi Jinping has no serious political opposition.
But investors see plenty of upside after a major rally in tech shares following AI startup DeepSeek’s splashy debut of its R1 reasoning model. The prospect of fiscal stimulus that could lift consumption – long a drag for the Chinese economy – is another tailwind.
While some of the renewed global interest in Chinese equities has come at the expense of U.S. stocks, investors are also moving out of South Korea and India’s struggling markets, according to Reuters’ interviews with more than a dozen fund managers and strategists.
J.P. Morgan has seen a record amount of U.S. dollars and Chinese yuan being converted into Hong Kong dollars over the past few weeks, pointing to the force of money flowing into Hong Kong stocks, said Serene Chen, the firm’s head of credit, currency & emerging market sales. She did not specify the amount or the time period.
Leo Gao at Greenwoods Asset Management said that he sold all the U.S. companies in his portfolio in early February, shortly after the emergence of DeepSeek.
The senior portfolio manager at one of Asia’s largest hedge funds told investors in March that he was now especially bullish on China tech firms and other companies that cater to changing consumer habits.
GOING TO CHINA
Trump declined over the weekend to rule out the prospect of a recession for the world’s largest economy, exacerbating market fears. Investors have also reacted negatively to the volatility of decision-making in the White House, which had issued last-minute delays on tariffs on Canada and Mexico.
Slowing economic data is additionally raising doubts over whether U.S. growth can outpace the rest of the rich world for much longer. U.S. equities valuations are sky-high and susceptible to any hint of trouble.
Trump has so far downplayed market turbulence and repeatedly said that “tariffs are going to make our country rich.”
China, meanwhile, has been rolling out stimulus and support measures for its economy and markets. In February, Beijing held a meeting between Xi and business leaders that investors widely took as a positive signal.
“China is now the adult in the room,” said Dong Chen, chief Asia strategist at Pictet Wealth Management.
Foreign-based funds invested $3.8 billion in Chinese equities in February, after three straight months of withdrawals, data from Morgan Stanley showed.
Kamal Bhatia, the New York-based chief executive of Principal Asset Management, said long-term investors like predictability.
“Even very large sophisticated investors don’t want to have their investment thesis change over three years,” he said.
Some investors noted the irony of a rally in the equities markets of Europe and China, which Trump has singled out as geopolitical rivals.
“The pressure that the Trump administration is putting on foreign governments… has actually, in a lot of cases, resulted in outperformance from those countries,” said Ross Mayfield, a U.S.-based investment strategist at Baird.
A prospective fiscal bazooka in Europe after Trump cast doubt on his willingness to defend NATO allies has also fuelled share prices of defense companies in the region. European equities have long faced headwinds that include higher corporate tax rates, slow economic growth and a dearth of major tech firms.
“As investors adjust to the narrative change, capital will flow away from the previously crowded winners,” Pictet’s Wong said.
STRUCTURAL OR SHORT-TERM?
Alongside concerns around China’s corporate reporting standards, the deflationary pressures and a renewed trade war with U.S. weigh on sentiment.
Stocks surged in September after Beijing unveiled stimulus measures but the rally quickly fizzled.
“Still, people have traumatic experience with Chinese equities,” said Pictet’s Chen. “China used to be called uninvestible and so this deflationary kind of narrative still hasn’t been completely dissipated.”
Bhatia said his clients are asking more about tactical allocations, an investment strategy that aims to take advantage of trends and economic changes with short-term bets.
“The past ten days have made it very clear that it pays off to have a regionally diversified allocation strategy,” said Lilian Haag, a senior portfolio manager at DWS.
(Reporting by Ankur Banerjee and Tom Westbrook in Singapore, Summer Zhen and Jiaxing Li in Hong Kong; additional reporting by Kevin Buckland in Tokyo and Lisa Pauline Mattackal in Bengaluru; Editing by Vidya Ranganathan and Katerina Ang)
