Chinese equities: The next era of growth

Throughout 2025, market behavior was defined by rapid sector rotations and a tightening focus on growth and technology names. Strategies tilted toward consumer staples or healthcare naturally lagged these narrow leadership patterns. Even so, the environment underscored the enduring importance of bottom‑up research, with stock selection continuing to add value.

The year demonstrated the speed at which market cycles now evolve. Innovation now scales faster, business models mature more rapidly and dispersion in returns has widened. These characteristics increasingly define China’s more dynamic equity landscape.

For more than 20 years, we have managed Chinese equity strategies and invested through a broad range of environments: the launch of Stock Connect¹, MSCI A‑share inclusion, regulatory cycles, shifting global trade relations and the COVID‑19 era. Throughout, China’s onshore market has often amplified global volatility – magnifying both pessimism and optimism.

During periods of speculative excess, such as the 2015 margin‑financing bubble, we deliberately avoided short‑lived narratives and instead backed high‑quality companies with durable earnings power. That same discipline continues to guide our approach, including during the recent retail‑driven surge into select technology and AI‑themed names following the “Deep Seek” catalyst.

We remain optimistic about China’s long‑term innovation potential, but deploy capital prudently – particularly when a narrow set of companies becomes crowded and valuations stretch beyond fundamentals. As the opportunity set broadens with more companies across the AI and technology value chain coming to market, we expect valuations to normalize and sector diversification to improve.

Against this backdrop, we have enhanced the agility of our investment process. Our long‑term philosophy remains unchanged, but we are refining how we execute it. We have broadened diversification, expanded thematic flexibility and strengthened team resources to better capture emerging opportunities.

Over the past quarter, we increased exposure to the information technology sector while reducing positions in consumer staples. These adjustments were driven by bottom‑up opportunities that align with long‑term structural themes and evolving near‑term market dynamics.

Within technology, we added to companies that play an important role in China’s innovation and technology value chain, including those involved in semiconductor equipment, consumer electronics components and diversified electronics solutions. These areas have benefited from resilient demand and China’s ongoing focus on strengthening domestic technological capabilities.

We trimmed exposure to consumers where fundamentals have weakened or where we see limited near‑term catalysts compared with more compelling opportunities in innovation‑related segments. We also increased exposure to select industrial names supported by improving construction activity, resilient export demand, multi‑year electrification and infrastructure‑upgrade trends across power networks, transportation, and manufacturing.

China’s equity market continues to be shaped by long‑term forces, with innovation playing an increasingly important role in driving new leaders and expanding the opportunity set.

As more companies across the technology value chain enter the market, we expect broader participation and less concentrated performance over time. We also see opportunities among companies that can be second-order beneficiaries of innovation and AI applications.

With structural growth themes becoming more diverse, we see the potential for a more balanced and resilient market environment. Our strategy is therefore focused on high-quality businesses and agile execution.