Written by Ankur Banerjee and Summer Zhen
SINGAPORE/HONG KONG (Reuters) – Amid growing concerns of a recession fueled by U.S. President Donald Trump’s escalating trade war, global investors have turned to an unexpected safe haven: Chinese equities. The Hang Seng Index in Hong Kong, home to many major Chinese companies, has surged by 17% since Trump took office in January. In contrast, the S&P 500 has experienced a 9% decline, shedding $4 trillion in market value from its recent record highs.
Trump’s unpredictable tariff announcements and efforts to reduce federal spending have challenged the long-held belief in the appeal of U.S. stocks, which had been outperforming most global counterparts since 2021. Investors have shifted from the belief in “TINA” – There is No Alternative to U.S. assets – to “TIARA” – There Is A Real Alternative, as highlighted by Andy Wong, a senior executive at Pictet Asset Management in Hong Kong.
The recent surge in Chinese equities has been largely driven by the technology sector, which has seen a 29% increase in 2025, reaching its highest level in over three years. Wong and other bullish investors see opportunities in technology, defense, and consumer-facing sectors. One of the key factors driving this optimism is the relatively low valuation of Chinese stocks, trading at a 30% discount from their 2021 highs. The Hang Seng Index is priced at 7 times its projected 12-month earnings, compared to 20 times for the S&P 500, according to LSEG data.
While Chinese equities may have been undervalued for valid reasons, such as the government crackdown on tech stocks during the pandemic, concerns about the property market and the overall economy persist. Despite these challenges, investors remain optimistic about the potential for growth, particularly in the technology sector following successful IPOs like DeepSeek’s R1 reasoning model.
The renewed interest in Chinese equities has not only impacted U.S. stocks but has also led investors to move away from markets in South Korea and India. J.P. Morgan has reported a significant influx of U.S. dollars and Chinese yuan being converted into Hong Kong dollars in recent weeks, signaling a strong flow of capital into Hong Kong stocks. Leo Gao at Greenwoods Asset Management made the decision to sell all U.S. companies in his portfolio in February, expressing bullish sentiments towards Chinese tech firms and companies catering to evolving consumer trends.
Amid concerns about a potential recession in the U.S. and uncertainty surrounding White House decision-making, investors are increasingly turning towards Chinese equities as a promising investment opportunity.
Valuations are currently at peak levels and are vulnerable to any signs of trouble. President Trump has downplayed market volatility, emphasizing that tariffs will benefit the country economically. China, on the other hand, has implemented stimulus measures to support its economy and markets. A meeting between President Xi and business leaders in Beijing was seen positively by investors.
Dong Chen, the chief Asia strategist at Pictet Wealth Management, remarked that “China is now seen as the voice of reason.” Foreign-based funds injected $3.8 billion into Chinese equities in February, reversing the trend of three consecutive months of withdrawals, according to data from Morgan Stanley.
Kamal Bhatia, CEO of Principal Asset Management in New York, highlighted the importance of predictability for long-term investors. He stated, “Even sophisticated investors prefer a stable investment thesis over time.”
Some investors found it ironic that both European and Chinese equity markets were rallying despite being identified as geopolitical adversaries by President Trump. Ross Mayfield, an investment strategist at Baird, pointed out that the pressure from the Trump administration on foreign governments has often led to better market performance in those countries.
The uncertainty surrounding Europe’s fiscal stance, exacerbated by doubts over NATO defense commitments by the US, boosted share prices of defense companies in the region. European equities have historically faced challenges such as high corporate taxes, sluggish economic growth, and a lack of major tech companies.
As investors adapt to changing narratives, Pictet’s Wong predicts a shift in capital away from previously popular assets. The debate continues on whether these challenges are structural or short-term in nature.
Amid concerns about China’s corporate transparency and deflationary risks, along with the ongoing trade tensions with the US, investor sentiment remains cautious. While China’s stimulus efforts initially boosted stocks, the momentum was short-lived.
Chen of Pictet noted that lingering doubts from past experiences with Chinese equities have made some investors hesitant. According to Bhatia, clients are increasingly interested in tactical allocation strategies to capitalize on short-term opportunities and market trends.
Recent market dynamics have underscored the importance of diversified regional investment approaches, as highlighted by Lilian Haag, a senior portfolio manager at DWS.
