A renewed appetite for Chinese equities is taking shape against the backdrop of President Trump’s ‘America First Investment Policy’ which aims to restrict foreign capital flows from perceived adversaries. On the surface, these measures might have been expected to send investors fleeing Chinese markets, yet in recent months the opposite trend has emerged. Turnover on the Shanghai and Shenzhen stock exchanges has exceeded two trillion yuan for the first time in two months, signalling a return of global liquidity that contrasts starkly with last year’s anxieties over the so-called uninvestable conditions. Proponents of this return to Chinese equities have pointed to the cheaper price-to-earnings ratios, AI-driven innovations, and a renewed push for domestic consumption as key reasons why institutions are once again embracing the region.

Tariffs and Policy Tug-of-War

Despite new tariffs imposed under Trump’s administration, China’s economy appears less reliant on US-bound exports than it once was. The State Council’s plan to stabilise foreign investment and broaden access in technology, manufacturing, and healthcare is designed to sustain growth even if the external environment tightens. Meanwhile, Japan, the EU, and a range of emerging markets have watched this resurgence in Chinese equities with cautious interest, and widespread acknowledgement that China’s pivot to domestic demand can buffer it from certain geopolitical headwinds. While the White House has been vocal about restricting the flow of capital into Chinese tech, the actual effect on the onshore market has been muted, with each new constraint coming out of Washington, Beijing has responded by expanding pilot programmes for foreign investors, in stark contrast to the protectionist rhetoric in the US.

Valuation Appeal and AI-led Growth

With valuations remaining relatively low compared to other major markets, institutional investors are increasingly referring to a portfolio reallocation strategy of  ‘Sell India, Buy China’. The perception that Chinese shares now offer a compelling bargain has been confirmed by a number of domestic giants signalling their optimism through record levels of share buybacks. Another critical factor driving renewed interest in China has been the dramatic advances in artificial intelligence, with DeepSeek, a pioneering AI firm, unlocking cheaper and more powerful computing capabilities. This has fuelled speculation that Chinese platforms such as Alibaba, Tencent, and Baidu could sustain multi-year re-ratings, as evidenced by Alibaba’s latest quarterly performance showing earnings exceeding expectations and the stock surging around 15% in the week. This was also seen with Baidu whose revenue growth, although healthy, garnered a more subdued reaction, yet its push into generative AI keeps it firmly on the radar of international investors searching for technology exposure in Asia.

Domestic Consumption Focus

Chinese authorities have stepped up measures to promote internal growth engines with considerable fiscal spending on infrastructure, targeted consumer vouchers, and property easing policies. This underscores Beijing’s desire to shift from export-led expansion to a balanced model anchored by household consumption, and has contributed to the rebound of companies focusing on domestic retail, e-commerce, and leisure services. This has begun to filter through to company performance, with reports of monthly electric vehicle sales climbing 25% at BYD, further illustrating the depth of local demand waiting to be tapped. Optimism about China’s consumer market is also underpinned by more robust lending conditions, with the People’s Bank of China taking initial steps to ease monetary policy. The government has also shown a willingness to address local government debt, which signals that policymakers intend to preserve stable credit channels rather than curb expansion.

Risks for Global Investors

Rising inflows to Chinese securities are evident in both private investor portfolios and institutional allocations to exchange-traded funds. Furthermore, the Hang Seng Index in Hong Kong, which houses many Chinese tech listings, has also climbed, mirroring renewed faith in the region’s future. However, this investor optimism has not been totally universal, with a number of global equity funds avoiding participating in the asset rotation, due to fears of a potential regulatory surprise. If tensions over tariffs or technology transfers intensify, certain export-heavy sectors could find themselves under renewed pressure, with US restrictions on capital flows also complicating the ability of China-facing institutional products to secure new funding. Although at present, many institutional investors sense enough upside to overcome these risks, with low valuations, strong policy support for AI, and the promise of deepening domestic consumption, reinforcing the investment case for China.

Key Takeaways

The past year has seen Chinese equities shifting from being labelled uninvestable by sceptics to recapturing the attention of fund managers worldwide. Despite President Trump’s efforts to isolate Chinese tech through tariffs and the ‘America First Investment Policy’, this has accelerated China’s efforts to pivot inward and strengthen its domestic market. The rise in turnover on mainland exchanges points to renewed confidence in the ability of Chinese policies to support growth, even amid ongoing trade frictions. Global investors who exited en masse in 2024 appear ready to re-engage, underlining a sense that the gap between headline risk and fundamental opportunity may have grown too wide. Therefore, despite the backdrop of geopolitical uncertainty, the fundamentals of China’s equity markets have shown considerable resilience, with the return of foreign capital indicating that professional investors see plenty of reasons to look past the latest tariff announcements. While the interplay of trade tensions and domestic consumption-driven expansion will likely remain complex, the momentum gained in early 2025 underscores China’s enduring capacity to attract foreign investment if the macro and regulatory conditions align.